Tuesday, June 27, 2006

Equity Bank's refusal to take in fresh capital a major disapointment

Save for the effect of an aggressive advertisement campeign even the just concluded Kengen IPO would not have raised as much public iterest and investor excitement as Equity Bank's IPO. Kengen's IPO attracted 240,000 investors (individuals and corporates). Equity bank is home to more than 170,000 account holders most of them jua kali operatives and peasant farmers. All these would have willingly raised the approximate Kshs. 5000 required to purchase minimum shares at the IPO (using kengen's listing price)

It therefore came as a major surprise when then bank announced that they will not be seeking new capital when they list shortly. This means investors will not benefit fromthe rapid price appreciation as happened with Kengen. The employees and existing shareholders of the bank are likely to be major beneficiaries of the expected price jump.

Why is equity bank not ready to take in more capital?
the bank has a somewhat interesting capital structure. No individual shareholder commands more than 20% of the shareholding. The two largest shareholders are IFC with 16% and Britak Investment (read British American Insurance) with 12%. This gives them a combined total of 28%. Were they to take in more capital, this would mean dilution f the anchor shreholders stake ,which appears to be pricisely what the bank is avoiding.

This is a smar way of rewarding the minority shareholders without diluting the stake of anchor shareholders. More family run businesses in Kenya should emulate them.

2 Comments:

Blogger Ken said...

I think Equity's management understand the challenge of running a quoted company and the expectations of shareholders. Plus the possibility of some fat cat salivating and looking forward to own considerable equity in the firm.

I had wondered why they would approach the market for new capital considering the current owners are capable of raising itamongst themselves.

5:17 AM  
Blogger Shiroh said...

I didn't know that. I better grab some newspaper now. Interesting though

12:18 PM  

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