National Bank of Kenya (NBK) shares soared by nearly a tenth yesterday after KCB Group expressed interest in acquiring the struggling State-owned lender.
If the acquisition goes through, it would be the biggest transaction in the sector.
At the close of trade yesterday, NBK shares had risen to Sh7.65 apiece, helped in part by news of a Sh2.9 billion fresh cash injection by the National Social Security Fund (NSSF), one of the bank’s shareholders.
The proposed acquisition, which is subject to regulatory approvals, will create a banking behemoth in the country, where KCB is already the largest lender by assets.
Under the proposed acquisition plan NBK shareholders will be given shares in KCB, but only after due diligence has been finalised to determine the fair value of the targeted lender.
National Treasury Cabinet Secretary Henry Rotich said the expression of interest by KCB was made last year and that negotiations were at an advanced stage. “We are waiting for KCB to finalise its appraisal and give us a quotation,” said Mr Rotich, adding that there was “a lot more work” to be done on the proposal.
KCB’s interest in NBK comes months after the regional lender dropped its bid to purchase Chase Bank following what it said was unfavorable appraisal on the small lender that is still under receivership.
KCB Group Chief Executive Joshua Oigara had last year said the bank was aggressively looking to acquire a middle-sized target to “synergise and provide opportunities to scale up.”
KCB expects the acquisition would help access most of the Government banking transactions, including banking for various ministries and departments, the takeover proposal documents reads in part.
Similar models
Presently, NBK is the unofficial banker for Government institutions because it is largely controlled by the National Treasury.
It is expected the acquisition will be two-step - first by taking up the stakes held by the State and public pension fund NSSF - before compulsorily acquiring the shares held by the smaller shareholders. CS Rotich said his ministry fully backed the proposed acquisition, citing the fact that the two lenders were “unnecessarily” competing, yet they had similar business models and countrywide branch network.
NBK is already struggling with a thin capitalisation, even breaching the sector guidelines as shareholders find it increasingly difficult to agree on means of raising funds. A project manager has been appointed at the National Treasury to handle the acquisition and possible merger of other Government-owned banks.
The takeover proposal effectively marks the end of plans by the lender to raise additional capital through a rights issue. NSSF’s investment yesterday complicated the proposal as it significantly raised its control in the bank.“This has been a momentous growth for us, overcoming a difficult external environment and emerging stronger and well positioned for sustained growth,” said NBK Chief Executive Wilfred Musau . He added: “The bank requires additional capital to support this growth and we thank you shareholders for your continued support towards achieving this goal.”
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Mr Musau, however, did not indicate the terms of the new funds and if they would be directed at increasing NSSF’s ownership in the lender. It was always going to be a complex transaction because the Government and NSSF have huge stakes in two classes of shares.
NSSF controls 48 per cent of the ordinary shares while Treasury has a 22.5 per cent stake.
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