Private equity firms AfricInvest and Catalyst Principal Partners have acquired a minority stake in Prime Bank through injection of Sh5.1 billion capital into the lender.
The transaction, which marks the latest deal-making in the banking sector, will see the wealthy Rasik Kantaria family loosen board control of the business that they founded in 1992.
The private equity funds will get two non-executive seats on Prime Bank’s board of directors.
The cash injection, which earned them a 24.2 per cent stake, values Prime Bank at about Sh21.1 billion. “Prime Bank welcomes this new partnership with AfricInvest and Catalyst, which further strengthens our capital base in order to carry out strategic plans which include … expanding locally and regionally,” the bank’s managing director, Bharat Jani, said in a statement yesterday.
The Kantaria family has vast interests in tourism, real estate and manufacturing.
The transaction marks yet another strategic partnership for the Kantarias, who last year also invited other investors into the business through a private placement.
Prime Bank reported a net profit of Sh1.5 billion in the nine months ended September 2018, a 10 per cent growth from Sh1.4 billion a year earlier.
The two PE funds now become top shareholders of the bank.
Prime Capital is listed as the bank’s second-biggest shareholder with a 14.36 per cent stake while Jamson Ltd, Crason Ltd, Nason Ltd, Prime Trustees and Capital Nominees hold 8.02 per cent equity each.
There has been an increase in bank mergers and acquisitions in the past few years, motivated by a desire to cut costs and beef up capital in the wake of interest rate controls and more stringent regulation.
The Prime Bank deal was preceded by last month’s announcement of a potential merger of Commercial Bank of Africa (CBA) and NIC Group #ticker:NIC , with five other mergers and acquisitions having been completed or proposed in the past three years.
Giro Commercial Bank was acquired by I&M Bank #ticker:I&M in 2017 when DTB Group #ticker:DTB also took over Habib Bank in a share swap deal. Mauritius’ SBM bought out Fidelity Bank and Chase Bank in 2017 and last year respectively. KCB’s #ticker:KCB acquisition of the collapsed Imperial Bank is currently underway.
AfricInvest and Catalyst acquired the 24.2 per cent stake in Prime Bank on December 31, 2018 for a consideration of $50 million (Sh5.1 billion), a source familiar with the transaction told the Business Daily.
The transaction marks AfricInvest’s return to the banking industry after it sold its minority stake in Family Bank in 2012.
Africinvest teamed up with development finance institutions Norfund and FMO in 2010 to acquire a 22.4 per cent stake in Family Bank for Sh916 million.
The institutional investors in 2012 sold their holdings to local authority’s pension firm Laptrust and Kenya Tea Development Agency (KTDA) for Sh1.5 billion, representing a total return of 66.6 per cent, excluding dividends earned.
AfricInvest says the Prime Bank deal fits its investment criteria.
“The transaction is reflective of the type of investments AfricInvest pursues, with an emphasis on sustainable growth, regional expansion, innovation, strong management capacity, and clear visibility on stakeholder value creation,” the PE firm’s chief investment officer, Skander Oueslati, said in a statement.
AfricInvest recently made a similar move in the insurance sector, which it re-entered last year with the acquisition of a 14.3 per cent stake in Britam Holdings for Sh5.7 billion, having exited UAP Holdings in 2015 with a profit of more than Sh2 billion.
For Catalyst, the investment in Prime Bank adds to its existing commitment in Jamii Bora Bank in which it holds a 16 per cent stake. The entry of the two PE funds comes after Prime Bank concluded a private placement last year that raised more than Sh1 billion.
Prime Bank was established in 1992 and offers corporate and SME banking services through its branch and digital infrastructure.
It also has a regional presence through its affiliates in Malawi, Botswana, Mozambique, Zambia and Zimbabwe as well as operating in the insurance sector through its subsidiary, Tausi Insurance.
The increase in mergers and capital-raising among banks is seen as an effort to build scale that has allowed the big banks to overcome higher capital requirements and thinner lending margins.
Big lenders like KCB, Equity and Co-op Bank #ticker:COOP have continued to benefit from transaction-based income in their extensive retail operations while their large loan books and investment in government bonds continue to churn out significant interest incomes.
Big banks have reported flat or higher earnings while most of the small and medium-sized lenders, whose business models were built on interest rates of 15 per cent and above, have reported a mix of losses and reduced profits.
The large banks, which hold most of the industry’s deposits, are also set to benefit from the recent removal of the minimum interest payable on interest-bearing accounts.