CIRCULAR TO SHAREHOLDERS
IN RELATION TO:
PROPOSAL FOR ISSUE OF UP TO 363,722,034 NEW ORDINARY SHARES IN CONNECTION WITH THE
ACQUISITION OF THOSE SHARES OF I&M BANK LIMITED (I&M) NOT ALREADY OWNED BY CITY
TRUST LIMITED (CTL) A PUBLIC LIMITED COMPANY LISTED ON THE NAIROBI SECURITIES
EXCHANGE, BY MEANS OF A SHARE EXCHANGE OFFER
ADVISED BY:
INDEPENDENT ADVISER
LEGAL ADVISER
AUDITORS
Shareholders Circular
__________________________________________________________________________________________________________________________________________________________________
IMPORTANT NOTICE
THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION
If you are in any doubt about this offer, you should consult the independent
adviser appointed by your Board of Directors, or your investment banker,
stockbroker or other professional investment adviser.
If you have sold or transferred all of your ordinary shares in City Trust Limited (CTL),
please forward this document (and the enclosed Notice and Proxy Form) immediately to the
investment adviser, stockbroker, banker or agent through whom the sale was effected for
transmission to the purchaser or transferee of the shares.
If you are currently a shareholder and are unable to attend the extraordinary general
meeting (EGM) on February 20, 2013, please complete and return the attached Proxy
Form in accordance with the instructions thereon and send it to the registered office of CTL,
Deloitte Place, Waiyaki Way, Muthangari, Nairobi.
This Circular is issued pursuant to the requirements of The Capital Markets Act (Chapter
485A), The Capital Markets (Securities) (Public Offers, Listing and Disclosures) Regulations,
2002 and The Capital Markets (Take-overs and Mergers Regulations), 2002 and relates to
the proposed offer by CTL to acquire those Shares of I&M Bank of Kshs. 100/= each which
are not already owned by CTL.
Approval has been obtained from the Capital Markets Authority (CMA) in respect of the
compliance of this Circular with the Capital Markets Act and applicable regulations. As a
matter of policy, the CMA assumes no responsibility for the correctness of any statements or
opinions made or reports contained in this Circular. Approval of the Circular by the CMA is
not to be taken as an indication of the merits of the Offer or as a recommendation by the
Authority to the shareholders of CTL.
The Nairobi Securities Exchange (NSE) has given its approval for the listing of all the New
Shares (hereinafter defined) on the Main Investment Market Segment (MIMS) of the NSE.
The NSE assumes no responsibility for the correctness of any of the statements made or
opinions or reports contained in this Circular. Approval of the Circular by the NSE is not to
be taken as an indication of the merits of the transaction or as a recommendation by the
NSE to the shareholders of CTL.
A Notice of an Extraordinary General Meeting of City Trust Limited which is to be held at
10:00a.m. on Wednesday February 20, 2013 at Deloitte Place, Waiyaki Way is set
out at the end of this document. A form of proxy for use by shareholders is also enclosed.
Dated: January 21, 2013
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Shareholders Circular
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Table of Contents
Important Notice ................................................................................................................................................. 2
Part I General ................................................................................................................................................... 4
1.
2.
3.
Definitions ............................................................................................................................................ 6
Introduction ......................................................................................................................................... 9
2.
3.
4.
Effect Of The Transaction On The Existing Shareholders And The Companys Financial
Position ............................................................................................................................................... 11
5.
6.
7.
8.
9.
2.
3.
4.
5.
Notes ................................................................................................................................................... 63
6.
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Shareholders Circular
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PART I GENERAL
1. TIMETABLE OF KEY EVENTS
Latest time to return proxy forms for the EGM
EGM
Proposed Opening Date for the Offer for I&M Bank Tuesday, March 5, 2013
Shareholders
Proposed Closing Date for the Offer
Proposed Date to lift suspension on trading of CTL Friday, April 19, 2013
shares
Press Announcement of the outcome of the Offer
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2. TRANSACTION ADVISERS
Independent Adviser
Dyer and Blair Investment Bank
10th Floor, Pension Towers,
Loita Street
P.O Box 45396, 00100
Nairobi
Legal Adviser
Kaplan & Stratton
9th Floor, Williamson House
4th Ngong Avenue
P.O Box 40111, 00100
Nairobi
Name/Title
Paul Orem
Chief Executive Officer
porem@dyerandblair.com
Leah Nyambura
Corporate Finance Analyst
leah@dyerandblair.com
Name/Title
Oliver Fowler
Partner
ofowler@kapstrat.com
Amar Grewal-Thethy
Partner
athethy@kapstrat.com
Auditors
Deloitte & Touche,
Certified Public Accountants
Deloitte Place,
Waiyaki Way, Muthangari,
P.O Box 40092, 00100,
Name/Title
Anne Muraya
Partner
amuraya@deloitte.co.ke
Nairobi
Fred Aloo
Partner
faloo@deloitte.co.ke
Office Contact
020 324 0108
Office Contact
020 2841000
020 2841000
Office Contact
020 4230000
020 4230000
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Shareholders Circular
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3. DEFINITIONS
In this Circular, its annexure and enclosures, unless otherwise stated, the words in the first
column have the meaning stated opposite them in the second column, words in the singular
include the plural and vice versa, words signifying one gender include the other gender and
references to a person include references to juristic persons and associations of persons:
"Acquisition"
AIMS
Bank One
Banking Act
Banks Shareholders
The holders of the issued share capital of I&M Bank other than
CTL.
BCR
BNR
Board or Directors
BOM
BOT
CIL
Circular
CMA
Central Bank of
Kenya or CBK
CEO
Shareholders Circular
__________________________________________________________________________________________________________________________________________________________________
Companies Act
CTL or City Trust or City Trust Limited, a company incorporated under the
Company
Companies Act (No. 7/50) and listed on the Nairobi Securities
Exchange.
DEG
ED
Executive Director.
EGM
FMO
The ordinary shares of KES 100/- each in the issued and paid
up share capital of I&M.
I&M-Tz
IFC
KES or KShs
Key Shareholders
MIMS
New Shares
NSE
Offer
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Shareholders Circular
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Proparco
Subsidiaries or
Associates
"Take-Over
Regulations"
TKF
TShs
Rwf
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Shareholders Circular
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Dear Shareholder,
PROPOSED ACQUISTION OF SHARES IN I&M BANK LIMITED NOT ALREADY HELD
BY CITY TRUST LIMITED BY WAY OF SHARE EXCHANGE
1.
INTRODUCTION
On 3rd October 2011, your Board issued a cautionary announcement regarding on-going
negotiations with a regional Bank for the acquisition of its shares in exchange for shares in
your Company.
It now gives me great pleasure to inform you that your Board has since concluded these
negotiations and, in principle, pending shareholder approvals, agreed on the terms with the
regional bank being I&M Bank Limited. You are aware that your Company already holds
7.28% of the shares in I&M. It is proposed that your Company will acquire all of the
remaining 92.72% shares in I&M. The payment consideration for the acquisition of these
remaining shares in I&M will be through the issuance of 363,722,034 New Shares credited
fully paid up to the shareholders of I&M. The effect of this acquisition will be that I&M will
become a wholly owned subsidiary of CTL.
This document provides pertinent information on the effect and impact on your Companys
financial position and the various approvals required to consummate this transaction. The
purpose of this document is to provide you with (i) information on the background and
rationale for undertaking this transaction, (ii) outline the key terms of the proposed
transaction, and most importantly (iii) to seek your approval to proceed with the proposed
offer.
2.
Under the offer, CTL will seek to acquire the remaining 26,704,995 shares comprising
92.72% of the issued and paid up shares in I&M.
By way of background information, I&M possesses a rich heritage in banking. Founded in
1974, the Bank has evolved from a community financial institution to a full-fledged
commercial bank offering a wide range of corporate and retail banking services, making it a
significant player in the Kenyan market. Known for its innovative and wide range of products
and services, it is backed by state-of-the-art technologies, staff strength of close to 500 and
a branch network of 20 in Kenya. I&M has in the recent past established its presence in
the region with 15 branches spread across Mauritius through its associate Bank One
Limited; 6 branches in Tanzania through its subsidiary I&M Bank (T) Limited and 15
branches in Rwanda through its subsidiary Banque Commerciale du Rwanda Limited
(BCR).
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Two leading European Development Financial Institutions (DFIs) Proparco (French) and DEG
(German) own approximately 10.68% of the Bank while the rest is owned by a consortium
of Kenyan investment companies and individuals. Total assets of the I&M Bank Group
exceed KES 144 billion as at 30th September 2012. More details about I&M are set out under
Part III of this circular.
3.
