(Last Updated On: April 2, 2015)
Equity Group Holdings plans to set up more subsidiaries in 10 different countries within the next 10 years at a total cost of an estimated Ksh200 billion. Loan agreements worth Ksh36 billion have already been signed with a total target of Ksh40 billion and Ksh20 billion worth of new shares have already been signed. The other route of financing will be through a Ksh140 billion rights issue or a secondary IPO.
Currently Equity operates in Kenya, Uganda, Tanzania, Rwanda and South Sudan, which is a total of 5 countries. In the next 2 years, it plans to venture into Ethiopia, Burundi and Democratic Republic of Congo. Afterwards, it will set up in Mozambique, Malawi, Zambia and Zimbabwe. After 5 years, the bank will go to West Africa starting with Nigeria, Ghana and Cameroon.
Equity does not plan to start from scratch in some countries but will acquire a medium-tier bank then grow it. This will be done through a share swap deal hence the need for the new shares. Three of the countries is where this model will be used and this is most likely to be in countries with higher banking penetration.
Entry into Ethiopia still has a hurdle since the country has signed the World Trade Organisation agreement hence has locked out foreign companies from its financial sector among others. The country is very attractive due to it high population of over 94 million people with 90% of the adults as unbanked. DRC has 13.8% of its adults as banked with a high population of over 67 million and high amounts of minerals. Infrastructure is still lacking a lot so lots of financing in these sectors will be needed.
The agency model is what Equity will bank on to keep costs down and increase penetration. The creation of new shares will dilute the share value by 10 percent.