Falling shilling pushes I&M to hold merger fees in dollars

I&M Bank want shareholders to approve conversion of their buyout kitty to US dollars to beat market volatility since merger and acquisition transactions are conducted in greenback.

The lender told shareholders it needed approvals for setting aside not more than $75 million in a kitty created seven year ago to undertake an acquisition, a merger, enter into a joint venture agreement or set up a new (greenfield) ventures.

Corporates and individuals are stocking up dollars to beat the depreciation of the Kenyan shilling that has dropped 28.4 percent over the last two years after the country’s debt became unstainable draining dollar reserves to make payments.

The rich have stockpiled over Kes987.6 billion in dollars accounts even as the importers struggle to access the greenback and as government’s reserves deplete on efforts to stabilize shilling decline and paying off debt.

 “Given that M&A transactions are all undertaken in USD and the fact that the Kenya shilling has depreciated significantly in the last 18-20 months, it was felt appropriate to revise the terms of the shareholders’ approval and Board authorization to now be in USD.

Please note that there is no underlying ongoing or any specific transaction for which this approval is being sought.” I$M said in an emailed response.

I&M Group said its shareholder notice is meant to update the general approval they have from shareholders.

In June 2016, I&M Group sought approval from shareholders authorizing the Board to approve M&A and other related transactions up to 15 percent of the most recent published Net asset value. This currently translates to Kes5.3bn. 

In 2017 acquired Giro Commercial Bank through a combination of cash and share swap transactions valued at about Sh5 billion and followed up with the acquisition of a 90 percent stake in Uganda’s Orient Bank in October 2021 for Sh3.6 billion.    

The shift to holding these funds in dollars is an indication of dollarization of the economy that has seen companies ask suppliers to settle obligations in dollars while exporters have resorted to buy small portions of dollars and bank them for when they will need the foreign currency.

Kenya’s dollar interbank had been obscured by CBK controls which created a divergence between the quoted official rates and the market prices but the government has pushed the regulator to let the market discover its own price.

The shilling has tumbled to 136.8 against the dollar even as some lenders quote as high as 140; on higher import demand, an opaque currency market and outright speculation. 

The new administration has pushed CBK to revive the interbank market and allow dollars to trade transparently which has caused a further slide of the Kenyan currency as the market seeks its equilibrium.

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