Danish fund obtains Sh1.2 billion shares in Sidian Bank

Sidian Bank has signed a Sh1.2 billion capital injection with Investment Fund for Developing Countries (IFU), a Danish private equity, in a deal that will see it progressively cede a 20 percent stake to the lender.

The cash investment is expected to firm up Sidian’s regulatory capital ratios and support lending to SMEs.

The Danish fund, which is also a shareholder in the 310-megawatts Lake Turkana Wind Power firm, could become Sidian’s second-highest shareholder if it converts the entire investment into equity. Centum Investment Company is the bank’s majority shareholder.

Sidian Bank board chairman and Centum CEO James Mworia signed the deal with IFU Vice-President Morten Elkjaer, concluding nine months of negotiations.

IFU will get seats on Sidian’s board of directors.

“As part of the financing agreement, IFU will have the option within the first three years, to convert the outstanding principal loan into equity which will translate to shareholding of approximately 20 percent of the bank,” said Mr Mworia.

Current shareholders

This means IFU will dilute current shareholders including K-Rep Group Limited which is currently the second-highest shareholder in Sidian after Centum, which holds a 72.93 percent stake.

K-Rep had a 17.05 percent stake as per the December 2017 annual report.

Sidian Bank had posted a loss of Sh164.92 million by end of September 2018 and breached total capital to total risk weighted assets ratio by 0.5 percentage points. Its total assets were Sh25 billion.

IFU made its first investment in Kenya in 1970 and has also invested 68.4 DKKm (million Danish Krone) – an equivalent of Sh1.04 billion- in Lake Turkana Wind Power Project (LTWP).

Sidian Bank CEO Chege Thumbi said IFU will have two seats in the lender, raising the number of directors to seven. The bank has formally notified the Central Bank of Kenya (CBK) of the shareholding and board changes.

“One will be a board member and another one will be an observer. They need to go through CBK clearance then join the board once approved,” said Mr Thumbi.

Mr Mworia expects the entry of IFU into the board to strengthen governance and set the bank for growth as it eyes tier II status by 2022.

Total disbursement

IFU has 10 other active investments in the country including in LTWP, Rabai Power Plant, Radisson Blu Hotel, COOP Kenya, Insta Products and Afriscan Kenya.

Total disbursement is 347.6 DKKm (Sh5.4 billion), being IFU’s largest portfolio in Africa.

Mr Elkjaer hailed the latest deal as IFU’s first investment in a financial institution that will serve to deepen its investment in the country as it turns focus on SME-centred entities.

“We have not done so much in financial services, but we see this as an area with high development impact opportunities and that is why our board approved this deal,” he said.

“We have an office here and a strong team to ensure that our investments are successful in terms of good returns and high development impact.”