This transaction represents a win-win situation for both CTL and I&M shareholders as
explained below:
As at the date of this Circular, CTLs investment in I&M Bank represented 7.28% of
the Banks shareholding. Based on the Banks current valuation and CTLs current
market price, CTLs shares are trading at a discount; this being attributed to the
indirect holding of the Banks shares.
However on conclusion of the transaction, I&M Bank will become a wholly owned
subsidiary of CTL, enabling the current shareholders of CTL and potential investors
to directly hold shares in I&M. This will not only enable shareholders of CTL to
directly benefit from the Banks financial performance, but also provide an
opportunity to participate in I&Ms substantial asset base and businesses in the
region. We believe that, this would over a period of time, steer the price of CTL
shares to better reflect the direct shareholding in I&M Bank.
Further, the share swap mechanism has been structured in a manner that is most
beneficial to shareholders of CTL. The structure is such that on completion of the
transaction, CTLs shareholding will, in all material respects, resemble the current
shareholding structure of I&M Bank. Taking into consideration the value of CTLs
other investments, the current shareholders of CTL will collectively hold 7.30% on
conclusion of this transaction, reflecting a marginal increase from their current
shareholding of 7.28%. The Board appreciated that, in contrast, had the share swap
mechanism been structured on market values of the two entities namely I&M Bank
and CTL, the shareholders of CTL would have been significantly diluted in the
process.
Facilitate the increase of the shareholder base of CTL and thereby enhance liquidity
of the Companys shares on the NSE.
Enable CTL to upgrade its listing status on the NSE from the AIMS to the MIMS
following the enhanced shareholder base.
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Enable I&M achieve its long term objective of listing its shares on the Nairobi
Securities Exchange whilst simultaneously providing liquidity for its institutional,
corporate and individual shareholders.
Provide I&M with a platform to raise additional capital in the future to facilitate the
achievement of its long term growth and expansion strategy, and thereby, improve
upon its capabilities to successfully manage the growth achieved in the last few
years.
Shareholders' Equity
Paid up/ Assigned share capital
Share premium
Retained earnings (post
acquisition)
All other reserves
Total Shareholders' Equity
City Trust
Unaudited
5mths
31-12-2011
I&M Bank
I&M Holdings
31-12-2011
Consolidated
Consolidated
Consolidated
Postacquisition*
28,640,005
155,000
2,880,245,300
3,773,237,119
391,827,937
13,135,209,676
250,328,270
7,185,254,003
319,575,922
778,067,127
778,067,127
279,123,275
14,616,803,549
14,624,680,662
* The difference in these figures arises from the consolidation effect as per IFR S. Detailed accounts show ing
the full consolidation of accounts are included under P art IV on page 33
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Shareholders Circular
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Offer: Once approved at the EGM, CTL will make an offer to the shareholders of
I&M under section 210 of the Companies Act to acquire all the shares not presently
held by CTL in exchange for shares in CTL. No cash payment will be made and a
cash alternative will not be provided.
ii.
Share Exchange Ratio: The share exchange ratio as agreed and approved by your
Board is 13.62 shares in CTL with the proposed par value of Kshs. 1.00 (post share
split) for every 1 share in I&M with a par value of Kshs. 100/-. The share-exchange
ratio has been determined keeping in mind that the most equitable basis of valuation
would be based on I&M. In this regard, as CTLs most significant asset is its
shareholding in I&M, CTLs valuation has been based on the fair value of I&M. This
derived value is the basis of the share exchange ratio. The following factors have
also been taken into consideration in determining the share exchange ratio:
CTLs and I&Ms most recent audited financial statements available at that time;
A valuation of I&M Bank carried out by Deloitte for the private placement in
November 2010.
An updated valuation of I&M Bank carried out by Dyer and Blair Investment Bank
in October 2012.
CTLs value per share based on a proportionate share of I&Ms computed value as
above.
Ensuring that in carrying out the transaction and as a result thereof, the ultimate
shareholding of I&M Bank remains materially unchanged.
The transaction is such that I&M Bank shareholders will receive 13.62 new ordinary
shares in CTL for every one share they hold in I&M. Consequently, the consideration
to I&M shareholders will be in the form of an allotment of 363,722,034 New Shares of
CTL which will be credited as issued and fully paid up.
The New Shares, when issued, will have the same rights as the existing ordinary
shares of the Company.
iii.
Name
Mr. Anil Raja
Position on Board
Chairman
Occupation
Chartered
Accountant
Businessman
Nationality
British
Non-Executive Member
Mr. Madabhushi
Soundararajan
Banker
Indian
Certified Public
Accountant
Kenyan
British
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Shareholders Circular
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It is proposed that the Board of CTL will be reconstituted and will comprise the
following persons:
Name
Position on Board
Occupation
Nationality
Chairman (Independent
Director)
Certified Public
Accountant
Kenyan
Non-Executive Director
Banker
Kenyan
Business man
Kenyan
Non-Executive Director
Banker
Kenyan
Mr. Madabhushi
Soundararajan
Banker
Indian
Non-Executive Director
Senior Investment
Manager
German
Non-Executive Director
Investment Analyst
French
A brief profile for each of these Directors has been provided under Part V on pages
34 and 35 of this Circular.
iv.
v.
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vi.
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CHAIRMAN
[DATE]
ON BEHALF OF THE BOARD OF DIRECTORS
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Share Capital
I&M Banks authorized share capital as at 30th September 2012 stood at KShs.
3,000,000,000/- divided into 30,000,000 ordinary shares of a par value of KShs. 100/- each
while the Banks issued and fully paid-up share capital on the same date stood at KShs.
2,880,245,300/- divided into 28,802,453 ordinary shares of a par value of KShs. 100/- each.
The Banks detailed shareholding structure has been outlined in Part IV of this Circular.
Financial Highlights
i) Balance Sheet Summary
In KES 000
Unaudited
Audited
Sep-12
Dec-11
Dec-10
23,541,476
16,907,146
11,574,636
7,988,560
4,171,292
2,505,917
85,547,474
66,365,870
50,257,349
30,480,353
29,775,366
19,214,788
Investment
securities
28,469,926
19,685,792
20,787,432
12,478,398
5,940,879
5,295,305
Property &
equipment
2,546,215
1,915,490
1,734,368
1,530,411
1,373,322
1,091,662
Other assets
4,122,542
3,189,414
2,528,369
1,956,745
1,597,079
1,318,467
144,227,633
108,063,712
86,882,153
54,434,467
42,857,938
29,426,139
Total assets
Dec-09
Dec-08
Dec-07
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Shareholders Circular
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Unaudited
Audited
Sep-12
Dec-11
Dec-10
Dec-09
Dec-08
Dec-07
Deposits from
banks
7,387,035
2,546,060
1,393,755
221,805
948,644
879,140
Deposits from
customers
111,182,146
85,212,904
68,208,428
44,759,148
34,420,747
23,625,870
Long term
borrowings
5,047,446
3,435,773
2,143,250
1,301,547
1,318,325
238,713
Other liabilities
2,541,446
1,702,305
689,047
991,719
815,462
Total liabilities
126,158,073
92,897,042
73,031,716
46,971,547
37,679,435
25,559,185
Shareholders
equity
16,566,838
14,616,803
13,360,254
7,462,920
5,178,503
3,866,954
1,502,722
549,867
490,183
144,227,633
108,063,712
86,882,153
54,434,467
42,857,938
29,426,139
Minority Interest
ii)
1,286,283
Unaudited
Sep-12
Audited
Interest income
10,339,893
Dec-11
9,031,131
Interest expenses
(5,735,385)
(3,468,275)
(2,779,117)
(2,608,456)
(1,830,206)
(1,057,178)
4,604,508
5,562,856
3,773,797
2,473,211
2,097,208
1,708,691
1,147,414
1,286,040
946,522
644,805
559,645
425,948
1,094,855
1,110,554
1,200,097
365,264
354,632
202,225
Operating income
Dec-10
6,552,914
Dec-09
5,081,667
Dec-08
3,927,414
Dec-07
2,765,869
6,846,777
7,959,450
5,920,416
3,483,280
3,011,485
2,336,864
Operating expenses
(2,910,227)
(3,005,557)
(2,393,934)
(1,688,446)
(1,419,936)
(1,042,700)
PBT
3,936,550
4,953,893
3,526,482
1,794,834
1,591,549
1,294,164
Tax
(1,170,236)
(1,481,169)
(1,001,914)
(547,419)
(477,873)
(411,312)
PAT
2,766,314
3,472,724
2,524,568
1,247,415
1,113,676
882,852
Board of Directors
The Board of Directors of I&M Bank as at the date of this Circular are:
Director
Profile
Suresh Bhagwanji
Raja Shah, MBS,
Executive Director
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Director
Profile
Michael J. Karanja,
Eric M. Kimani
Non-Executive Director
Madabhushi
Soundararajan
Non-Executive Director
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Director
Profile
Gudi Anach
Non-Executive Director
Eric Kaleja
The Board has created the following Committees to which certain responsibilities are
delegated, and which meet regularly under well-defined terms of reference. These
Committees report to the Board on a regular basis:
i)
ii)
iii)
iv)
v)
vi)
vii)
Board
Board
Board
Board
Board
Board
Board
Audit Committee
Risk Management Committee
Credit Committee
Procurement Committee
Capital Structure Strategy Committee
Share Transfers Committee
Nomination & Remuneration Committee
Corporate Governance
The Board of Directors of I&M Bank are committed to enforcing high standards of corporate
governance at the Bank as well as its controlled entities (the Group). Underpinning this
commitment is a Corporate Governance Framework that has been established by the Banks
Board, which includes policies and practices designed to ensure that the Board is focused on
its responsibilities to its stakeholders and on creating long term shareholder value while also
focussing on its wider role and responsibility to the society at large.
