Diamond Trust Bank (DTB) is set to acquire Habib Bank Limited for Sh1.8 billion, using its own shares to compensate owners of the small lender.
Habib investors, who already own 11.97 per cent of DTB, have been offered a 4.75 per cent stake in the Nairobi Securities Exchange-listed firm.
They will be allotted 13.2 million shares in DTB at a price of Sh137.39, representing a 33.3 per cent premium on the stock’s closing price of Sh103 on Tuesday.
Acquisition of Habib, expected to be completed in July, marks the latest buyout of a small bank coming after the sale of Giro Commercial Bank to I&M Holdings and Fidelity Bank to Mauritius’ SBM Holdings.
The deal came as DTB announced that it had shrugged off effects of legal caps on lending rates to post a 17 per cent rise in net profit to Sh7.7 billion last year — making it the biggest profit jump among listed lenders so far.
Small lenders have been the hardest hit by the capping of interest rates, which has thinned their lending margins while they continue to incur relatively higher cost of funds.
“As a consequence, upon completion of the transaction, all the existing shareholders of DTB will be diluted by 4.75 per cent,” the NSE-listed firm said in a statement.
DTB said the acquisition would boost its market operations.
“The transaction will, among others, increase DTB’s market share, enhance its operational leverage and diversify its presence through correspondent relationships in additional geographical areas that include some of the most promising growth frontier markets in Asia within the markets where HBL has operations,” said DTB.
The parent company of Habib is listed on the Pakistan Stock Exchange and has 1, 673 branches spread across 22 countries.
In Kenya, Habib’s market share stood at 0.34 per cent last year from 11 branches compared to DTB’s 6.1 per cent from 61 units, according to the central bank.
Habib is ranked 33 of Kenya’s 41 banks while DTB is sixth largest.
Increased lending to government helped boost DTB profits as earning from treasury bills and bonds increased to Sh7.2 billion from Sh2.5 billion.