Naivas investor puts Ksh5bn in Equity
Equity Group looks to step up lending to small businesses to keep them going and protect jobs during this pandemic. The IFC cash will boost Equity’s liquidity and lending capacity at a time when banks are grappling with coronavirus fallout.
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| Equity Group CEO James Mwangi |
Equity Group Holdings PLC (EQTY) has received Ksh5 billion ($50 million) cash from International Finance Corporation (IFC), a division of the World Bank focused on private sector investing and lending. Before the Equity deal, IFC arranged a huge investment in supermarket chain Naivas.
The cash Equity has received from the IFC is in form of credit. The bank will use the IFC cash to expand its small business lending programme in Kenya, especially supporting traders grappling with the coronavirus economic fallout. The bank will target small businesses in manufacturing, healthcare, transport and consumer goods with the IFC loan.
Notably, the IFC has had a long relationship with Equity. Including the latest credit deal, the IFC has now pumped Ksh22.7 billion into the bank group. The IFC hopes its latest credit arrangement with Equity will help keep Kenyan small businesses going and protect jobs during this virus pandemic.
The Kenyan bank business is Equity’s largest subsidiary. It operates 184 bank branches across the country and has nearly 18,000 business customers.
For Equity, the IFC facility will help shore up its liquidity at a time when the coronavirus situation has created a crisis moment for banks. For example, banks are bracing for a deluge of loan defaults as businesses collapse or shrink their operations because of the pandemic.
At the same time banks are seeing a drop in customer deposits while withdrawals have increased, putting them at the risk of running out of cash to make new loans and sustain their operations. In bid to preserve cash, Equity decided to cancel a plan to pay more than Ksh9 billion in dividends to its shareholders this year. Moreover, the group dropped plans to purchase several banking businesses belonging to Atlas Maraoutside Kenya.
IFC leads investment for a stake in Naivas
A few months ago, IFC teamed up with other investors to inject Ksh1.5 billion ($15 million) into Naivas. The investment gave the IFC and its associates a minority stake in the family-owned supermarket chain. Naivas, on the other hand, received additional cash to support its expansion, including the drive to open supermarket outlets in more towns and broadening the retailer’s offerings.
Naivas rival and similarly family-owned Tuskys is also discussing a deal with outside investors to inject cash in the business. The Tuskys talks centre on selling a majority stake in the supermarket chain. Notably, Tuskys has set its sights on public listing of its shares and attracting an anchor investor is important to the IPO plan.
Tuskys and Naivas are currently two of the country’s top supermarket chains. They operate about 60 supermarket outlets each across the country. But Tuskys has footprints in Uganda as well where it also runs the Mavazi fashion brand.
Finally, Equity shares rose 0.31% on Thursday (July 23) to close at Ksh31.85. The shares currently trade about 43% below their 52-week peak of Ksh55.50.