In its approach to Governance, the Board has attempted to embrace international best
practices and principles so as to ensure optimal stewardship of the Groups assets and
resources. The Bank has an established Code of Conduct and Code of Ethics that bind the
directors and employees to ensure that the Banks business is carried out in an ethical, fair
and transparent manner. Simultaneously the Board has placed strong emphasis on ensuring
local regulatory compliance within the jurisdictions in which the Group operates, as part of
its internal risk management parameters.
In an increasingly uncertain financial environment, the Bank has over the last few years, put
in place the following key policies and procedures to manage risk:
Anti-Money Laundering Policies and Procedures that are rigorously adhered to.
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A Policy for Social and Environment Management, with efforts being devoted to
improving its Environment and Social Risk Management Systems.
An Enterprise Risk Management Framework.
The Bank has established a mechanism for carrying out periodic reviews of the above
policies and procedures in a bid to improve and strengthen them.
Conscious of the fact that effective corporate governance practices are essential to achieve
and maintain our stakeholders trust and confidence in the Bank, and in light of the
constantly evolving corporate governance environment, I&M has consistently strived to
enhance and improve upon the Corporate Governance Framework within the Bank.
Tabulated below are Board Committees, their composition and functions:
COMPOSITION
FUNCTIONS
Invitees:
Executive Director
CEO
Head of Business Support
Head of Business
Development
Invitees:
CEO
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COMPOSITION
FUNCTIONS
Invitees:
CEO
Head of Business Support
Head of HR (Secretary)
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Organizational Structure
I&Ms Organization Structure is guided by the following principles:
To have a lean & flexible structure to ensure fast turnaround time and efficient
customer service delivery standards;
Simultaneously to have a structure that ensures adequate internal controls, checks
and balances in place to minimize operational risks.
Given below is the top level organization structure for the Bank.
BOARD OF DIRECTORS
Board Committees
Executive Director
Internal Audit
Risk Management
Corporate & Strategic Planning
Business Development
Treasury
Business Support
Projects
Credit
Corporate Banking
Commercial Banking
Card Products
Operations
Finance
Human Resources
Legal
Operational,
Market Risk &
C li
Trade Services
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Senior Management
The members of the senior management of I&M Bank consist of banking professionals who
have a wealth of experience with local as well as multinational banks. As at the date of this
Circular the senior management of the Bank are:
Name
Profile
Arun S. Mathur,
Amritlal V. Chavda,
Lucy Thegeya,
Ruma Shah
Gauri Gupta
Head of Treasury
Chhanda C Mishra
Shareholders Circular
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Name
Profile
Ravi Ramamoorthy
Srinivasan Parthasarthy
Suprio Sengupta
John Njoroge
Vincent Chisaka
Rohit Gupta
Head of Operations
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Name
Profile
Jyoti Patel
Head of Finance
John Waka
Head of Credit
Nina Madanguda
Head of Legal
Kenas Otieno
Customer Focused
Turnaround Times
Regional Presence
I&M Bank has a strong, well-diversified and loyal customer base that is continually
growing, on the strength of the Banks innovative and convenient products.
The needs of the Banks customers are of utmost importance to I&M and one of the
main factors influencing critical decisions such as location of branches, improvements
made to service delivery standards and the products which are introduced. At every
stage, efforts are made to ensure that our customers experience superior quality and
convenient banking services, making I&M the Bank of Choice
A key strength of the Bank is its rapid turnaround times for products and services
offered to customers across the board. This has always been a highly-valued aspect of
the services the Bank offers to its customers.
In line with the needs of our customers, as well as the growing interconnectedness of
the East African and Sub-Saharan economies, I&M has embarked on a regional
expansion programme, and currently has subsidiaries in Tanzania and Rwanda and an
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associate in Mauritius. The Banks growing regional presence ensures that the Groups
combined customer base is able to enjoy a wider range of products and services with
their bank of choice across these countries. I&M is the only Kenyan bank that has a
presence in Mauritius, thereby offering its customers a unique set of products and
services.
The Bank aims to continue growing its regional footprint, particularly in the East African
region, and is actively pursuing the fulfilment of this strategy with a view to having a
presence in Uganda.
The Bank has an impressive track record for growth on several parameters, including,
customer base, loans and deposits portfolios, range of products and services,
technological innovations, number of branches, profits and returns to shareholders, and
in recent years, its regional growth trajectory.
The Bank is able to offer attractive terms as it enjoys a Trade Finance Line for an
amount of USD 22 million under IFCs Global Trade Finance Programme (GTFP), which
enables the Bank to confirm Letters of Credit for a period of up to 720 days. The Bank
also has a wide spectrum of facilities from its international correspondent banks, which
gives it a competitive edge.
I&M Bank is privileged to count amongst its shareholders highly respected Development
Financial Institutions DEG and Proparco, who together own almost 10.7% of the Bank.
In addition, the Bank enjoys the support of its long-standing local individual and
institutional shareholders, who are extremely well-respected and enhance the confidence
and trust placed in the Bank by its customers.
Proparco also has a 20% equity stake in I&M-Tz, an effective equity stake of 12.5% in
BCR and has provided Tier II capital of USD 6million to Bank One and a Senior Debt
facility of USD 5million to I&M-Tz.
DEG also has an effective equity stake of 12.5% in BCR.
The Banks strategic alliances with Proparco, DEG, FMO and IFC have allowed the Bank
to benefit from technical assistance programmes that have ensured the Bank has stateof the-art systems, policies and procedures in the areas of Anti-Money Laundering,
Environmental and Social Protection and Positive Living.
Guided by a strong sense of ethics, the Bank has established and maintains a reputation
of a solid, clean, up-market Bank that provides quality banking services.
The Bank has put in place management and governance structures that are in line with
international best practices and ensures that the Bank is a well-run enterprise and
complies at all times with the Central Bank of Kenyas Regulations and Prudential
Guidelines. A significant number of Directors on I&Ms Board comprises Independent
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Directors who are able to bring their considerable expertise to the table, while the
Banks Management is composed of seasoned bankers who continue to ably steer the
Bank in achieving its strategic objectives.
Products & Services
I&M offers a wide range of commercial banking and financial products and services, and
prides itself on introducing customer-centric innovative products and services.
Given below is the list of the Banks product offering under various business lines:
Personal Bank Account Plans Select, Sapphire, Bahati, Tayari, Malaika, Young
Savers
Term Deposits
Recurring Deposits
Home Mortgage Loans
Personal Loans
VISA Credit and Debit Cards
VISA Prepaid Cards
International American Express
Travellers Cheques
Gift Cheques
Safe Deposit Lockers
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__________________________________________________________________________________________________________________________________________________________________
2012 Banking Survey Award Best Bank in Product Innovation: Step-up Home Loan.
2012 Banking Survey Award Runner Up for Best Bank in Kenya (Tier II).
2012 Banking Survey Award 2nd Runner Up for the Most Efficient Bank.
2011 Banking Survey Award Best Bank in Product Innovation: M-Pesa Prepay Safari
Card.
2011 Banking Survey Award 2nd Runner Up for Best Bank in Kenya (Tier II).
2011 Banking Survey Award 2nd Runner Up for the Most Efficient Bank.
2010 Banking Survey Award 2nd Runner Up for Best Bank in Technology Use for ECommerce.
2009 Banking Survey Award 1st Runner Up for Best Bank in Product Innovation: I&Ms
Recurring Deposit Account.
