Equity Bank rushes to conclude mega deals ahead of new tax roll-out

Equity Bank is facing hundreds of millions of shillings in capital gains tax if it does not conclude key transactions by December 31, 2014.

The bank yesterday held an extraordinary general meeting where the management expressed concerns that high-value transactions might be caught up by the capital gains tax  (CGT), which comes into force on January 1, 2015.

The transactions include the bank’s deal with British American Investments Company (Kenya) for the sale of Equity Bank’s 24.7 per cent stake, or 57 million shares, in Housing Finance (HF).

REGULATORY APPROVAL

The HF deal, which is valued at around Sh2.5 billion based on yesterday’s closing share price of Sh44, has already been approved by shareholders and is waiting for regulatory approval.

“The sale of the Housing Finance shares is subject to many approvals and the first one is the Competition Authority because there are new rules that have come up and we have already applied for those approvals,” explained  Equity Bank’s Company Secretary and Director of Strategy Mary Wangare.

“We also require approvals from the Capital Markets Authority (CMA) and the CBK and we are in the process of getting those approvals. Our target for approval as a board is December 30, so that we do not get the issues of capital gains tax.”

President Uhuru Kenyatta two months ago signed into law a five per cent capital gains tax, which affects the transfer of property and equities among other assets.

The law, which is part of the Finance Bill, is expected to take effect on January 1, 2015 and has been criticised as having a lot of grey areas and could dampen investment confidence.

RE-STRUCTURING PLAN

At the extra-ordinary general meeting, the bank’s shareholders also approved the re-structuring of the institution, which will see Equity Bank Kenya Ltd re-brand to Equity Group Holdings Ltd.

This will see the incorporation of a new subsidiary, Equity Bank Kenya Ltd, which will oversee the banking business of the Kenyan subsidiary of Equity Group Holdings.

Equity Bank Kenya Ltd will be authorised to acquire additional 29,999,900 shares in the share capital of Equity Bank and herein lies the dilemma for the giant lender.

“If we have to pay capital gains for the bank restructuring, it will be a lot of money because the bank has grown exponentially and therefore we have to finish this transaction by December 31,” explained Ms Rosa Nduati-Mutero, a partner at Anjarwalla & Khanna Advocates, the legal advisor to Equity Bank’s restructuring.

While giving a presentation on the company’s restructuring to shareholders, Ms Nduati-Mutero stated that if the bank fails to meet the December 31 deadline, and fails to get the exemption, then it will not go ahead with the transaction.

Other Equity banking subsidiaries in other East African countries and non-banking subsidiaries like the newly formed Equitel and the Equity Group Foundation will all fall under Equity Group Holdings Ltd.