Kenya: Great Expectation in Stanbic, CFC Merger

The East African Standard (Nairobi)

January 30, 2007Posted to the web January 30, 2007

South African muscle is truly beginning to be felt in Africa's banking circles as a race for territory in corporate and retail banking comes to a head.
It looks like the contest will now be down to Absa/Barclays, the Stanbic/Standard Bank network and Standard Chartered Bank.
Absa has confirmed it has begun arm's-length discussions to buy Barclays' African units - the long awaited phase two of their deal with the UK giant.
South Africa's Standard Bank Group trades under the name Stanbic Bank in Botswana, the Democratic Republic of Congo, Ghana, Kenya, Malawi, Nigeria, Tanzania, Uganda, Zambia and Zimbabwe.
Its rival Standard Bank is now sounding out Kenya's sixth-largest bank, CFC, with a merger plan. Standard Bank (which operates as Stanbic in some countries) is just fresh from listing part of its Ugandan operation. It has a head-start over Absa in its race, so news of the CFC-Stanbic merger talks has captured the imagination of investors in an unprecedented way.
It kicked off in controversial fashion with a little snafu at the Nairobi Stock Exchange. In a cautionary announcement to shareholders appearing in the press on Thursday last week, CFC Bank announced that the company, and certain of its major shareholders, has entered into merger negotiations with Stanbic Bank Kenya. CFC Bank shares rose 181 per cent in the wake of the news to trade at an average of Sh368 up from Sh131 recorded at close of business on Wednesday.
Abnormal rise
Investors rushed for the shares, pushing the price to a record high of Sh900. The bank's shareholders had struck gold! But the party did not last long.
Reports now emerging from the Nairobi Stock Exchange (NSE) indicate that the transaction that pushed the share prices to Sh900 has now been cancelled. NSE chairman, Mr Jimnah Mbaru, was quoted as saying that the Sh900 transaction was 'abnormal' and a 'mistake.' He now claims that some one must have exploited a 'loophole' that exists in the stock market rules to push the share prices by a whopping 587 per cent.
"There was a mistake, but once this was noted and rectified trading resumed at normal prices," said Mbaru.
The NSE chairman did not stop there; he is now calling for a review of the stock market rules to limit the level to which a share price can rise after a major corporate announcement.
"About 20 to 30 per cent is reasonable but above that is unreasonable," said the NSE boss.
Currently, the rule is that a share price cannot be allowed to rise by above 10 per cent of its previously recorded price on a normal trading day. This rule is, however, lifted whenever there is a major corporate announcement (as was the case with CFC) or during a stock's first day of trading.
Amidst all this drama, CFC Bank shareholders must be have been left wondering what would have been. The CFC Bank counter was quiet in Friday's trading, with no transaction recorded. Again, it is a plausible argument that the investors are holding dearly onto their priced possession anxiously waiting to make the move when time is right. This, after all, is what trading in stocks is all about!
Stanbic wants 50 per cent
The financial value of the deal, according to the statement issued on Thursday, is currently being negotiated and will be pegged on, among other things, the price of CFC Bank shares on the Nairobi Stock Exchange (NSE) over a 30-day trading period up to, and including January 18 this year. With 156 million shares and an average price of Sh117 in the week ending Friday, January 19 this year, the bank's market capitalization is about Sh18.25 billion.
The Standard Bank Group of South Africa, the Stanbic Bank Kenya parent company is reportedly negotiating for a controlling shareholding (above 50 per cent). The final deal, theoretically, cannot therefore be anything less than Sh9 billion. A source has confided to the FS that it will be anything between Sh10 billion and Sh11 billion.
If successful, the merger will result in what experts are referring to as a 'reverse take-over', where the smaller entity takes over control of the larger entity. Stanbic Kenya had assets worth approximately Sh23.2 billion as at September 30 last year (provisional statements).
A statement by CFC Bank puts CFC Bank shareholders' funds at approximately Sh4 billion ($62.8 million) and total assets at approximately Sh39 billion ($557.6 million) as at 30 September 2006.
CFC Bank recorded a pre-tax profit of Sh865 million in 2005, while Stanbic Kenya recorded a profit of Sh439 million in the same financial year.
Standard Bank Group is a big fish with a global stature.
The group has a representation spanning over 18 African countries and 21 countries outside the African continent, including the key financial centres of Europe, the United States and Asia. It is listed at the JSE and has 746 branches operating in South Africa and 241 in the rest of Africa.
Shareholder Information from the Nairobi Stock Exchange as at September last year gives a list of CFC Bank shareholders who are hiding behind the veil of incorporation.
Gambit Holdings, with over 71 million shares (45.6 per cent) is listed as the largest shareholder, followed by African Liaison with 43 million shares (27 per cent) and Sovereign Trust Ltd with 19 million shares (12 per cent).
Institutional shareholders own a cumulative total of 144 million shares (92 per cent) of the bank, and are all listed as local investors. CFC Bank is associated with current and former powerful political figures.
Mr Charles Njonjo, a former Constitutional Affairs Minister, is the current chairman, while Mr Joshua Kulei, a close aide to former President Daniel Moi, once sat on the CFC Bank board.
The top local individual shareholder, who is listed in his name, is Mr Kamau Mike Maina, with 1.5 million shares (0.79 per cent). A quick arithmetic puts him at Sh552 million shillings rich, Sh355 million shillings richer than he was before the share's meteoric price rise.
Share prices are however known to fluctuate and therefore this figure is only recognised as a 'potential' worth, until it is realized through a sale of the shares.
Mr Charles Njonjo, the Bank's Board chairman has 234,000 shares listed in his name, though his actual shareholding in the firm is suspected to be substantially higher.
The late Mr Prahlad 'PK' Jani, the bank's founder, is also believed to have a substantial shareholding in the Bank.
Implications of the proposed transaction are bound to have far reaching effects. It is still not clear if CFC will change its name. The capital markets authority is also expected to rule whether if the bank will be de-listed from the stock exchange upon acquisition by the South African Bank.
Successful conclusion of the transaction is, however, subject to approval from the Ministry of Finance, Central bank of Kenya, the Capital Markets Authority and the Monopolies Commissioner.
Meanwhile, all the interested parties wait with bated breath.