2008 Banking Survey Award for Most Efficient Bank and Best Bank in Product Marketing.
2007 Market Intelligence Banking Survey Awards Gold Award for Most Efficient Bank.
Page | 29
Shareholders Circular
__________________________________________________________________________________________________________________________________________________________________
Shareholding as at 31-12-2012
No. of Shares
2,862,702
331,670
272,155
240,000
140,062
138,317
70,009
67,451
57,662
50,300
1,497,673
5,728,001
% Holding
49.98%
5.79%
4.75%
4.19%
2.45%
2.41%
1.22%
1.18%
1.01%
0.88%
26.15%
100%
Shareholder
1
2
3
4
5
6
7
8
9
10
11
Shareholding as at 31-12-2012
No. of
No. of
Shares
Shares after % Holding
before split
split
2,862,702
14,313,510
49.98%
331,670
1,658,350
5.79%
272,155
1,360,775
4.75%
240,000
1,200,000
4.19%
140,062
700,310
2.45%
138,317
691,585
2.41%
70,009
350,045
1.22%
67,451
337,255
1.18%
57,662
288,310
1.01%
50,300
251,500
0.88%
1,497,673
7,488,365
26.15%
5,728,001 28,640,005
100%
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Shareholders Circular
__________________________________________________________________________________________________________________________________________________________________
Shareholding as at 31-122012*
No. of Shares
% Holding
4,875,759
16.93%
4,008,740
13.92%
4,800,000
16.67%
5,400,000
18.75%
1,800,000
6.25%
1,275,000
4.43%
2,097,458
7.28%
694,848
2.41%
100,000
3,750,648
0.35%
13.02%
28,802,453
100.00%
Proparco has reduced its shareholding in I&M Bank, by selling 1,300,000 of its shares
in I&M Bank to Minard Holdings Limited and Ziyungi Limited.
Further, DEG has reached an agreement to sell 1,300,000 of the shares which it
holds in I&M Bank to Tecoma Limited and Ziyungi Limited.
Particulars of Shareholders
% Holding
Ziyungi Limited
73,548,000
18.75%
67,768,613
17.27%
Tecoma Limited
Biashara Securities Limited
65,376,000
54,599,039
16.66%
13.91%
DEG
Proparco
24,516,000
17,365,500
6.25%
4.43%
Prime Securities
The Registered Trustees Bhagwanji Raja
Charitable Foundation
I&M ESOP Trust
14,313,510
3.65%
9,463,830
2.41%
1,362,000
0.35%
Held by Public
64,049,547
16.32%
392,362,039
100%
Total
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Shareholders Circular
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All figures in K ES
City Trust
I&M Bank
I&M Holdings
Unaudited 5mths
31-12-2011
Consolidated
31-12-2011
Consolidated
Post-acquisition
1,559,493
9,031,130,752
9,032,690,245
(3,468,274,810)
(3,468,274,810)
1,559,493
5,562,855,942
5,564,415,435
1,286,040,072
1,286,040,072
Other income
1,110,553,805
1,110,553,805
2,396,593,877
2,396,593,877
1,559,493
7,959,449,819
7,961,009,312
Interest Income
Interest Expense
Net Interest Income
Non-operating Income
249,952,677
249,952,677
Staff costs
1,484,091,145
1,484,091,145
201,043,272
201,043,272
Depreciation + Amortisation
204,692,395
204,692,395
1,025,027
865,777,640
866,802,667
1,025,027
3,005,557,129
3,006,582,156
534,466
4,953,892,690
4,954,427,156
Tax
(467,847)
(1,481,168,719)
(1,481,636,566)
66,619
3,472,723,971
3,472,790,590
(88,686,039)
(88,686,039)
66,619
3,384,037,932
3,384,104,551
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Shareholders Circular
__________________________________________________________________________________________________________________________________________________________________
All figures in K ES
City Trust
Unaudited
5mths
I&M Bank
I&M Holdings
31-12-2011
Consolidated
31-12-2011
Consolidated
Consolidated
Post-acquisition
ASSETS
762,300,573
762,300,573
6,235,786,606
6,235,786,606
Investment Securities
Deposits and Balances due from Local
banking Institutions
Deposits and Balances due from banking
institutions abroad
19,685,791,796
19,685,791,796
32,858,889
658,864,000
691,722,889
9,250,194,869
9,250,194,869
66,365,869,990
66,365,869,990
273,701,470
1,915,489,873
1,915,489,873
250,883,040
250,883,040
Intangible assets
1,225,023,116
1,227,478,425
324,148,418
324,148,418
Other assets
1,389,360,098
1,389,360,098
306,560,359
108,063,712,379
108,099,026,577
Total Assets
EQUITY AND LIABILITIES
Liabilities
Customer deposits
Deposits and balances due to local banking
institutions
Deposits and balances due to foreign
banking institutions
85,212,903,828
85,212,903,828
1,458,569,000
1,458,569,000
1,087,491,409
1,087,491,409
3,435,773,450
3,435,773,450
106,188
326,369,628
326,475,816
Tax payable
27,233,511
27,233,511
97,385
1,375,934,460
1,376,031,845
27,437,084
92,897,041,775
92,924,478,859
28,640,005
2,880,245,300
391,827,937
155,000
3,773,237,119
13,135,209,676
142,330,963
142,330,963
250,328,270
7,185,254,003
319,575,922
Proposed dividends
747,424,874
747,424,874
91,470,947
91,470,947
Available-for-sale reserve
(327,832,140)
(327,832,140)
Translation reserve
124,672,483
124,672,483
279,123,275
14,616,803,549
14,624,680,663
549,867,055
549,867,055
306,560,359
108,063,712,379
108,099,026,577
Dividends Payable
Other Liabilities
Shareholders' Equity
Paid up/ Assigned share capital
Share premium
Revaluation reserves
Retained earnings (post acquisition)
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Shareholders Circular
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Profile
Daniel Ndonye,
Independent
Chairm an
Suresh Bhagwanji
Raja Shah, MBS,
Non-Ex ecutive
Christina Gabener
Non-Ex ecutive
Gudi Anach
Non-Ex ecutive
Shareholders Circular
__________________________________________________________________________________________________________________________________________________________________
Non-Ex ecutive
Michael J. Karanja
Independent NonExecutive
Madabhushi
Soundararajan
Independent NonExecutive
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Shareholders Circular
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The removal of the provisions which applied to the original acquisition of the brewery
business (old Articles 3 and 4).
A provision that new shares to be issued by way of rights unless otherwise resolved
by the shareholders by ordinary resolution (new Article 14). The old Article 56 only
requires a rights issue if so resolved on an increase of capital.
The addition of provisions designed to deal with the application of the Depositories
Act (new Articles 20 to 27 inclusive)
The inclusion of provisions allowing the issue of share warrants (new Articles 60 to
62 inclusive)
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Shareholders Circular
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The removal of the existing restrictions on borrowing contained in old Article 59.
The extension of the required notice period for General Meetings from 14 days to 21
days (new Article 68).
Power for the Board to postpone meetings due to unforeseen events beyond the
control of the Board (new Article 71).
More detailed provisions governing the conduct of General Meetings (new Articles 74
to 79 inclusive).
An alternative form of proxy where the shareholder wishes the proxy to vote in a
specified manner (new Article 97).
The notice and other communication provisions have been updated to take account
of modern day communications (new Articles 168 to 173 inclusive).
Provisions have been added prescribing the circumstances in which the company
may dispose of records (new Articles 174 and 175).
Special rights for the principal shareholders to appoint Directors (new Articles 190
and 191).
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Shareholders Circular
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The Board of Directors at both the CTL and bank level assume the ultimate
responsibility for the level of risks taken and are responsible to oversee the effective
implementation of the risk strategies;
The organizational risk structure and the functions, tasks and powers of the
committees, employees and departments involved in the risk processes are
continuously reviewed to ensure their effectiveness and the clarity of their roles and
responsibilities;
Risk issues are taken into consideration in all business decisions. Measures are in
place to develop risk-based performance measures and this is being supplemented by
setting risk limits at the company level;
Risk management has been integrated into various management processes such as
strategic planning, annual budgeting and performance measurement;
Identified risks are reported in a transparent and timely manner and in full;
Outlined below are some uncertainties and risks that CTL faces currently as well as a result
of the increased exposure to the banking sector. In addition to these, there may be other
risks and uncertainties not presently known to CTL or that it currently believes not to be
material that may also have an adverse effect on CTLs future performance, which may
cause the price of shares to decline.
1 General Risks
(i) Political Risk
Kenya, like many developing countries, is subject to political risks that may arise from
political unrest which could adversely impact the general economy and specifically, the
banking sector. Following the last general elections, Kenya went through a period of civil
unrest that resulted in a slowdown of the economy. Banks in particular saw a decline in
demand for credit and financial services, which led to a decrease in performance. It is
hoped that with the implementation of the new constitution and measures in place, that
the Country shall not experience the same unrest.
