Companies

Co-op to pump more capital into Jamii Bora after buyout

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A Jamii Bora Bank branch. FILE PHOTO | NMG

Summary

  • Jamii Bora’s chief executive Timothy Kabiru disclosed the plans in response to queries raised by the bank’s significant shareholders Shorecap II, private equity firm Catalyst, Cornerstone Enterprises and Nordic Microcap Investment that have a combined stake of 45 percent in the company.
  • The institutional investors wrote to Mr Kabiru on June 24, 2020 asking him to confirm that Jamii Bora will be sufficiently capitalised for the next three to five years after its buyout by Co-op Bank.
  • Their concerns follow Jamii Bora’s multi-year losses that have eroded its capital base, prompting it to search for a rescue buyer.

Co-op Bank #ticker:COOP intends to make additional capital investment in Jamii Bora Bank once it completes purchasing a controlling 90 percent stake in the small lender at a cost of Sh1 billion.

Jamii Bora’s chief executive Timothy Kabiru disclosed the plans in response to queries raised by the bank’s significant shareholders Shorecap II, private equity firm Catalyst, Cornerstone Enterprises and Nordic Microcap Investment that have a combined stake of 45 percent in the company.

The institutional investors wrote to Mr Kabiru on June 24, 2020 asking him to confirm that Jamii Bora will be sufficiently capitalised for the next three to five years after its buyout by Co-op Bank.

Their concerns follow Jamii Bora’s multi-year losses that have eroded its capital base, prompting it to search for a rescue buyer.

“It is the intention of the boards of Jamii Bora Bank, Co-operative Bank and the Central Bank of Kenya to have Jamii Bora comply with all CBK prudential ratios as soon as possible,” Mr Kabiru responded to the shareholders on June 30, 2020.

“There is no doubt that the partnership with Co-op Bank will catalyse this process and with management support, a capital injection, additional liquidity support, deposit growth and a return to profitability –Jamii Bora will return to compliance presently.”

Mr Kabiru did not indicate the size of Co-op Bank’s potential additional investment. Co-op Bank will pay Sh1 billion for the 90 percent stake and it is not clear whether the extra capital will be provided in the form or debt or additional equity purchase.

Co-op Bank’s support of Jamii Bora will mirror KCB’s #ticker:KCB funding of its newly-acquired subsidiary National Bank of Kenya (NBK) which is operating as a stand-alone business.

The country’s biggest bank acquired a 100 percent stake in NBK through a share swap and is investing a total of Sh8 billion in the subsidiary to bring it to compliance with critical capital ratios that it had breached for years.

Mr Kabiru said Co-op Bank and Jamii Bora have a turnaround strategy which is not yet available to shareholders of both lenders.

“We do have a joint business plan developed by Jamii Bora and Co-operative Bank,” Mr Kabiru said in the letter to the bank’s investors.

“We do however have the Jamii Bora Bank strategic plan but due to the sensitive nature of the information contained in the strategic plan, shareholders are asked to make arrangements to send a formal request in writing to the chief executive officer, Jamii Bora Bank in order to have the information made available to them.”

Jamii Bora has not published its financial results for more than two years, having received an exemption from the Central Bank of Kenya (CBK) to facilitate its buyout.

Its last disclosures include a Sh51.2 million net loss and net assets of Sh3.4 billion in the quarter ended March 2018.

Jamii Bora’s problems can be traced to several factors including a Sh412 million loan to Kenya Airways (which defaulted) and a Sh500 million equity investment in Uchumi Supermarkets that has dropped to a current market value of Sh19 million.

The bank also took a hit from interest rate controls that were in place between September 14, 2016 and November 7, 2019.

The fortunes of the current Jamii Bora’s investors will now depend on the lender’s future performance under the control of Co-op Bank.