Co-operative Bank rescues Jamii Bora in buyout deal

Co-operative Bank of Kenya #ticker:COOP has proposed to fully acquire Jamii Bora Bank, offering a lifeline to the troubled small tier lender that was also the target of CBA Bank.

The Central Bank of Kenya (CBK) said the proposed transaction, which requires regulatory approvals and whose details were not disclosed, will “diversify the business models of the two institutions and enhance the stability of the Kenyan banking sector.”

The move indicates that the small lender was unsuccessful in its bid to be acquired by CBA Group last year.

Jamii Bora in January 2019 received a cash offer of Sh1.4 billion from CBA but the deal was not completed.

CBA subsequently merged with NIC to form NCBA Group #ticker:NIC that appears to have dropped its interest in Jamii Bora.

Executives of NCBA, Co-op Bank and Jamii Bora Wednesday declined to comment on the new development.

Jamii Bora has insufficient capital and has been looking for a buyer, partly under pressure from the CBK, which has preferred to shepherd mergers rather than shut down weak institutions.

“The board of directors of Co-operative Bank has approved the progression of discussions with Jamii Bora which, if successful, would lead to Co-op Bank acquiring 100 percent shareholding in Jamii Bora,” Co-op Bank said in a statement.

“The acquisition will strengthen both institutions, leveraging on their respective well-established domestic and regional corporate public sector, retail business and the 15 million member co-operative movement.”

This is the first acquisition for Co-op Bank, which has preferred to grow organically in Kenya and its second operation in South Sudan. Its top rivals KCB Group and Equity Group have partly used acquisitions to expand their regional footprint.

Analysts see Co-op Bank’s proposal as more of a rescue deal for Jamii Bora, adding that it will in the short term have little impact on the country’s third-largest bank by profitability.

“We don’t think the acquisition will add much to Co-op’s balance sheet. Jamii Bora also has a leasing business; this may help Co-op grow its leasing business,” AIB Capital said in a brief following the deal’s announcement.

“Early last year, it was reported that CBA was interested in purchasing the bank for Sh1.4 billion. We expect Co-op to offer a similar amount.”

AIB noted that Jamii Bora, which has a 0.21 percent market share, has a high default rate.

The small lender, whose latest available financial statements are for 2018, has bad debt amounting to 69 percent of its total loan book.

“Some of Jamii Bora’s unprofitable investments include: Sh412 million loan to Kenya Airways (was sold to NIC in 2019) and Sh500 million in Uchumi Supermarkets (has a 15.8 percent shareholding in Uchumi),” AIB said.

Among those that were to be bought out in the CBA deal were former Jamii Bora’s chief executive, Sam Kimani, and his successor Tim Kabiru.

The two were to get an estimated Sh238 million combined through their investment vehicle Asterisk Holdings, which has a 17 percent stake in the small lender.

Private equity firm Catalyst Principal Partners was to get Sh224 million for its 16 percent equity while Shorecap Limited was in line for Sh238 million on its 17 percent equity.

Jamii Bora Scandinavia was to get Sh224 million for its 16 per cent stake. The bank also has hundreds of individual investors.

There have been several mergers and acquisitions in Kenya since 2016, brought about by the failure of three mid-sized and small banks, as well as a cap on commercial lending rates, which was removed last November.

KCB Group #ticker:KCB acquired National Bank of Kenya last year, while CBA Group merged with NIC Bank to form NCBA in a deal that was completed last year.