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Shareholders Circular
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Shareholders Circular
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To manage the level of credit risk, the Bank deals with counter parties of good credit
standing, enters into master netting agreements wherever possible and when
appropriate, obtains collateral.
The Bank also monitors concentrations of credit risk that arise by industry and type of
customer in relation to Bank loans and advances to customers by carrying a balanced
portfolio. The Bank has no significant exposure to any individual customer or counterparty.
To determine impairment of loans and advances, the Bank assesses whether it is
probable that it will be unable to collect all principal and interest according to the
contractual terms of the loans and advances.
(iii) Liquidity Risk
Liquidity risk includes the risk of being unable to meet the Banks financial obligations as
they fall due because of inability to liquidate assets at a reasonable price and in an
appropriate timeframe.
The Bank continually assesses liquidity risk by identifying and monitoring changes in
funding required to meet business goals and targets set in terms of the overall Bank
strategy. In addition, the Bank holds a portfolio of liquid assets as part of its liquidity risk
management strategy
(iv) Market Risk
Market risk is the risk that changes in market prices, such as interest rate, equity prices,
foreign exchange rates and credit spread (not relating to changes in the
obligators/issuers credit standing) will affect the Banks income or the value of its
holdings of financial instruments.
All trading instruments are subject to market risk, the risk that future changes in market
conditions may make an instrument less valuable or more onerous. The Bank manages
its use of trading instruments in response to changing market conditions.
The Board of Directors has delegated responsibility for management of Market Risk to
the Board Risk Committee. Exposure to market risk is formally managed within Risk
Limits and Policy Guidelines issued by the Board, on recommendation of the Board Risk
Committee. ALCO, a Management Committee is charged with the responsibility of
ensuring implementation and monitoring of the Risk Management framework in line with
Policy Guidelines. The Bank is primarily exposed to Interest Rate and Foreign Exchange
Risk. The policy guidelines and procedures in place are adequate to effectively manage
these risks.
(v) Operational Risk
The overall responsibility of managing Operational Risks - the risk arising from failed or
inadequate internal processes, people, systems and external events - is vested with the
Board of Directors. The Board through the Board Risk Committee issues policies that
guide management on appropriate practices of operational risk mitigation. An
independent Risk Manager assures the Board Risk Committee of the implementation of
the said policies.
The following are key measures that the Bank undertakes in managing operational risk:
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Shareholders Circular
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I&M has a Board approved Corporate and Strategic Planning policy that is reviewed
periodically, and whose implementation is monitored by the Executive Office.
A business strategy that covers a 5 year planning cycle which is well defined and
documented and covers each area of product development, growth, marketing,
sales, human resource development and information and communication
technology.
Implementation of well-defined annual budgets and corporate objectives.
I&M has in place internal systems to ensure regular monitoring and analysis of its
external and internal environment so as to gather relevant management
information and ensure that I&M is not unduly exposed to strategic risk.
Additionally the Bank is exposed to risks arising out of the operating environment
characterized by increased competition in the Banking industry, retention of key
staff, continued development of financial and management controls and
information technology systems and their implementation, and maintaining if not
growing the profit margins.
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Shareholders Circular
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This risk may result from a financial institutions failure to effectively manage any or all
of the other risk types. The ultimate accountability for reputational risk management
rests with the Board. The Board of Directors explicitly addresses reputational risk as a
distinct and controllable risk through a versatile and robust risk management framework
for reputational risk. Responsibility for corporate reputation resides with the Executive
Directors and Chief Executive Officers offices.
3 Risks relating to this transaction
(i) Share Liquidity
CTLs shares are listed on the NSE. This transaction is envisioned to increase the
number of CTL shares available for trading, by increasing the number of shares,
through the share split, as well as the shareholder base, through the share swap.
However, it is not possible to accurately predict whether investor interest in the
Company after the transaction will lead to the development of a more active trading of
CTL shares on the NSE or otherwise or how liquid and vibrant any market activity that
does develop might be.
(ii) Dilution
By approving the acquisition of I&M Bank, the shareholders of CTL will dilute their
holding in the Company. However, their ultimate holding in I&M Bank will remain
undiluted, as they will collectively hold the same percentage of shareholding that they
currently do in the Bank.
(iii) Failure to conclude this Transaction
The conclusion of this transaction is dependent on:
Besides an enhanced reputational risk for both parties, a failure to conclude this
transaction may result in I&M Bank applying for a direct listing on the NSE and in which
case, CTL shareholders could potentially be faced with a decline in share price and
value of their investment in CTL shares over a period of time.
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Shareholders Circular
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An exemption from the Minister of Finance under Section 53 of the Banking Act
exempting CTL from the provisions of section 13(1) of the Banking Act in connection
with its acquisition and holding of shares in I&M Bank. While the approval has been
granted, it is expected that this exemption will be published in the Kenya Gazette
following the approval of the Offer by the shareholders of I&M at its EGM.
Approval of the CMA, pursuant to the Fourth Schedule of the Capital Markets
(Securities) (Public Offers, Listing and Disclosures) Regulations, 2002, for the issue
and listing of the New Shares. Approval has been granted.
Approval of the NSE for the listing of the New Shares. Approval has been granted.
The Registrar of Companies has approved the proposed change of name from City
Trust Limited to I&M Holdings Limited. It is intended that this change of name will
take effect upon, and subject to, completion of the Acquisition.
Approval from the Competition Authority under the Competition Act, Chapter 504 of
the Laws of Kenya. Approval has been granted.
It is expected that listing of the New Shares will become effective on June 11, 2013.
2 Responsibility Statement
The Directors of CTL whose names appear on page 12 of this Circular accept responsibility
for the information contained in this Circular. To the best of the knowledge and
understanding of the Directors the information contained in this Circular is in accordance
with the facts and does not omit anything likely to affect the import of such information. The
Directors confirm they have taken all reasonable care to ensure that such is the case.
3 The Companys Share Capital
CTLs authorized share capital as at December 31, 2012 stood at KES 50,000,000/- divided
into 10,000,000 ordinary shares of a par value of KES 5/- each.
The intended split will increase the authorized shares from 10,000,000 ordinary shares of a
par value of KES 5/- each to 50,000,000 ordinary shares of a par value of KES 1/- each.
CTLs issued and fully paid-up share capital as at December 31, 2012 stood at KES
28,640,005/- divided into 5,728,001 ordinary shares of a par value of KES 5/- each.
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Shareholders Circular
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The intended split will increase the issued and fully paid up shares from 5,728,001 ordinary
shares of a par value of KES 5/- each to 28,640,005 ordinary shares of a par value of KES
1/- each.
Assuming completion of the transaction, the authorized share capital of the Company will be
increased from KES 50,000,000/- divided into 50,000,000 ordinary shares of KES 1/- each to
KES 500,000,000/- divided into 500,000,000 ordinary shares of KES 1/- each by creation of
an additional 450,000,000 ordinary shares of KES 1/- each. This is to pave way for the issue
of 363,722,034 new ordinary shares to I&M shareholders for the acquisition.
Following the issue of the new Ordinary Shares to I&M Bank Shareholders and after the
share split, the issued and fully paid-up share capital will increase from KES 28,640,005/- to
KES 392,362,039/-.
4 Disclosures and Directors Interests
Subject to receipt of acceptances from the holders of not less than 90% in value of
the I&M Bank Shares which are the subject of the Offer, City Trust intends to acquire
the shares from any remaining I&M Bank Shareholders who have not accepted the
Offer (for whatever reason) on the same share exchange terms as are contained in
the Offer under the provisions of section 210 of the Companies Act.
However, if CTL receives acceptances from the holders of less than 90% in value of
the I&M Bank Shares which are the subject of the Offer, the transaction will be called
off, and the acquisition of I&M Bank will not proceed.
In order to eliminate fractional shares arising from the allocation of the New Shares
to I&M Bank shareholders, 2 (two) additional New Shares have been included in the
number of new shares to be issued.
None of the directors of CTL or I&M Bank hold more than 3% of any shares in either
CTL or I&M Bank. The numbers and percentages of shares directly held by directors
in I&M Bank are as follows:
Directors Name
614,674
2.13%*
614,674
2.13%*
* In addition to this, Mr. Sachit S. Raja Shah and Mr. Sarit S. Raja Shah have an indirect shareholding of
1.30% and 1.32% respectively in I&M Bank.
Upon completion of the transaction, the direct and indirect shareholding in CTL of
Mr.
Sarit
S.
Raja
Shah
and
Mr.
Sachit
S.
