Can Dfcu maintain high profits?

Good and bad books

William Nyakatura, the corporate advisor at African Alliance Uganda Limited, who are the transaction advisor for Dfcu limited in the forthcoming rights issue told The Independent that as part of the deal with the Bank of Uganda, Dfcu acquired the “good and part of the “bad book” of Crane Bank but took into account various risk factors and future cash flow.

Nyakatura said that the larger asset base will probably lead the bank into earning higher interest income in the coming years and boost the bank’s ability to provide credit services to more diverse sectors like energy and oil and gas.

“As part of the acquisition, dfcu also acquired solid customer relationships that it didn’t have before which it has already started a strategy to capitalise and monitise,” Nyakatura said, adding “A larger customer deposit of up to Shs1.8 trillion provides the bank with a low cost source of funding provided their interest rate of most fixed deposits are realigned to the current market rates that have come down.”

To the customers of the bank, Nyakatura said the bigger asset base gives confidence to the market that it is well capitalised to avoid putting their deposits at risk in addition to giving them better access and diversity of products across the country.

Nyakatura said that as lending becomes more risky with a bad economy; there are other sources of income that are not interest related – fees and commissions – which will increasingly become a greater source of income as dfcu completes the upgrade of its IT system and upgrade of the e-channels which include internet and mobile banking and rolls out agency banking.

“We therefore believe that dfcu has taken the correct measures to ensure that it is able to take full advantage of both the acquisitive and organic growth as well as ensure it has sufficient capital buffers to weather any unforeseeable macro and micro economic event,” Nyakatura concluded.

Dfcu seeks Shs 200 billion through rights issue   

Dfcu limited is looking for Shs 200bn from its shareholders in an effort to pay a US$50 million loan which it acquired from a consortium of its majority share holder – ARISE B.V at the beginning of this year.

This follows the Bank of Uganda request to Dfcu that it is recapitalised further to facilitate its acquisition of certain Crane Bank assets and liabilities.

ARISE, B.V. currently owns 55% of Dfcu limited and consists of Rabo Development from the Netherlands, NorFinance from Norway, Norfund, a Norwegian government owned Private Equity firm and FMO, the Dutch Development Bank.

According to a notice to shareholders issued by the Dfcu limited on Aug. 23, the company seeks to raise Shs 200 billion through sale of more than 263million additional shares. Currently, Dfcu has more than 497million shares.

For the planned rights issue, every one ordinary share, 0.53 shares will be offered to shareholder at Shs 760 each. The trading market price per share was Shs 758 by close of business on Aug. 28.

Only shareholders whose names were on the company’s register of members as at close of business on August 24 would be eligible to participate in the rights issue.

For investors wanting to become shareholders in Dfcu via the rights issue, the notice read in part that, they can purchase rights being sold on the securities market by eligible shareholders.

Joseph Kibuuka, the head of investment banking at Crested Capital told The Independent on August 25 that basing on the recent profitability posted by the bank; Dfcu is a good buy and expects shareholders to “swallow” the shares being issued.

He said that there is commitment from big shareholders of the bank to participate in the rights issue, which would make it succeed.

Dfcu’s shareholders include; ARISE B.V (55%), Common Wealth Development Corporation (15%), NSSF (5.93%), Kimberlite Fund (3.76%) and others (20.3%).

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