Equity in buyout of Ugandan bank

Print
 
Apr 2008
Kenya, April, 18 2008 - Equity Bank has made another big move with a buyout of the largest microfinance institution in Uganda. The Sh1.7 billion buyout of Uganda Microfinance Limited (UML) is to be financed through a share swap that will see shareholders of the Ugandan bank acquire a three per cent stake in Equity Bank.

That translates into 10.9 million shares to be exchanged at Sh147 each; the average price of Equity Bank shares at the Nairobi Stock Exchange in the last 90 trading days.

The period under consideration dates back to December and had a cut off date of Wednesday (April 16).

Speculation over an impending acquisition by Kenya’s fastest growing bank have been intense pushing the bank’s share price at the Nairobi Stock Exchange from Sh105 in January to Sh190 per share yesterday.

On Monday, the bank reached a market capitalisation of $1 billion (Sh63.5 billion) when its share price rose to Sh175 each and at yesterday’s price, the bank now carries a market value of Sh68.4 billion ($1.1 billion).

Through the acquisition of UML, Equity Bank hopes to replicate the success of its microfinance model which has won global accolades for its success, translating in triple digit growth in earnings for the bank in the last five years.

UML is Equity’s second major acquisition within a period of one year. The bank bought a 20 per cent stake of Housing Finance (HF) last year.

Equity Bank is currently considering setting up a base in Southern Sudan after it received an approach from the government (GoSS) which wants the bank to replicate its micro-finance business model there to help fight poverty.

It is understood that Equity Bank may not open branches in Southern Sudan but will instead seek partnerships with existing banks. The bank’s regional expansion strategy advocates partnerships, such as the one with UML, rather than physical presence through branches.

The two acquisitions point towards Equity’s interest in mortgage lending and regional expansion.

UML was founded in August 2005 and is based in Kampala, Uganda. It offers savings and loans products to low-income clients (roughly half of whom are women) with informal collateral conditions and flexible repayment schedules.

UML grew out of Uganda Microfinance Union (UMU), a non-governmental organisation set up in 1997 that provided financial services to micro-entrepreneurs and low income people throughout Uganda.

Aureos East Africa Fund’s (AEAF) Sh61 million (US$1 million) equity and debt investment enabled UMU to transform into UML, a fully-fledged, regulated micro-deposit taking institution – one of only four in Uganda.

Equity Bank’s microfinance model is expected to be a perfect fit with UML’s, and with numerous Ugandans still unable to access affordable banking services , Equity’s arrival into the Ugandan sector spells increased competition for Uganda’s unbanked.

The micro finance model has revolutionized banking in developing countries with the concept largely being cited as the key driver behind bringing Kenya’s low income population into the formal banking sector.

Due to its low income banking strategy, Equity Bank currently boasts of having 41 per cent of the all the bank accounts in the Kenyan banking system with the bank claiming to have opened its 2 millionth account in March.

 

Research Analysis Tools

The fund indexes, institution benchmarks and other market information displayed here are all Symbiotics designed analysis tools, created in-house by our analysts and experts. Symbiotics has one of the oldest track records in microfinance investment analysis dating back to the late 1990s; its indexes and benchmarks have been regularly used as markers by investors, asset managers, financial institutions and practitioners. These, as well as several other research products, are available through the Research Account. Click on the link below to find out more.

Learn More