Equity acquires a Rwandan bank for Sh6.7 billion

Equity Group will pay RWF54.68 billion (Sh6.67 billion) for a controlling interest in a Rwandan bank, the most recent in a string of transactions that have seen Kenyan banks’ profits in the East African region more than double in just a year.

The lender, which ranks first in Kenya for profitability, revealed on Wednesday that it had signed a contract to buy a 91.9 percent stake in Compagnie Générale De Banque Plc (Cogebanque). The Rwandan bank will be valued at Sh7.26 billion as part of the transaction.

The Rwandan government, the Rwanda Social Security Board, Sanlam Vie Plc, and Ms. Judith Mugirasoni will sell their stakes to Equity, which then intends to make an offer to purchase the remaining shares.

“By acquiring Cogebanque, Equity Group will be able to expand its footprint and consolidate its position in Rwanda,” said James Mwangi, chief executive at Equity Group in a notice.

Following the failure of a deal in which Equity was to purchase 62 percent of the share capital of Rwanda’s Banque Populaire du Rwanda from Atlas Mara, this is Equity’s second attempt to purchase a bank in Rwanda.

Along with the deal to purchase 100% of African Banking Corporation of Zambia, African Banking Corporation of Tanzania, and African Banking Corporation of Mozambique, it failed in July 2020.

As seen with its competitors, who have been reducing their reliance on profits from Kenya by expanding in the region, the most recent proposed transaction will intensify Equity’s acquisition drive in the region.

All of the banks with subsidiaries in the area, including KCB, Co-operative Bank of Kenya, I&M, NCBA, Stanbic, NCBA, DTB, Guaranty Trust Bank, and ABC Bank, are still keeping their cash reserves available for new acquisitions.

Other companies, like Family Bank, intend to raise capital and grow outside of Kenya.

According to data from the Central Bank of Kenya, the impact of expansion caused loan books outside of Kenya to increase from Sh510.3 billion to Sh725.8 billion, resulting in a nearly twofold increase in net profit for Kenyan banks from subsidiaries there last year, from Sh17.23 billion to Sh32.51 billion.

With deposits totalling Sh1.29 trillion, the number of branches outside of Kenya increased from 494 in 2021 to 552 last year. 11,125 workers provide service to these branches.

These figures will increase if Equity’s deal is successful because Cogebanque has 28 locations throughout Rwanda and ended last year with RWF9.07 billion (Sh1.11 billion).

According to the legally binding term sheet, Equity will purchase 183,854 ordinary shares for a cash consideration of RWF297,406 (Sh36, 485) per share.

As is typical in transactions of this kind, the acquisition transaction is currently subject to conditions, such as the conclusion of confirmatory due diligence and the signing of definitive agreements.

Equity BCDC, the DRC division, increased its profit after tax by 45% to Sh5.8 billion last year, maintaining its position as the most profitable division, ahead of the Rwandan division with Sh2.8 billion.

This indicates that the most recent agreement, if it goes through, looks to close the profit gap between DRC and Rwandan units.

Additionally, Equity has operations in South Sudan, Tanzania, and Uganda.

Along with receiving all necessary board and shareholder approvals, the transaction also needs regulatory approval from the Central Bank of Kenya, Banque Nationale du Rwanda, Comesa Competition Commission, among other institutions.

The equity deal will increase the holdings of KCB, which in December paid Sh25.1 billion to buy an 85% stake in Trust Merchant Bank (TMB), a lender in the Democratic Republic of the Congo. This gave KCB a foothold in the sizable mineral-rich nation.

Including the purchase of additional shares in its DRC subsidiary, Equity invested an additional Sh12.2 billion in its regional subsidiaries last year, bringing the sum of its subsidiary spending to a total of Sh26.64 billion.

Family Bank and I&M are vying for more business in the area through acquisitions that could expand the reach of Kenyan banks’ operations abroad.

The I&M Group board received shareholder approval in May to conduct future buyouts of up to $75 million (Sh10.5 billion) without needing a new approval, demonstrating the bank’s continued focus on growth.

In its pursuit of tier, I status, Family Bank is looking to raise up to $100 million (Sh13.97 billion) through a private placement to finance acquisitions in Kenya and Eastern or Central Africa.

The lender, which turns 40 next year, claims that Uganda, Tanzania, Ethiopia, and the Democratic Republic of the Congo are among its top priorities.