Equity Bank targets Sh1.2b profit from Housing Finance deal

Kenya: Equity Bank Group plans to make Sh1.2 billion profit from the sale of its 24.75 per cent stake (57.27 million shares) in Housing Finance (HF) to British American Investment Company Ltd (Britam).

In a statement yesterday, the bank said the proceeds of the share sale would be re-deployed in alternative investment opportunities, which guarantee high returns to shareholders.

The bank said the shares would be sold at a premium of 10 per cent above the price at which the HF shares have been trading on the Nairobi Securities Exchange (NSE).

The bank is targeting an offer price of Sh41.48 per share, with hopes of raising about Sh2.37 billion from the transaction, which is still subject to regulatory approvals. “The exact sale price will be computed on completion but Equity Bank is guaranteed a minimum price per share of Sh40.23 per share,” the bank said.

“Equity Bank is likely to earn roughly double its initial investment over a period of seven years that it has held its investment. This equates to a return on investment of about 12 per cent per year – and the dividends it has received over the period would increase this return to about 16 per cent per year. “

Equity Bank purchased a 20 per cent stake in the mortgage financier in 2007 and increased its stake to 24.8 per cent in 2008 by participating in a rights issue.The aggregate cost of its investment in HF as at December 31, 2013 stood at Sh1.15 billion, representing an average cost per share of Sh20.18 for each of the 57.27 million shares it owns.

HF has currently embarked on an ambitious growth programme including growing its commercial banking product portfolio and diversifying into other products across the property value chain. “As a result, it now makes sense for both Equity and HF to each pursue their respective strategic plans independently of each other,” said Equity Bank.

HF has about 27,000 shareholders - most of who are retail investors who hold approximately 30 per cent of HF’s issued share capital. Other shareholders (excluding Britam) are institutional investors – including National Social Security Fund and the Government, which owns approximately 25 per cent of the company’s shares.

This week, the Capital Market Authority (CMA) granted licences to five listed companies to undertake various activities on Nairobi bourse including Housing Finance Company which was issued with Real Estate Investment Trust (REITs) trustee licences to handle real estate business.