Wednesday, September 19, 2018
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Dfcu Bank’s Key Investor To Quit After Controversial Crane Bank Deal

Crane Bank

Dfcu Bank is set to lose its major and oldest investor, CDC.

CDC, Britain’s oldest Development Finance Institution, joined hands with the Government of Uganda in 1964 to set up Dfcu.

CDC’s investment in Dfcu, according to the institution’s official website, is US$15.1m (equity) and US$10m (subordinated loan)

As of October 2017, the major shareholders of dfcu bank are;  Arise BV (majority shareholder with 58.71% ownership), CDC Group of the United Kingdom (9.97%), National Social Security Fund (Uganda)-7.69%, Kimberlite Frontier Africa Naster Fund (6.15%), SSB-Conrad N. Hilton Foundation (0.98%), Vanderbilt University (0.87%) and Blakeney Management (0.63%).

Others are Bank of Uganda Staff Retirement Benefits Scheme (0.59%), Retail investors (11.19%) and two undisclosed Institutional Investors (3.22%).

Over the last 50 years, CDC has been an active investor and provided advice to help the bank develop and grow.

CDC’s investment in DFCU has allowed the bank to provide the long-term funding to support the SMEs which are vital to Uganda’s economic development.

This has enabled businesses across a number of sectors to expand, providing sustainable jobs and an income to hundreds of thousands of people throughout Uganda.

After half a decade of doing business with DFCU, CDC on June 14 wrote to the Commercial Bank’s top management, communicating its intention to sell its stake.

CDC’s Investment Director in charge of Financial Institutions, Irina Grigorenko, said it was “undertaking a review of its investment in DFCU Limited which may lead to the disposal or some of some or all of its shares in DFCU over the short to medium term.”

The institution said after being a shareholder for half a decade, “it is our aspiration to exit in a manner that causes minimum disruption to the business and ensures the orderly trading of DFCU’s shares.”

Irina also indicated that CDC’s objective is to identify “like-minded investors who could support DFCU in its new phase of growth.”

It remains unclear how this will affect the bank but CDC expressed hope that DFCU would continue to “succeed with the support of Arise B.V., its major shareholder.”

DFCU has in recent months been battling former Crane Bank shareholders over property worth millions of dollars.

DFCU recently acquired Crane Bank from Bank of Uganda, a transaction that has sparked a heated legal battle in Ugandans courts of law.

Officials who spoke on condition of anonymity said CDC’s exit would not affect its liquidity as Arise maintains a strong financial muscle.

Arise’s investment portfolio includes Equity Bank, BPR, Zambia National Commercial Bank (Zanaco) and NMB (Tanzania) among others.

CDC said in its letter to DFCU that with the knowledge of the company and Arise B.V., “we have held preliminary discussions with a small number of potential investors” which include Cranemere Africa Limited and responsAbility Investments AG.

Cranemere is a holding company for outstanding businesses in the United States and Europe. Its shareholders are major families and institutions from the United States, Europe, the United Kingdom, Latin America, and the Middle East.

Cranemere’s chairman and founder is Vincent Mai who previously led AEA Investors, a private equity firm founded to make investments on behalf of Rockefeller, Mellon, and Harriman families.

The company’s CEO is Jeffrey Zients who previously served in President Barack Obama’s government as the acting director of the Office of Management and Budget.

On the other hand, responsAbility Investments AG describes itself as an asset manager in the field of development investments and offers professionally-managed investment solutions to private, institutional and public investors.

A private Swiss enterprise, founded in 2003 and headquartered in Zurich, responsAbility says its investment solutions supply debt and equity financing predominantly to non-listed firms in emerging and developing economies.

The company says its total assets are worth $3bn and has invested in Procredit Group (Germany) at the Chase Bank Kenya Limited (Kenya) and Hattha Kaksekar Limited (Cambodia).

Due diligence

It is understood that these investors have since asked to do due diligence on the bank.

The due diligence will see DFCU divulge information relating to business operations and risk.

This development remains a top secret at DFCU with documents containing information about the process labeled “Confidential.”

This investigative website is informed that DFCU had since agreed with CDC to subject all the discussions and disclosures to the highest level of confidentiality and that agreements with the potential investors “take place within the regulatory framework set by the Uganda Securities Exchange and Capital Markets Authority.”

CDC also emphasised that at this stage, “no transaction has yet been approved by CDC’s investment committee,” adding, “Any decision by CDC to sell its shares in DFCU would be subject to the approval by the investment committee of the terms of the sale as well as the agreement of legal documentation.”

 

The investment institution which is wholly owned by the British government, however,  indicated that it “may consider alternative exit routes, including a partial or full sale of our stake through a capital markets transaction, if no satisfactory progress can be achieved with the strategic investors.”

Efforts to secure a response from DFCU were yet to bear fruit. The bank was yet to respond to our questions when we filed this article on Tuesday night.

In 2000, DFCU started commercial banking through its subsidiary DFCU Bank.

CDC’s financial support has been coupled with wider support, for example through corporate governance and technical assistance. A recent loan of US$10 million from CDC helped to further strengthen DFCU Bank’s lending capability.

 

Juma Kisaame, Managing Director, DFCU Bank was recently quoted as saying: “DFCU is predominantly an SME bank. Our main strength is in providing long-term funding because there is a real need; there is a big gap in that area. That is where the likes of CDC give us the edge, because they think long-term and they also provide us with the money which we can then use to intermediate.”

Credit: Chimpreports

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