Raja
Shah,
will
remain unchanged at 3.45% and 3.43% respectively. As disclosed in Part V of the
Circular, Mr. Sarit S. Raja Shah is a proposed director of CTL.
No agreement or arrangement has been made between any director of CTL or I&M
Bank and any other person in connection with, or conditional upon, the outcome of
the Offer.
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Shareholders Circular
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No director of I&M Bank has a direct or indirect interest in any contract entered into
by CTL.
No director of CTL has a direct or indirect interest in any contract entered into by
I&M Bank.
The names of the proposed directors of CTL post transaction can be found in Part V
on page 34.
There has been no material change in the financial position of CTL since 31st July
2012, the date of the last balance sheet.
CTL intends to acquire all the I&M Bank Shares and has no present intention of
disposing of them. There is no agreement or arrangement by which any of I&M
Bank's Shares acquired by CTL in pursuance of the Offer will or may be transferred
to any other person.
CTL has created a sufficient number of Offer Shares for allotment to those I&M Bank
Shareholders who accept the Offer on the basis that 100% of the I&M Bank Shares
are acquired by CTL.
Minard Holdings Limited is a common shareholder of both City Trust and I&M Bank
Limited. However notwithstanding the same, Minard Holdings Limited is not acting in
concert with CTL and it has not given an irrevocable commitment to accept the Offer
in respect of its holding of shares. Further, Minard Holdings has not dealt in the
ordinary shares of CTL during the period of six months prior to the date of this Offer
Document.
Proparco sold 1,300,000 shares which it held in I&M Bank to Ziyungi Limited and
Minard Holdings Limited. The transaction was completed on 2nd January 2013.
DEG has agreed to sell 1,300,000 of the shares which it holds in I&M Bank to
Tecoma Limited and Ziyungi Limited. The transaction shall be concluded before the
Offer Period opens.
CTL intends to continue carrying on the business of I&M Bank, which will be
operated as a trading subsidiary.
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Shareholders Circular
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CTL has no plans to introduce major changes in the business of I&M Bank arising
directly from the Offer and it has no plans to liquidate I&M Bank, sell its assets, redeploy its assets or otherwise effect major changes to I&M Bank's operations. The
future development of the business of I&M Bank will be determined by the executive
management in consultation with the board of directors of CTL, acting in the best
interests of the group as a whole.
The board of directors of I&M Bank will be streamlined in a manner consistent with
the operation of I&M Bank as a wholly-owned subsidiary of CTL. No changes to
management and employees of I&M Bank are expected to be made as a direct result
of the Offer.
The issue of the Offer Shares as consideration for the exchange of the I&M Bank
Shares will be implemented in full in accordance with the terms of the Offer without
regard to lien, right of set-off, counterclaim or other analogous rights to which CTL
may otherwise be or claim to be entitled as against the holder.
In accordance with the disclosure requirements for additional issues under paragraph
28(a) of the Fourth Schedule of the Capital Markets (Securities) (Public offers, Listing
and Disclosures) Regulations 2002:
o
the Company declares that the annual statements of the company for the
year ended 31st July 2012 have been audited and received an unqualified
opinion; and
the Companys auditors, Deloitte, have issued a statement which states that
all circumstances regarding the issue of the New Shares known to them
which could influence the evaluation by investors of the assets, liabilities,
financial position, results and prospects of the Company are included in the
Circular. A copy of their statement is attached in Appendix 3 on page 61.
5 Advisers' Consents
Dyer & Blair Investment Bank, Kaplan & Stratton Advocates and Deloitte have given and
not withdrawn their consent to the issue of this Circular with the inclusion herein of their
reports and names, and the reference thereto, in the form and context in which they
appear respectively.
6 Transaction Costs
The fees payable by the Company in respect of the transaction are shown below:
PARTICULARS
ROLE
Regulators
Independent Advisor
Legal Advisor
Auditors
TOTAL
GROSS AMOUNT
(KES)
22,403,322
5,220,000
2,320,000
58,000
500,000
30,501,322
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Shareholders Circular
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7 Governing Law
This Circular shall be governed by and construed in accordance with the laws of the Republic
of Kenya.
8 Documents Available for Inspection
Copies of the following documents are available for inspection at CTLs registered office on
any weekday during normal working hours from 10.00 am January 22, 2013 until 4.00 pm
on February 19, 2013:
A copy of the proposed Offer to be made by CTL to the shareholders of I&M Bank
CTLs audited financial statements for the five years prior to and including 31st July 2012
I&M Banks audited financial statements for the five years prior to and including 31st
December 2011
I&M Banks unaudited, published financial statements for the 9-months period ending
30th September 2012.
A copy of the approval by the CMA relating to the issue and listing of the New Shares.
A copy of the approval by the NSE relating to the listing of the New Shares
A copy of the proposed new Articles of Association of CTL
A copy of the Independent Advisers opinion on Fairness of the Acquisition Value and on
the Transaction, as already included in this Circular
A copy of the Auditors' Statement as already included in this Circular
A copy of Deloittes report on the examination of the prospective financial information of
CTL Limited and its Subsidiary I&M Bank Limited as at 31st December 2011
A copy of Dyer and Blairs independent valuation report on I&M Bank dated 23rd October
2012
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Shareholders Circular
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Shareholders Circular
__________________________________________________________________________________________________________________________________________________________________
by abandoning the objects set out in paragraphs (a) to (f) and paragraph (j)
of clause 3 of the Memorandum of Association;
(b)
by adopting the following objects as paragraphs (a) and (c) of clause 3 of the
Memorandum of Association:
(c)
(a)
(c)
Shareholders Circular
__________________________________________________________________________________________________________________________________________________________________
Signature: [***]
Name: [***]
Company Secretary
[**Date**]
A member entitled to attend and vote at the meeting is entitled to appoint a proxy to attend
and vote on his behalf.
A proxy need not be a member of the Company.
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Shareholders Circular
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PART X APPENDICES
1. Independent Opinion on Fairness of the Transaction Value
by way of a Share Exchange Offer
October 23, 2012
The Board of Directors of City Trust Limited
Deloitte Place, Waiyaki Way,
Muthangari,
Nairobi.
Dear Sirs,
INDEPENDENT OPINION ON FAIRNESS OF VALUE PAYABLE BY CITY TRUST
LIMITED (CTL) FOR ACQUISITION OF 92.72% OF ALL THE OUSTANDING
SHARES IN I&M BANK LIMITED (I&M BANK) NOT ALREADY HELD BY CITY
TRUST BY WAY OF A SHARE EXCHANGE OFFER
City Trust Limited wishes to acquire all the shares in I&M Bank that it does not already own,
and has engaged Dyer & Blair Investment Bank Limited (we or us) to:
Review and update the internal valuations of CTL and I&M Bank based on managements
projections for I&M Bank (Management);
Provide a review opinion on whether the valuation is fair and reasonable in relation to
the consideration being offered to I&M Bank shareholders;
Review the calculation of the number of new CTL shares to be allotted and issued to
I&M Bank shareholders, and hence the share swap ratio.
Limitations of Review
The assignment was undertaken solely and expressly on the basis that we shall not be liable
for any direct, indirect or consequential loss for damage suffered by any party arising from
the fulfillment of these transactions.
This report is intended solely for the use of the Board of Directors of CTL, the shareholders
of CTL, the Capital Markets Authority of Kenya (CMA) and the Nairobi Securities Exchange
(NSE) in connection with the acquisition of all the outstanding I&M Bank shares not
already held by CTL, and hence may not be reproduced or used for any other purposes
without our prior written consent.
This report does not constitute a recommendation to any ordinary shareholder of CTL as to
how to vote at any meeting relating to the proposed acquisition or on any matters relating
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Shareholders Circular
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to it, nor as to the acceptance of the transaction. Therefore, it should not be relied upon for
any other purpose.
We assume no responsibility to anyone if this review opinion is used or relied upon for
anything other than its intended purpose.
Forecasts relate to future events and are based on assumptions that may not remain valid
for the whole of the relevant period. Consequently, this information cannot be relied upon to
the same extent as that derived from audited financial statements for completed accounting
periods. We express no opinion as to how closely actual results will correspond to those
forecasts.
Our report holds true as at the date of issue of the report, and based
economic and regulatory conditions and the assumptions made thereon
information made available to us by CTLs management up to the date
Accordingly, we are under no obligation to update this report because
transactions occurring subsequent to the date of this report.
on
as
of
of
the current
well as the
this report.
events and
Independence
We confirm that Dyer & Blair Investment Bank Limited does not hold any shares in CTL,
directly or indirectly. We have no interest, direct or indirect, beneficial or non-beneficial, in
CTL or the outcome of the transaction.
