Equity Bank, a leading provider of microfinance services in Kenya, is acquiring Uganda Microfinance Ltd. (UML) in an all-share deal worth KES 1.7 billion, equivalent to USD 26.9 million.
The deal involves the exchange of 11.3 million new Equity Bank shares valued at KES 147 each, in a transaction the bank said would allow it to tap into “exponential growth” in Uganda’s microfinance industry. Equity plans to transform Uganda Microfinance into a full-scale commercial bank in line with Equity’s current microfinance model and regional strategy, which includes diversification and pan-African ambitions.
The bank has been well-positioned for growth since it received a KES 11 billion (USD 175.7 million) capital investment from Britain’s Helios EB Investors last year in return for a 25 percent stake, as reported previously by MicroCapital. Equity’s last major acquisition was the purchase of a 20 percent share of Housing Finance, a domestic mortgage financier, in 2007.
The deal must still undergo regulatory approval from both Kenya and Uganda’s governments and gain the blessing of Equity shareholders. News of the proposal pushed the company’s shares up KES 3 to KES 190 on the Nairobi Stock Exchange on Thursday.
Equity Bank, which started operations as Equity Building Society in 1984, is now Kenya’s third largest company, capitalized at more than KES 69 billion. Originally a mortgage service provider, it switched its focus to microfinance in 1994, and now serves 392,822 active borrowers. As of December 31, 2007, it had a gross loan portfolio of USD 349.0 million out of total assets of USD 835.2 million. Its return on assets was 3.56 percent (Annual Report) and its debt-equity ratio was 262.12 percent. Rating agency MicroRate gave the bank an a- in July 2005, the most recent rating available.
Uganda Microfinance Ltd. was founded in 2005 when the Aureos East Africa Fund’s KES 60 million (USD 1 million) investment in the former Uganda Microfinance Union allowed it to become a deposit-taking institution. As of December 31, 2006, its gross loan portfolio was worth USD 14.3 million, and its assets totaled USD 21.4 million. Its return on assets was 3.48 percent and it had a debt-equity ratio of 285.93 percent. As of year-end 2007 UML had 29,604 active borrowers. As for ratings, UML does not report a third-party performance evaluation of operations to the MIX Market, the microfinance information clearinghouse.
By Stephen Son
Additional Resources:
Reuters: “Kenya’s Equity Bank to buy Uganda Microfinance”
AllAfrica: “Kenya: Equity in Buyout of Ugandan Bank”
MicroCapital.org article, December 19, 2007: “Equity Bank of Kenya to Expand Microfinance Services to Uganda, Tanzania and Rwanda Backed by Investment from Helios EB”
MicroCapital.org article, October 18, 2007: “NEWS WIRE: Kenya: Equity Gets a Greenlight to Buy Housing Finance”
MIX Market: Profile for Equity Bank; Profile for Uganda Microfinance Ltd.
Equity Bank: Annual Report 2007; Ratings
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