Equity keeps rivals guessing as it exits Housing Finance

Corporate News

Equity Bank chief executive officer James Mwangi speaks during the release of the bank’s results for the first quarter of 2014 in Nairobi in April. Photo/FILE 

By Victor Juma, vjuma@ke.nationmedia.com

In Summary

• Equity Bank has surrendered 24.6 per cent shares in Housing Finance to partner Britam.
• Britam on Monday served HF’s board with a takeover notice that, if accepted, would see Equity end its seven-year investment in the mortgage financier with a return of more than 500 per cent.
• The deal is in line with Britam’s new-found deal-making ways that have recently seen it spend more than Sh1.6 billion in two acquisitions.

inancial services firm Britam is buying the entire Equity Bank stake in mortgage firm Housing Finance (HF) in a deal valued at Sh2.2 billion.

 

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Britam on Monday served HF’s board with a takeover notice that, if accepted, would see Equity end its seven-year investment in the mortgage financier with a return of more than 500 per cent.

The deal is in line with Britam’s new-found deal-making ways that have recently seen it spend more than Sh1.6 billion in two acquisitions.

Equity’s disposal of its 24.76 per cent stake in HF is seen as driven by the new stringent rules that effectively curtailed the lender’s ambitious plans for the mortgage firm.

But keen observers of Equity’s plans also said the bank could be preparing to go big on home loans, making it imperative to exit HF – a potential direct competitor. 

Britam said in a Press notice that it had served HF directors with the notice of its intention to acquire the 24.76 of the issued share capital of the company from Equity.

Britam holds a 10.1 per cent stake in Equity and already has a 21.46 per cent stake in HF, meaning the impending deal could push its ownership of the mortgage firm to 46 per cent.

Equity first bought into HF in July 2007 when it teamed up with Britam to acquire CDC Group Plc’s 24.99 per cent stake in a deal that saw the lender pay Sh433 million for its stake (20.17 per cent).

The two partners increased their stakes the next year when HF made a rights issue at the ratio of one-for-one in a cash call that the government and the National Social Security Fund (NSSF) skipped.

This saw Equity’s stake in HF rise to the current level, with Britam’s jumping to 21.46 per cent.

The twin transactions have overtime proved lucrative for the two institutions with Equity’s stake surging to the current market value of Sh2.2 billion based on HF’s share price of Sh42.75.

This means that Equity stands to harvest a return of more than 500 per cent, including dividends that the lender has been receiving from HF over the years.

The share has gained 64.3 per cent over the past year, making it the best performing bank on the Nairobi bourse over the period.

Equity has gained 44 per cent in the period, KCB (35.1 per cent), Standard Chartered (10.7 per cent) and Barclays Bank (6.39 per cent).

The finer details of the transaction will be revealed later but acquisitions of major stakes in publicly traded firms have traditionally featured a premium over the ruling market price.