In what was an exciting banking landmark deal that was to see Kenyan giant Equity bank acquire four loss making banks owned by AtlasMara at a discount, deteriorating sovereign risks in Zambia, Zimbabwe and Mozambique save Rwanda are causing valuation quagmires for the East African giant. The deal was structured in such a way that no cash would change hands but the turbulent fundamentals are rather putting Equity bank at the receiving end of a hard bargain in proceeding with the transaction.
Zimbabwe’s hyperinflation and exchange rate instability, while Mozambique’s economic woes and Zambia’s fiscal stresses manifesting in rising rates and currency weaknesses are deterring shareholders from proceeding with the transaction. The Tanzania unit has persistently been loss making, wider than ever making it very unattractive to buy the unit.
In a notice to shareholders on the Nairobi Stock News, Equity Bank fell short of announcing the deal had collapsed, stating that although currently there was “no certainty that a transaction will materialize,” negotiations are ongoing.
“EGH and ATMA expect to continue further discussions in early-2020 to try to reach mutually acceptable commercial terms with respect to the proposed transaction, or a variant of it,” said Dr James Mwangi, Equity Group chief executive.
He added the bank remains committed to its strategic objective of expanding its footprint in Africa as part of a strategy to become sub-Saharan Africa’s premier financial institution.
AtlasMara has undergone ownership changes across Africa over the years with the Zambian unit morphing into a merger of BancABC and Finance Banks as it contends to be the largest bank in the copper producer by branch size.
The 62% Rwandese bank take over however is the only deal making sense given the bullish fundamentals in the ‘Singapore of Africa’.
Uncertainty continues to cloud the future of the transaction and if does go through, Equity Bank will have to be very patient to realize a return on equity above water.
The Kwacha Arbitrageur
