Equity Group and Atlas Mara have mutually agreed to discontinue discussions that would have made the Kenyan lender taking over some of its business units in Rwanda, Zambia, Tanzania and Mozambique.
Atlas Mara was to be paid in the form of Equity shares amounting to a 6.72 percent stake with a current market value of Ksh13.6 billion ($136 million). However, in January, they said no binding agreement had been signed for undisclosed reasons.
“After careful consideration, EGH and ATMA have mutually agreed to discontinue discussions on the proposed transactions, or a variant of it, for the foreseeable future,” said Equity Group in a statement issued Tuesday.
In May 2019, Equity Group announced its intention to acquire certain banking assets of Atlas Mara (ATMA): 62.0 percent shareholding in BPR Rwanda, and 100.0 percent shareholding in ABC Zambia, ABC Tanzania, and ABC Mozambique.
“The reasons for this decision include the need to refine EGH’s strategy given the COVID-19 pandemic. This refinement entails conserving cash and liquidity including the non-declaration of dividends for the financial year ended 31 December 2019 and deploying it to support customers in existing businesses.
At the same time management will continue to place focus on accelerating the push to digital channels and growing the Equity Group’s various non-funded income franchise while re-evaluating the acquisition of new businesses where significant capital and managerial attention is required.”
Dr. James Mwangi, Managing Director and CEO of EGH Plc said concluded that, “The Group is committed to its strategic objective of expanding its footprint in Africa to provide access to competitive, tailored financial services to improve people’s lives and livelihoods whilst also delivering significant value to its stakeholders. At the same time, the Group continues with its vision of building sub-Saharan Africa’s premier financial institution through delivering innovative products and services to customers including, in particular, the effective use of technology self-service banking.
“In our view, the bank’s geographical diversification strategy has continued to emerge as a net positive, with the bank’s various subsidiaries in Uganda, DRC, Rwanda, and South Sudan cumulatively contributing 25.0% of the bank’s total profitability and 28.0% of the group’s total asset base in Q1’2020.
However, the completion of the Atlas Mara deal would have caused a strain on the balance sheet of Equity Group given the current tough operating environment and the poor performance of some of its subsidiaries especially the Tanzanian subsidiary, which recorded a loss of Kshs 0.07 bn in Q1’2020 from Kshs 0.10 bn in Q1’2019.
We are of the view that the drop off plan is commendable and in line with the Group’s strategy of exercising prudence, aimed at preserving capital in the wake of the COVID-19 pandemic.
Key to note, according to Atlas Mara’s Banking components results for the year ended 31 December 2019, of the four banks Equity Group was to acquire, there was an improvement in performance in Rwanda, and underperformance in Mozambique, Tanzania, and Zambia, attributable to challenging macroeconomic and market environment, thus underpinning the major concerns in Equity’s regional expansion to those countries,” commentary from Cytonn Investments.
Updated with Cytonn Investment’s commentary.