Comments on the transaction
Upon completion of the transaction, CTL intends to continue carrying on the business of I&M
Bank, which will be operated as a trading subsidiary. This we believe is a much more
efficient structure. For this purpose, CTL will also change its name to I&M Holdings limited.
Additionally in relation to this transaction, CTL has no intention to discontinue employment
of any of the existing employees of I&M Bank or its subsidiaries.
The commercial justification for this transaction is to get CTL shareholders to own the main
asset, the Bank, and unlock their shareholding value. By CTL becoming a holding company,
the shareholders get a more capitalized and regional bank. The process also makes it easier
for I&M Bank to list in the NSE and unlocks liquidity for both CTL and I&M Bank
shareholders.
While CTL owns up to 7.28% of I&M Bank, the Bank has no direct or indirect shareholding
in CTL. Similarly none of the directors of I&M Bank own shares in CTL. Minard Holdings
Limited is the only common shareholder of both CTL and I&M Bank Limited. However,
following completion of the transaction, the direct and indirect shareholding in CTL of the
proposed director, Mr. Sarit S. Raja Shah remain unchanged at 3.43%. Similarly, the direct
and indirect shareholding in CTL for Mr. Sachit S. Raja Shah, a current director in I&M Bank
but not proposed to be a director in CTL will also remain unchanged at 3.43%. All the CTL
directors have expressed their intent to accept the offer in respect to their own beneficial
direct and indirect holdings in CTL.
And as at the date of the offer, no service contracts exist with any director or proposed
director of I&M Bank or any of its subsidiaries.
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Industry Outlook
The Banking Sector has continued to grow from strength to strength; Net Assets in
the sector grew from KShs 1.68 trillion in December 2010 to KShs 2.02 trillion in
December 2011, a 20.4% increase. Non-performing loans which are a key indicator
of the health of the sector decreased by 8% from KShs 57.6billion in December 2010
to KShs 53.0 billion in December 2011.
Although declining, inflation posed a huge challenge to the banking sector having
risen to 18.93% in December 2011 from 3.97% in December 2010. Such an increase
in inflation was attributed increases in food and oil prices. Kenyas high current
account deficit contributed to uncertainty with respect to the value of the Shilling.
The Kenyan Shilling lost significant ground to world currencies last year partly due to
Euro Zone crisis as importers demanded more US dollars as a consequence.
The Central Bank of Kenya responded by raising the Central Bank Rate to 18% from
10% and intervening in the local currency markets in order to stabilise the Shilling.
This had significant implications for the banking sector as it raised the cost of
borrowing and requiring a change in its asset mix, recapitalization, mobilizing new
and cheaper deposit channels, opening new branches and more aggressive
marketing.
Capital Ratios have deteriorated over the past year across the sector and a good number of
the banks continue to push towards increased capitalization. Select banks have received a
boost to their capital base from Development Finance Institutions in the form of Tier 1 and
Tier 2 capital while others have received debt financing specifically for lending onto SMEs.
Besides, a stream of rights issues is in the pipeline for this year.
The sector continued to register growth in the first two quarters up to June 2012.
Credit advances for the sector grew by KShs 83.8 billion to KShs 1.29 trillion, mainly
in 10 sectors with personal and household sector leading followed by trade,
manufacturing, real estate, transport and communication to name a few.
Deposits on the other hand, accounting for 75.5% of the funding liability rose by
11% from KShs 1.49 trillion in December 2011 to KShs 1.66 trillion in June 2012.
CBK attributes this growth to continued branch expansion, remittances and receipts
from exports. The number of branches increased by 22 over the three months April
to June 2012 to stand at 1,196.
The sector also registered improved capital levels in the second quarter with total
capital growing at 19% from KShs 248.3 billion in December 2011 to KShs 294.3
billion by June 2012. Total capital to total risk-weighted assets stood at 20.3% while
core capital to total risk weighted assets declined from 18.1% in December 2011 to
17.7%.
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Constraints in loan uptake by the private sector due to the higher cost of funds has
consequently led to an increase Gross non-performing loans (NPLs) which rose by
7% between April and June to KShs 57.3 billion. For the first six months of 2012, the
ratio of gross NPLs to gross loans increased from 4.3% in March to 4.5% in June,
where it closed in December 2011.
The rates have since declined and the CBR rate cut to 13% in September 2012 from
a high of 18% in December 2011. This is expected to have a gradual effect on the
rate cuts by the Banks and hence the industry is still carrying a higher risk of Nonperforming loans.
The sectors profits before tax for January to June 2012 were KShs 53.2 billion or
close to 60% of KShs 89.5, last years total profit for the sector.
Most banks reported commendable growth in profits for the half year and are
expected to sustain this growth momentum over the next half.
Overall the sector will record continued profitability despite the challenges posed earlier by
the high rates. Declining inflation, stability in the Kenya shilling and the downward revision
of lending rates are amongst the major factors that will drive growth in the short-to medium
term. The growth will further be supported by the sectors increased rollout of the agency
model and other cost effective delivery channels, recapitalization, and increased regional
presence.
Definition of Fair and Reasonable
An offer is generally fair and reasonable if the consideration is equal to or greater than the
value of the CTL share being the subject of the transaction.
In our review of the fairness of the valuation and the transaction, we have considered the
quantitative as well as the qualitative issues surrounding the particular offer. An offer may
be fair and reasonable if all significant factors have been considered in arriving at the
consideration to be offered.
It should be noted that this review opinion does not purport to cater for individual
shareholders positions, but rather the general body of shareholders. A shareholders
decision regarding the fairness and reasonableness of the offer may be influenced by his or
her particular circumstances. Should a shareholder be in doubt, he or she should consult an
independent adviser as to the merits of the offer, considering his or her personal
circumstances.
Sources of Information Used
Our report is based on the information provided to us by the Management, who performed a
due diligence exercise on I&M Bank. Management is therefore deemed solely responsible for
the integrity of data and information submitted to us. We have relied on the following
information in order to ascertain the value of the shares on both CTL and I&M Bank:
1. Share exchange ratio workings for CTL;
2. Valuation workings for I&M Bank- adopted from Dyer & Blairs independent valuation
report dated 23rd October 2012;
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3. Audited financial statements for the year ending December 31,2011 for I&M Bank,
and July 31 2011 for CTL;
4. Shareholding structures for both I&M Bank and CTL as at 31st March 2012; and
5. Discussions with Management and their advisers.
Conditions Precedent
In order for the transaction to be effective, the following conditions need to have been
fulfilled prior to completion:
The share exchange offer is presented and accepted by 90% of I&M Bank
shareholders
Acquisition of 92.72% of shares in I&M Bank by way of a Share Exchange Offer
I&M Bank provides an extensive range of banking, financial and related services and is a
banking institution licensed by the Central Bank of Kenya, under the Banking Act (Chapter
488). The Bank has 19 branches in Kenya, and has a presence in Tanzania, Rwanda and
Mauritius through its Subsidiaries and Associate, respectively.
In 2011, I&M Bank is ranked among the top 10 banks in Kenya according to RSM Ashvirs
report, Kenyas Banking Sector Performance 2011. It ranks 9 in total assets, 7 in
profitability, 5 in Return on Assets and 2 in efficiency. Overall and based on 10 key
performance indicators, the bank is ranked 4th out of the 43 banks included in the report.
As at September 30, 2012 being the date of our review, the registered shareholding in I&M
Bank was as follows:
Shareholders Name
Minard Holdings Limited
Biashara Securities Limited
Tecoma Limited
Ziyungi Limited
DEG
Proparco
City Trust Limited (Listed on the NSE)
I&M ESOP Trust
Other shareholders (approx. 104)
Total Issued Shares
No. of Shares
4,475,759
4,008,740
4,000,000
4,000,000
3,100,000
2,575,000
2,097,458
100,000
4,445,496
28,802,453
% Share
holding
15.54%
13.92%
13.89%
13.89%
10.76%
8.94%
7.28%
0.35%
15.43%
100.00%
I&M Bank Prospects for the next twelve months are advised from its strong financial
performance and commendable industry positioning. The consolidated balance sheet size of
the Bank recorded a compounded annual growth rate (CAGR) of 26% in total assets since
2009, with a 30% CAGR for advances and a CAGR of 24% in customer deposits. In 2011
alone, the Group balance sheet size recorded a growth of 24% and crossed the KShs 100
billion mark to reach KShs 108 billion. Profit before tax has grown at a CAGR of 41% from
2009 to 2011. This puts the bank amongst the top performers in terms of sustained growth
in profitability. The operating profit margin also improved from 15% to 28% while the net
profit margin increased from 36% to 44%.
