Co-operative Bank of Kenya will require up to Sh12.5 billion to revive the fortunes of the acquired of Jamii Bora, now trading as Kingdom Bank, a valuation report commissioned by the lender shows.
The report by the NCBA Investment Bank for internal use by Co-op Bank shows that the figure is based on the fact that Jamii Bora’s capital base had been significantly eroded by losses.
It was among the documents that Co-op shared with the Capital Markets Authority (CMA) and shareholders when it was seeking approval for the deal christened ‘Project Hope.’
“Project Hope requires at least Sh12.5 billion to revamp the business into a going concern,” says NCBA Investment in the valuation report.
CMA acting CEO Wyckliffe Shamiah cleared the valuation report two weeks ago, allowing Co-op to share with shareholders before they ratified the deal last week.
The report discloses for the first time that Co-op hired NCBA Investment to carry out a valuation exercise that led to the Sh1 billion purchase price that was arrived at last June.
NCBA Investment is a wholly owned subsidiary of NBCA Group, borne out of merger between CBA and NIC.
CBA was on course to buy Jamii Bora at Sh1.4 billion but pulled out of the deal to seal a share swap merger with NIC.
“Over the past several years, Jamii Bora has reported losses that have in effect eroded its capital base, prompting its search for a strategic investor to rescue the business,” says NCBA Investment.
“To this end, NCBA was appointed by Co-operative Bank of Kenya to carry out a valuation exercise that would aid in the purchase price determination.”
Co-op wants to use the acquired lender to create a niche bank to offer specialised credit offerings such as micro small and medium-sized enterprise banking, asset finance and leasing.
The report says that as at end of February—prior to the due diligence exercise—Jamii Bora’s bank equity value was at Sh239.9 million, significantly lower compared with Sh3.59 billion as at the end of 2016.
Against total liabilities of Sh13.69 billion, the report puts Jamii Bora’s assets at Sh845.9 million.
Based on the net asset value adjustments, NCBA Investment determined that Sh1 billion for 90 percent stake was the fair consideration Co-op could give to secure Jamii Bora’s licence as well assuming its liabilities.
The report also factored in full impairment of 57 million shares in the insolvent Uchumi. The stake was valued at Sh45.9 million— nearly a tenth of the acquisition price.
The valuation report discloses that Jamii Bora bank liquidity support from the Central Bank of Kenya had hit Sh1.79 billion at the end of February 2020.
The liquidity support sheds light on the challenges that were facing the lender whose last official financial results were for the first quarter of March 2018.
Jamii Bora had also borrowed Sh1.62 billion from other lenders in a bid to sustain the business.
The report puts Jamii Bora’s operational losses at Sh240 million at the end of last year, pushing retained losses to Sh16.8 billion.
The due diligence report says Sh236.15 million due from from Amana Capital, Credit Bank and other interest receivables were doubtful.