Equity Group acquired an extra 6.6 percent stake in its subsidiary in the Democratic Republic of the Congo for Sh9.24 billion, underlining the lender’s quest to increase the share of profits outside Kenya.
The Kenyan bank disclosed in its annual report last week that it acquired a 2.3 percent stake from minority owners of Equity BCDC in August last year for Sh740 million.
Equity also bought an additional 452,659 shares in the DR Congo unit for Sh8.5 billion through a rights issue, giving the bank a 4.3 percent stake.
DR Congo is one of the biggest countries on the continent by land mass and has more than 90 million people, making it appealing to ambitious banks in the neighbouring states looking for growth.
Kenyan commercial banks, including KCB Group, are looking beyond their borders for acquisitions, seeking to tap growing opportunities in the wider East Africa region, driven by rapid economic growth and trade integration.
Equity also operates in Tanzania, Rwanda, Burundi, South Sudan and Uganda, has a representative office in Ethiopia and is diversifying 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.
This transaction values the DRC Congo unit at Sh140 billion, making it the most valuable Equity subsidiary.
Equity Group’s banking business in Kenya, where it is the biggest bank by customers, provides the bulk of profits but subsidiaries outside the country are growing in importance.
The share of profits from the subsidiaries grew from 15 percent in 2018 to 27.6 percent at the end of last year.
The subsidiaries also accounted for 44 percent of the group’s Sh1.45 trillion assets, reflecting the significance of business outside Kenya in reducing the lender’s sovereign risk.
Equity is betting on subsidiaries, in particular the DR Congo unit, in powering its growth given the cutthroat competition in the Kenyan market.
Equity BCDC’s profit after tax grew 45 percent to hit Sh5.8 billion, extending its lead as the most profitable subsidiary followed by the Rwandan unit with Sh2.8 billion.
Net profit from South Sudan stood at Sh2.3 billion while Uganda and Tanzania closed the year with Sh2 billion and Sh400 million net profit respectively.
Kenya contributed Sh33.39 billion or 72.4 percent of the total Sh46.1 billion after-tax profit. Equity has put more focus on the DRC unit, with group CEO James Mwangi tipping it to be the first foreign business to beat the Kenyan unit on profitability.
The group in April last year said over 26 Kenyan companies have committed to trade investments worth $1.6 billion (Sh216 billion) in DR Congo.
Mr Mwangi said the capital boost in BCDC will help it to fund development projects and large mining and manufacturing companies in the DR Congo.
The DR Congo unit is mainly focused on serving big companies with operations there, making it necessary to have a big balance sheet to be able to compete and grow.
Equity has been positioning itself to reap from increased business in DR Congo following the admission of the mineral-rich central African nation to the East African Community in July last year.
Equity began operations in the country through Equity Bank Congo SA, which it established by acquiring an 86.6 percent stake in a German bank ProCredit between 2015 and 2017.
In 2019, Equity Bank increased its shareholding in EBC SA to 94.3 percent by acquiring an additional 7.7 percent of the shares held by the German state-owned development bank KfW.
The remaining 5.7 percent shareholding in EBC SA is held by the International Finance Corporation (IFC).
In August 2020, Equity Group acquired 66.53 percent shareholding in BCDC from the George Arthur Forrest family for a consideration of $95 million (Sh12.7 billion) and later merged it with EBC to form a new bank, Equity BCDC.
After the merger Equity Group held a majority 77.5 percent stake in the new entity, with the balance being held by IFC, the government of DR Congo and minority shareholders.
BCDC was majority-owned by the Forrest family (66.53 percent), the government of the DR Congo (25.53), and minority shareholders (7.94).
Equity’s rival KCB Group had also indicated plans to buy the remaining 15 percent stake in DR Congo’s Trust Merchant Bank, fully exiting founding shareholders—Robert Levy (13 percent), Oliver Meisenberg (1pc) and the estate of Augustin Kabila Kisole (pc).
Source: Business Daily