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11th May 2022

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Spire Bank in sale talks after exit of billionaire Merali

Monday May 03 2021


A Spire Bank branch in Nairobi. FILE PHOTO | NMG

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  • The loss-making lender says four investors are conducting due diligence and that a deal could be concluded before the end of the year.
  • The bank is no longer lending, with a negative capital position.

Loss-making Spire Bank is in sale talks with four separate investors in the quest for a turnaround after the exit of businessman Naushad Merali.

The bank last week disclosed to a parliamentary committee probing its financial health that the four investors are conducting due diligence and that a deal could be concluded before the end of the year.

The teachers-owned lender has been looking for a strategic buyer to inject much-needed capital after eight years of losses wiped out its core capital and shareholder funds, leaving it in breach of Central Bank of Kenya (CBK) requirements.

Last year it sought shareholders’ nod to engage potential suitors seeking acquisition of a 100 percent stake in the bank.

Mr Merali last November sold his remaining 25 per cent stake to Mwalimu National Sacco for an undisclosed fee in a deal that gave teachers full control of the struggling lender. But the deal is yet to be registered at the register of companies.

Acting Spire Bank managing director Brian Kilonzo says the sale of a stake in the bank is key to allowing the lender to start growing its loan book.

The bank is no longer lending, with a negative capital position. Loans issued shrank from Sh3.3 billion in 2019 to Sh2.5 billion at the end of last year.

“There is active engagement going on to engage a strategic investor to unlock the bank’s performance. Currently, we have four potential investors and decisions are ongoing at shareholder level to ensure it is completed,” Mr Kilonzo told MPs.

“These are private entities with due diligence being undertaken so we can’t disclose the names for confidentiality purposes.”

This marks the latest attempt by the lender to sell its shares after three suitors backed out of a deal. UK-based crypto lender BlockBank walked out of a deal after expressing initial interest in 2018.

BlockBank had approached the teachers’ bank but failed to prove it had the money needed to seal the deal, going quiet after announcing the proposal.

“But for the ones we are talking about, we have gone fairly far and one of the things we are negotiating includes how much they can pay to shareholders,” said Mr Kilonzo.

“I can almost say towards the end of this year, we will probably have got somebody who is serious and meeting the conditions of prudential guidelines.”

The lender sank into a Sh1.2 billion loss for the year ended December 2020 from Sh472 million a year earlier.

This left it with a deeper negative asset base of Sh1.8 billion, putting Sh4.79 billion customer deposits at risk.

Mwalimu, which is owned by teachers, first acquired a 75 percent stake in the lender, then operating as Equatorial Commercial Bank, and owned by Mr Merali.

Last year, it acquired the remaining 25 percent, offering it full control of the loss-making bank.

Over the last couple of years, Spire Bank’s accumulated losses of up to Sh8.4 billion have wiped out shareholder funds, which now stand at negative Sh1.8 billion. This means that the teachers’ investment in the bank has been wiped out.

Mr Merali’s sale of the bank and his withdrawal of Sh1.7 billion deposits from Spire Bank days after selling the lender to Mwalimu has added to concerns that the businessman sold teachers a dead bank after pocketing Sh2.4 billion for ceding the 75 percent stake.

It requires Sh3.5 billion to meet the CBK’s minimum capital levels. Teachers have sunk more than Sh4 billion in the bank.

The sacco’s buyout of the bank had raised eyebrows when it first became public, with various government agencies opposing the deal before later approving it. Mwalimu made the acquisition without conducting due diligence on the bank.

Former officials of the sacco were also accused of conflict of interest, with former CEO Robert Shibutse having worked for the then Equatorial Commercial Bank and other companies associated with Mr Merali.

Ahead of the transaction, the lender transferred its office building, Equatorial Fidelity Centre in Nairobi’s Westlands area, to its associate company Fidelity Shield Insurance, in which it held a minority stake at the time. Despite the lender’s historical losses, former officials of Mwalimu remained upbeat about the deal.

Mr Shibutse, for instance, argued that the transaction would save Mwalimu banking fees and stop its members from fleeing the sacco to mainstream lenders.

2021-05-03 07:00:00

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