Why did Centum end the sale of Sidian Bank?
Monday, January 16, 2023
Centum Investment Company Plc demanded payment of Sh4.3 billion all at once for its 83.4 per cent stake in Sidian Bank, a demand that was not met by Nigeria’s Access Bank and led to the collapse of the deal.
The parties began discussions in 2021, culminating in the signing of the purchase agreement in June 2022.
Centum CEO James Mworia told Business Daily that the company was to be paid Sh1.7 billion after two years from September 2022 when the transaction was originally expected to close.
READ: Centum sells Sidian Bank for Sh4.3 billion to Nigerian lender
Securing approval from authorities in Kenya and Nigeria, however, took longer than expected and went past a long stop date of December 5, 2022 – a time when the parties could agree to extend the deadline under the same or revised terms.
Mr Mworia said Centum decided to request that it be paid Sh4.3 billion at once, adding that the company would have suffered a significant economic loss if it had accepted payment of the balance of Sh1.7 billion which would have been the delayed date extending until the end of 2024.
“What made sense in 2021 is not what made sense in late 2022 and now early 2023,” Mr Mworia said, noting that a delayed payment would deny the company an opportunity to deploy cash in assets such as government bonds that currently yield more than 14 percent.
He said Sidian Bank’s improved profitability and major changes in the macroeconomic environment required the compensation to be made all at once without an upward price adjustment.
“When we agreed to the deal, the shilling was stronger and inflation was lower,” Mr Mworia said, adding that Sidian Bank had also become more profitable since it embraced risk-based lending.
“Had we proceeded with the transaction on the original terms, we would have surrendered assets that appreciate in value for depreciable assets [cash],” he said, noting that the failed contract was denominated in Kenyan shillings.
The local currency depreciated 12 percent to currently 124 units to the dollar from 109 units at the beginning of 2021.
The inflation rate, meanwhile, stood at 5.7 percent in January 2021 and rose to a peak of 9.6 percent in October 2022 before easing slightly to 9.1 percent last month.
Sidian Bank reported a net income of Sh390.2 million in the nine months to September 2022, up from Sh369.4 million a year earlier.
By the time the parties began talks, the bank was already on the road to recovery after suffering heavy losses in 2017 and 2018 following interest rate controls introduced in September 2016.
Centum found Access Bank’s offer attractive in terms of freeing up cash for other purposes rather than making a profit on its stake in Sidian Bank on which it spent a cumulative Sh4.7 billion.
READ: Why we sold Sidian Bank to a Nigerian lender at a loss
The Sh4.3 billion offered by Access Bank was however a large premium on the estimated stake value of Sh2.7 billion.
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