A Sh100 note might not be enough to get you to work and back home if you use public transport.
If anything, you would probably need more than twice that amount daily if you commute from Nairobi’s central business district to Ongata Rongai for work - a distance of about 20km from the city centre.
The amount is also unlikely to get you a decent lunch in the city. In fact, Sh100 might not even be enough to cover a cup of tea and a mandazi in a modest restaurant.
Even in rural Kenya, where the cost of living is considerably lower, Sh100 might not see you through one day.
Yet, despite the small value, Sh100 can apparently afford you a bank in Kenya if the precedence set by a Mauritian financial services firm is anything to go by.
SBM Holdings, which operates the Mauritian SBM Bank, paid only Sh100 to purchase Fidelity Commercial Bank according to regulatory filings it made at the Mauritius Stock Exchange on November 22, 2016.
The new owners of Fidelity Bank will not give the details of the health of the bank before acquisition which may have played part in determining the low pricing.
They only mentioned that the bank was in turmoil, with the governance and management of the institution wanting, and was barely meeting its statutory regulatory requirements.
The extent of the turmoil was such that after two teams of transaction advisors (separately hired by SBM and Fidelity Bank shareholders) sat to undertake valuation, they eventually agreed that the bank was worth about a dollar (Sh100).
Fidelity Bank in May this year re-branded to SBM Kenya after the conclusion of the buyout. “Any purchase is linked to a valuation. We did not do the valuation. This was done by a transaction adviser from our side and the other appointed by the shareholders,” explained Moses Harding, an advisor to the SBM Holdings board in an interview with Financial Standard.
“The third party entities did the valuation and their findings were mutually agreed upon by the two parties. Everybody signed on the document and everybody felt that it was the right value otherwise the transaction would not have taken place.”
The sale agreement contained other conditions for the purchase that include Sh2 billion ($20 million) capital injection in the bank.
According to Mr Harding, the bank had been in the red at the time of the acquisition and a lot of work was required to be undertaken before the bank becomes a formidable player in Kenya’s financial services sector.
Fidelity, according to Harding, was almost falling below statutory minimum capital requirements, its liquidity ratio was below the Central Bank requirement and its non-performing loans was getting out of control.
Thus, despite the shareholders taking nothing home, the investors had to put in much more than the Sh100 price they offered to ensure that they were within the legal requirements for the transaction to take place.
“From the valuation, the assumption is that we paid one dollar but we needed to make it a performing entity... they were defaulters on all regulatory parameters. To upgrade that in to a performing entity and ensure all parameters are within the regulatory requirements we promised to pump in Sh2 billion capital,” explained Harding.
“One of the key considerations was a capital injection of Sh2 billion and unfortunately, the amount could not go to the shareholders because if you reduce the Sh2 billion, then the real value would have been negative. So to upgrade a negative value stock to a going (performing) stock that can remain in operation and safeguard depositors’ money, we chipped in.”
Fidelity Bank’s shareholders approved the proposed sale in December 28, last year but the vote was not unanimous. Three shareholders with a combined stake of 4.91 per cent in the bank had not given approval for the sale of the bank.
The three, Mr Aziz Javer, Mr Firoz Jessa and Ojelo Investments, will now be compulsorily acquired and SBM Holdings has already commenced the process.
In a public notice published in April this year, SBM notified the three shareholders that it had ‘commenced the process of compulsory acquiring the remaining 4.91 per cent of the issued share capital in FCB pursuant to the provisions of the Companies Act’.
Harding also noted that SBM had already commenced reorganising the Kenyan operation, noting that the owners of the under five per cent stake were not an impediment to these efforts designed to turnaround the bank.
“The regulation demands that we meet a minimum 90 per cent approval, and we had 95 per cent agreement. Those that do not agree, the legal option would follow.” The Port Louis-based bank rebranded the Fidelity in May as well as made new hires, including appointing new directors to the board. The new appointees include Melvins Tea founder and Kenya Manufacturers Association chair Flora Mutahi, Strathmore University lecturer Dr James Mcfie and lawyer Sharad Rao.
The bank has also appointed Jotham Mutoka as chief executive of SBM Kenya.
These and other changes that Harding said would be implemented over the coming months would over the next three years see the bank enter into the top tier banking segment and have a footprint across East Africa.
SBM Kenya will in the initial days try and compete for big bank accounts, targeting corporates, medium sized enterprises and high net-worth individuals.
It is hoping to capture the attention of rich Kenyans with the offering from its investment arm, which Harding said has expertise and experience in handling onshore and offshore investments.
“We have a two point agenda in expanding in Kenya, which are moving in the top tier segment from the current 31 position and having a presence in other East African countries. We expect to achieve these targets in the next three years,” he said.
“We see opportunity in wholesale depositors. A number of banks have gone down over the last couple of years... depositors have lost money and they are looking for a strong bank where their funds will remain safe. We are bringing stability to our balance sheet.” The bank, he says, will not embark on growing brick and mortar branches in the short and medium-term, and only expects to increase its branch network to three more towns outside of Nairobi and Mombasa, where it has ten branches.
“We are currently in Nairobi and Mombasa and plan to go into two or three more towns. We are looking at the optimum number of branches for a wholesale bank. In the short-term, we will focus on wholesale and build balance scale,” reckoned Harding.
“When we achieve that, we will go into retail, mostly in the medium-term.” SBM Holdings entry into Kenya is part of its expansion strategy that is expected to see it increase footprint in India as well as get into Africa, where other than its home country of Mauritius, it has an operation in Madagascar. Harding said having a presence in India and Africa placed it in the middle of a corridor with a large trade volume and which is poised to further grow.
“In our African expansion, our first choice was Kenya, where we plan to build a financial hub and then develop spokes into other African countries,” he said.
“It’s a good time to enter Kenya... The financial services sector has been in turmoil, the worst is behind and though the best has not been sighted, it is not far away and that’s our feeling when we are getting into Kenya.”
While he could not disclose the amount that SBM will be spending on its Kenyan unit in the coming years, as it builds confidence in the brand, Harding, however, pointed out that the company has adequate funds to finance new operations.
“Other than the initial Sh2 billion capital injection, we have adequate growth capital for the next six months. Capital is there and it will be put to work... we have appetite and the flow will depend on the business requirements,” he said.
Among the recent banks that have been acquired include Fina Bank (acquired by GT Bank), K-Rep now Sidian Bank (Centum), Giro Bank (I&M Bank) and Oriental Commercial Bank (M Bank). There are also a couple that have also initiated the process to sell stakes to both local and international investors.
Analysts note that there is a high likelihood that similar consolidations will take place as struggling players seek ways to stay afloat.