A parliamentary committee has voted to stop the planned takeover of National Bank of Kenya by KCB Group on grounds its offer undervalues the state-controlled lender.
Instead, the National Assembly Finance and National Planning Committee wants NBK to consider raising capital through a rights issue instead of an acquisition by the privately-owned KCB, Kenya’s largest lender by assets.
“The offer given by KCB does not reflect the value of NBK,” the committee’s Chairman Joseph Limo told Bloomberg in an emailed statement on Wednesday.
KCB values NBK at Ksh 6 billion, which is one third below an independent assessment by advisors at Standard Investment Bank.
KCB has made a proposal to acquire 100 per cent of the NBK’s ordinary shares upon re-designation of the preference shares into ordinary shares through a share swap of 10 ordinary shares of NBK for every one ordinary share of KCB.
The independent advisors, in their report, valued the bank at Ksh 9.0 billion with the “value indicatively up to Ksh 6.62 per share or 1 share of KCB for every 7.05 shares of NBK.”
“Based on the valuation analysis, the indicative exchange ratio proposed of one (1) ordinary share of KCB for every ten (10) ordinary shares of NBK may not be adequate. We, however, note that NBK is operating at way below the required regulatory capital level which exposes the company to considerable risk of regulatory action,” the advisors concluded.
Last month, the NBK Board issued a cautionary circular to shareholders informing them of the undervaluation but also asked them to consider the KCB proposal in the absence of any other offer.
“NBK remains to be a strong bank, and it requires additional capitals to meet regulatory capital requirements and to grow its business, which can be provided by KCB,” NBK chairman Mohamed Hassan said.
KCB offer opportunity to strengthen struggling lender
Also sent to shareholders was an independent advisors’ report, letters and acceptance forms, which were to help them decide either to accept or reject KCB’s proposal for the full takeover of the bank.
The transaction was still subject to regulatory approvals from the Capital Market Authority (CMA), the Central Bank of Kenya and Competition Authority of Kenya.
In May, KCB shareholders gave the go-ahead for the lender to acquire NBK with Group Chairman Andrew Kairu saying the acquisition presents an opportunity to strengthen the bank’s deposit base and lending capacity.
It will also increase cost efficiencies due to economies of scale and boost transactional revenue through leveraging of technology, he added.
KCB intends to acquire all of the NBK shares and maintain it as a subsidiary and will continue operating NBK’s banking business alongside KCB Bank Kenya Limited, its wholly-owned subsidiary which is in the same line of business, for a period of two years, after which it will integrate the two banks.
NBK shareholders have until August 30 to accept or reject the offer with results being announced by September 9. The dates are, however, indicative.
During the Annual General Meeting on June 14, NBK shareholders had conditionally approved the re-designation of the preference shares.
As a result of the re-designation of the preference shares, following completion, the issued ordinary share capital of NBK will increase by 1,135,000,000 from 338,781,200 to 1,473,781,200 ordinary shares and its shareholding will be dependent on the number of acceptances received by KCB.
If KCB receives acceptances in respect of 100% of the share capital of the NBK, the
shareholders will acquire, on a pro-rata basis, a total of 147,383,968 ordinary shares in the share capital of KCB, equivalent to approximately 4.59% of the share capital of KCB.
If completion does not occur the shareholding of NBK will not change.
