Co-operative Bank of Kenya #ticker:COOP has offered an initial Sh1 billion for the purchase of a 90 percent stake in Jamii Bora Bank, according to disclosures by the small lender ahead of its July 1 shareholders meeting that will consider the proposed transaction.
Jamii Bora’s current shareholders will all be squeezed into a 10 percent stake, with Co-op Bank’s majority ownership giving it the right to appoint the lender’s board and management.
This is a variation from the earlier discussions when the parties announced in March that Co-op Bank would buy a 100 percent stake in Jamii Bora. The new agreement means that existing shareholders will not take out any cash in the deal with Co-op Bank.
The investors, including former Jamii Bora’s chief executive Sam Kimani and his successor Tim Kabiru and private equity firm Catalyst Principal Partners, had previously eyed a combined Sh1.4 billion payday when they tried to sell the bank to former CBA Group in January 2019.
The proposed deal collapsed and CBA proceeded to merge with the former NIC Group to create NCBA Group #ticker:NCBA.
In the new transaction, Co-op Bank will be issued with 224.1 million new “Class A” shares equivalent to nine times the volume of stock held by the existing shareholders. “Allot … new shares subject to payment by Co-operative Bank of Kenya Limited of the aggregate subscription price of Sh1 billion (being Sh4.46 per new share), on completion of the proposed investment,” reads part of the resolutions to be voted on at the Jamii Bora meeting.
“That in accordance with sections 399 and 400 of the Companies Act, the existing issued 24.9 million ordinary shares of Sh66 each be and are hereby redesignated and reclassified as Class B ordinary shares, such shares retaining their existing rights.”
Jamii Bora shareholders will on July 1 vote on the CoopBank offer of Sh1 billion, paving way for further cash injection by Kenya’s fourth largest bank.
Jamii Bora says all the shareholders will have equal rights despite the different classes of stock. The terms of the deal signal the major loss suffered by the current investors.
Their combined ownership will have a nominal value of Sh111 million after the transaction is completed, representing a drop of about 93 percent from the current Sh1.6 billion.
Failure to sell the bank at a premium is attributed to the lender’s losses and capital erosion, meaning that a transaction was likely to be more of a rescue type than a profit-taking deal.
“The Co-operative Bank shall be entitled to … the right to appoint all the board of directors of the company in order to drive the needed transformation agenda, and in the event that the company is liquidated or wound up and assets are distributed to the shareholders –to 90 percent of such assets,” Jamii Bora said.
The lender 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.
Its liquidity ratio was negative 11.1 percent compared with CBK’s minimum requirement of 20 percent as at March 2018.
The deal with Co-op Bank indicates that its financial health has worsened since then.
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, which has dropped to a current market value of Sh16.8 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. The investors missed an opportunity to recoup part of their capital when the talks with the former CBA Group collapsed.
Mr Kimani and Mr Kabiru, for instance, were to get an estimated Sh238 million combined through their investment vehicle Asterisk Holdings, which has a 17 percent stake in the small lender.
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 percent stake. The bank also has hundreds of individual investors.
Co-op Bank’s move to acquire Jamii Bora is the latest rescue deal in the local banking industry after last year’s buyout of National Bank of Kenya by KCB Group #ticker:KCB in a share swap transaction.