Equity Purchases an Additional 6.6 pc stake in DRC Bank for Sh9.2 Billion

In order to increase its share of profits made outside of Kenya, Equity Group paid Sh9.24 billion for an additional 6.6 percent stake in its subsidiary in the Democratic Republic of the Congo.

The Kenyan bank revealed in its annual report last week that it paid Sh740 million in August of last year to acquire a 2.3 percent stake from Equity BCDC’s minority owners.

Through a rights issue, Equity also acquired an additional 452,659 shares in the DR Congo division for Sh8.5 billion, giving the bank a 4.3 percent stake.

DR Congo is one of the continent’s largest countries by land mass and population, with over 90 million people, making it appealing to ambitious banks in neighbouring states seeking growth.

Kenyan commercial banks, including KCB Group, are expanding their acquisitions beyond their borders, seeking to capitalize on growing opportunities in the wider East Africa region, fuelled by rapid economic growth and trade integration.

Equity also has offices in Tanzania, Rwanda, Burundi, South Sudan, and Uganda, as well as an Ethiopian representative office, and is expanding into a regional bank.

“The new shares acquired through a rights issue, in addition to shares acquired from minority, resulted in an increase in Equity Group Holdings shareholding in Equity BCDC to 84.1 percent from 77.5 percent,” says Equity.

The DRC Congo unit has a value of Sh140 billion as a result of this transaction, making it the most valuable Equity subsidiary.

The majority of Equity Group’s profits come from its banking operations in Kenya, where it is the largest bank by number of customers, but its subsidiaries abroad are becoming more significant.

The portion of profits from the subsidiaries increased from 15% in 2018 to 27.6% at the end of the previous year.

Additionally, the subsidiaries made up 44% of the group’s Sh1.45 trillion in assets, demonstrating the importance of business conducted outside of Kenya in lowering the lender’s sovereign risk.

Given the fierce competition in the Kenyan market, Equity is relying on its subsidiaries, particularly the DR Congo unit, to drive its growth.

In order to maintain its position as the most profitable subsidiary, Equity BCDC increased its profit after tax by 45 percent to Sh5.8 billion, followed by the Rwandan unit with Sh2.8 billion.

South Sudan’s net profit was Sh2.3 billion, while Uganda and Tanzania ended the year with net profits of Sh2 billion and Sh400 million, respectively.

72.4 percent of the total Sh46.1 billion after-tax profit, or Sh33.39 billion, came from Kenya. The DRC unit has received more attention from equity, and group CEO James Mwangi believes it will be the first foreign company to outperform the Kenyan unit in terms of profitability.

In April of last year, the group claimed that over 26 Kenyan businesses had made trade investments worth $1.6 billion (Sh216 billion) in the Democratic Republic of the Congo.

According to Mr. Mwangi, the increase in BCDC’s capital will enable it to finance large mining and manufacturing operations as well as development projects in the DR Congo.

The DR Congo unit focuses primarily on providing services to large corporations that have operations there, necessitating a sizable balance sheet in order to compete and expand.

Following the DR Congo’s admission to the East African Community in July of last year, Equity has been positioning itself to benefit from increased business in the mineral-rich central African country.

Through Equity Bank Congo SA, which it established by acquiring an 86.6% stake in the German bank ProCredit between 2015 and 2017, Equity launched operations in the nation.

The International Finance Corporation (IFC) owns the remaining 5.7 percent of EBC SA.

Equity Group paid the George Arthur Forrest family $95 million (Sh12.7 billion) in August 2020 in exchange for a 66.53 percent shareholding in BCDC. Later, Equity Group merged BCDC with EBC to create Equity BCDC.

Following the merger, Equity Group owned a majority 77.5 percent of the new company, with the remaining shares held by IFC, the government of the Democratic Republic of the Congo, and small shareholders.

The Forrest family (66.53 percent), the DR Congo’s government (25.53 percent), and smaller investors (7.94 percent) owned the majority of BCDC.

Equity’s rival KCB Group has also indicated plans to acquire the remaining 15% stake in DR Congo’s Trust Merchant Bank, effectively exiting founding shareholders Robert Levy (13%), Oliver Meisenberg (1%) and Augustin Kabila Kisole’s estate (pc).