Equity Bank has for the first time disclosed details of its acquisition of ProCredit Bank in the Democratic Republic of Congo.
The bank said the transaction completed last September was valued at Sh4.54 billion, lower than the Sh6 billion estimate by analysts.
The transaction involved Equity Bank ceding 1.8 per cent stake in the group to ProCredit with an additional Sh1.6 billion being cash injection.
“The company issued 70,897,782 additional ordinary shares to finance the acquisition of ProCredit Bank DRC, a subsidiary operating in the Democratic Republic of Congo. The value of the shares was calculated with reference to the quoted price of the shares of the company at the date of acquisition, which was Sh40.70 per share,” reads Equity Bank’s annual report.
Equity paid a goodwill of Sh2.2 billion for the Kinshasa based lender formed in 2005 by international development companies and ranked seventh largest bank by assets in DRC.
ProCredit had more than 170,000 customers distributed in 23 branches at the time of the acquisition. It had net assets of Sh2.9 billion including a loan book of Sh13.3 billion, Sh7.7 billion in cash and deposits and properties and equipment valued at Sh1.9 billion.
Among its liabilities were customer deposits of Sh18.6 billion and borrowed funds of Sh2.6 billion.
The other shareholders with 21 per cent in ProCredit are German Development Bank KfW with 12 per cent and the International Finance Corporation (IFC) holding nine per cent.
Equity booked an after tax profit of Sh126 million from the Congolese operation and estimates it would have earned Sh414 million if the deal had been completed at the beginning of the year. This would have made DRC the most profitable regional subsidiary of Equity Bank.
South Sudan was the most profitable regional operation with Sh306 million after-tax profit followed by Tanzania, Sh281 million, Rwanda, Sh204 million and lastly Uganda with Sh181 million.
DRC charges a higher corporate tax of 35 per cent compared to the other markets which charge 30 per cent and 20 per cent in South Sudan.
The bank’s management hopes to ride on mobile technology and agency banking to drive customer numbers in the populous nation estimated to have more than 85 million people but banking penetration of four per cent.
“Management projects that over the two years, 2016 and 2017, return on assets will grow by 21 per cent and 25 per cent respectively for ProCredit Bank and profit margins will grow by 25 per cent during both periods,” reads the annual report.
Equity Bank CEO James Mwangi has said the bank will inject an additional Sh2.5 billion into the DRC this year with plans to open 11 new branches.
He disclosed the bank enjoyed wide interest margins in the Congo of up to 18 per cent with the loans being dollar.
Equity, which targets to enter nine new markets in the next 10 years, has said it plans to make acquisitions in two other countries with the rest being new investments.
The bank currently operates in six countries — Kenya, Uganda, Tanzania, Rwanda, South Sudan and DRC.
Uganda is the only other market entered through acquisition of Uganda Microfinance Ltd.
The venture proved costly for the bank owing to accumulation of bad loans that delayed the lenders break-even.