Britam Holdings to sell stake in HF Group to major bank
Insurance group Britam Holdings plans to sell part of its 48.2% stake in the mortgage financier HF Group to one of the country’s major banks as part of a review of its investment portfolio.
A director at Britam, who cut nine senior positions last week, told Business Daily that a transactions advisor had been hired to guide the process, which is expected to be completed by the end of the year.
“The plan is for one of the big banks to acquire a controlling stake in HF and manage it. The partial exit from HF should allow Britam to focus on its core insurance business, ”said the director, who asked not to be identified about the sale of shares.
“Britam could keep a small stake in HF as a passive investor, as it does in Equity Group. This means that an offer will also be made to retail investors in HF.
Potential suitors will look to get on HF to expand into the mortgage market.
HF is ranked second in the residential mortgage industry, having loaned 33.7 billion shillings to 4,717 homebuyers in December 2019, according to data from the Central Bank of Kenya.
KCB is the segment leader, lending 64.3 billion shillings to 8,404 customers during the same period.
“A large bank with access to a cheaper source of funds can easily make HF profitable,” the source said.
Meanwhile, Britam will continue to support the mortgage financier as the process of engaging new strategic investors continues.
The insurer recently granted HF a medium-term subordinated loan of 1 billion shillings to bring the lender into compliance with minimum capital requirements after years of losses eroding its asset base.
The insurer invested more than 5 billion shillings to acquire HF’s stake through several transactions, including the buyout of Equity Group’s 24.7% stake in the mortgage lender in 2014 for 2.8 billion. shillings.
The HF share price has fallen to current lows of Sh3.48, placing its market cap at Sh1.34 billion and valuing Britam’s stake at Sh646 million.
The price at which the insurer and other small shareholders will sell their stakes in the impending transaction should be based on negotiations with interested investors.
Britam invested in HF with the aim of gaining new clients and expanding its real estate investment portfolio with the mortgage financier who has been in the real estate industry for decades.
“HF Group Plc is a strategic partner of the group, providing access to new customers and distribution channels for the insurance industry and experience in real estate development,” Britam said in its latest annual report.
“The investment is in line with the group’s strategic plan, in which the group expects to leverage existing and potential synergies to drive joint business initiatives while delivering returns as a portfolio investment. “
However, HF has suffered heavy losses in recent years due to the cap on lending rates between September 2016 and November 2019, a slowdown in the real estate market and more recently the economic fallout from the Covid-19 pandemic.
The planned takeover of HF will continue the trend of large banks to take over small troubled institutions, some of the deals encouraged by the Central Bank of Kenya to anchor financial stability in the banking sector.
Co-op Bank invested 1 billion shillings last year to acquire a 90 percent stake in the capital-strapped Jamii Bora Bank, which it renamed Kingdom Bank.
The KCB group finalized in 2019 its buyout of the National Bank of Kenya as part of a share swap agreement in which the country’s largest bank issued one share for 10 shares it was buying from the lender medium sized.
The agreements served to further expand the major banks that dominate the industry by most measures, including assets, number of customers and profitability.