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The Bank has expanded beyond Kenya to become a regional player, with the acquisition of
50% shareholding in Bank One, Mauritius, 55% shareholding in I&M Bank (T) Limited,
Tanzania and 55% in BCR, Rwanda. Non-Kenyan operations in 2011 accounted for about
28% of the Groups assets and 11% of its Profit Before Tax.
In 2011, Bank One recorded a 61% growth in PBT an equivalent of KShs 484 million and
contributed 10% to the consolidated group profitability. The Tanzanian entity achieved a 7%
growth in PBT to KShs 296 million and contributed 1% of the groups profitability. BCR
Rwanda, the recent acquisition will feature in the 2012 financials going forward.
The Bank has potential for continuously registering further growth owing to its high
efficiency level, quality of assets, and expansion in branch network, product innovation and
diversity.
The share exchange ratio and the resultant new shares to be issued to I&M Bank
shareholders after CTLs share split
The share exchange ratio was determined as follows;
1. The valuation of I&M Bank was adopted as the valuation done by Dyer & Blair as at
October 2012.
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In spite of the price of I&M Bank used, and given that the valuation is reasonable
and acceptable, the share exchange ratio would remain the same as long as CTL
percentage stake of 7.28% in I&M Bank is held constant.
Based on this assumption, the price range used for I&M Bank is between KShs 1,363
and KShs 1,432 per share. The price range was arrived at after undertaking a
valuation of I&M Bank and its affiliate and subsidiaries in Mauritius, Tanzania and
Rwanda. The valuation approach adopted considers the following valuation
methodologies;
(i) Income Approach , under the Discounted Free Cash flow to Equity (DCF) and
Capitalization of Earnings;
(ii) Price Multiples , under the Price Earnings Multiple (PE) and the Price to Book
Value (PBV)
(iii) Volume Weighted Average Price
on the OTC market for transaction
completed in 2012
The fair value reasonably considers all avenues of growth for I&M bank and is a
summation of the estimated values of each business segment of the group. Every
bank in the group was valued separately under each of these approaches. The
estimated value of each of the subsidiary banks were then consolidated using the
Sum-of-The Parts approach, where applicable and then weighted under three options
by varying the assigned weights between the income and the price multiples
approaches while maintaining the OTC weight as 10%. The resultant range is as
illustrated below.
Option 1
Option 2
Option 3
45%
40%
50%
45%
50%
10%
10%
10%
1,362.70
1,390.60
1,431.80
40%
2. Before the transaction takes place, CTL is proposing to split its shares such that each
shareholder gets five (5) ordinary 1/- shares for every one (1) ordinary 5/- share
held (or a split of 5:1).
3. Given the price range of KShs 1,363 to KShs 1,432 per share for I&M Bank against
28.8 million issued and fully paid up shares, the enterprise value of I&M Bank is
determined to range between KShs 39.3 billion and KShs 41.2 billion. Using this as
the basis, and taking into consideration CTLs stake of approximately 7.28% in I&M
Bank, adding the other assets of CTL and a share split of 5:1, the enterprise value
for CTL translates to a range between KShs 2.87 billion and KShs 3.01 billion i.e. a
range of KShs 100.1 to 105.1 a share.
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We then divided I&Ms enterprise value by that of CTL to arrive at a share swap ratio
of 13.62 shares of CTL for every 1 share in I&M Bank as per the table below;
Option 1
Particulars
Figures
(post-split)
Key
Number
Option 2
Option 3
Figures
(post-split)
Figures
(post-split)
28,802,453
28,802,453
28,802,453
Kshs
1,363
1,391
1,432
KShs
39,250,404,278
40,053,829,540
41,239,361,800
Number
2,097,458
2,097,458
2,097,458
7.28%
7.28%
7.28%
Kshs
2,866,202,981
2,924,871,927
3,011,443,675
Number
28,640,005
28,640,005
28,640,005
KShs
100.08
102.13
105.15
13.62
13.62
13.62
(B)
4. Based on the swap ratio, the resultant number of new shares to be issued and the
total number of shares to be held under CTL as a holding company are as follows;
Particulars
Key
Figures (post-split)
Number
28,802,453
Number
2,097,458
Number
26,704,995
Key
Figures (post-split)
Number
363,722,034
Number
28,640,005
Number
392,362,039
Particulars
For the acquisition by CTL of 26,704,995 being 92.72% of the issued ordinary shares in I&M
Bank not already owned by CTL the share exchange ratio is computed at 13.62 shares in
CTL for every 1 share in I&M Bank. Going by this ratio, CTL is to offer up to 363,722,034
new ordinary shares of KShs. 1/- each to I&M Bank shareholders. The total outstanding
shares in CTL thus amount to 392,362,039 shares of KShs 1/- each post the transaction.
CTLs original shareholders holding increases marginally to 7.30%. Assuming that the
shareholding structure of I&M as at September 30, 2012 remains unchanged until
completion, the new shareholding structure of the holding company will be as follows;
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Pre- Transaction
Post- Transaction
No. of Shares
in CTL (the
Holding
% Share
com pany)
holding
62,320,613
15.54%
Shareholders Name
Minard Holdings Limited
No. of
Shares in
I&M Bank
4,475,759
% Share
holding
15.54%
4,008,740
13.92%
54,599,039
13.92%
Tecoma Limited
4,000,000
13.89%
54,480,000
13.89%
Ziyungi Limited
4,000,000
13.89%
54,480,000
13.89%
DEG
3,100,000
10.76%
42,222,000
10.76%
Proparco
2,575,000
8.94%
35,071,500
8.94%
2,097,458
7.28%
28,640,005
7.30%
100,000
0.35%
1,362,000
0.35%
4,445,496
15.43%
60,547,652
15.43%
28,802,453
100.00%
392,362,039
100.00%
(approx. 104)
Total Issued Shares
Review Opinion
Based on the review performed, and after taking into consideration all the financial
considerations, foregoing assumptions, current economic and regulatory environment and
the valuations working using projections by the management, nothing has come to our
attention that the proposed acquisition of 92.72% in I&M Bank by CTL by way of a share
exchange offer is not fair and reasonable.
In respect of this, our review opinion is that the valuation and consideration thereon is fair
and reasonable provided the above pre-completion conditions have been satisfied, all
regulatory approvals are sought and relevant conditions in the share exchange offer, have
been satisfied.
Consent
We hereby give our consent to the inclusion of this opinion and the inclusion of the
references of our report in the form and context in which it appears in the circular to the
shareholders of CTL.
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2. Directors Declaration
Acquisition of I&M Bank Limited by City Trust Limited By Way of Share Exchange
Application by City Trust Limited for approval to issue and list additional 363,722,034
ordinary shares
Declaration under paragraph 17(2) of the Fourth Schedule to the Capital Markets
(Securities) (Public Offers, Listing and Disclosures) Regulations, 2002
We the undersigned, being duly authorised by the directors of City Trust Limited, hereby
declare that all information stated in the application submitted to the Capital Markets
Authority in regard to the above matter on June 20, 2012 and the statements contained in
this Circular to be issued in connection with this matter are correct, and neither the Board of
Directors minutes, audit reports nor any other internal documents contain information which
could distort the interpretation of this Circular.
Chairman
Director
[*Date*]
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18 January 2013
The Directors,
City Trust Limited,
Deloitte Place, Waiyaki Way,
Muthangari,
Nairobi.
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Date
01-Aug-11
25-May-11
25-May-11
25-May-11
16-May-11
04-Mar-11
18-Jan-12
01-Sep-12
Total
Volume
1,000
500
1,000
1,000
5,300
2,000
2,000
5,000
17,800
2012 Average price
2012 VWAP
Price
1,050.00
1,000.00
1,050.00
1,000.00
953.00
935.00
1,050.00
1,100.00
1,075.00
1,085.71
Turnover
1,050,000
500,000
1,050,000
1,000,000
5,050,900
1,870,000
2,100,000
5,500,000
18,120,900
31,271.2
The average prevailing trading prices for I&M Bank shares have been provided as the
average weighted price for the transactions during 2012. The market is characterised by
high demand for the shares and hardly any supply. Judging by the volumes in all the trades
since inception, the OTC Market has not moved any significant block. The eight transactions
have a total volume of 17,800 shares moved at a turnover of KShs 18.1 million.
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5. Notes
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6. Proxy Form
I/We
CDS A/C No
of (address)
being member(s) of City Trust Limited, hereby appoint
of (address)
Signature(s)
Notes:
1. This Proxy is to be delivered to the Company Secretary at City Trust Limited, Deloitte
Place, Waiyaki Way, Muthangari, Nairobi.
2. A Proxy form must be in writing and in the case of an individual shall be signed by
the shareholder or by his attorney, and in the case of a corporation the proxy must
be either under its common seal or signed by its attorney or by an officer of the
corporation.
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