Interest in East Africa’s Financial Sector Continues to Rise

Interest in East Africa’s financial sector continues to rise, highlighted by the recent investment in Tanzania’s CRDB Bank by the International Finance Corporation (“IFC”) and CDC Group plc (“CDC”), who have invested USD 24 mn to acquire a 5% holding in the lender, valuing the bank at USD 480 mn. CRDB recently announced a rights issue, which was underwritten by CDC and the IFC.

The two underwriters have now subscribed to the rights not taken up by existing shareholders. The investment will enable CRDB (i) continue its growth strategy, (ii) further improve access to financial services with the aim of helping to build businesses that create jobs, and (iii) grow the branch network to target the unbanked and those in the rural areas, from the current 120 branches, to be able to cover 75% of the country.

The acquisition was made at a PBV multiple of 2.3x, higher than the current trading PBV multiple of 1.9x, which highlights the premium investors are willing to pay above market value to drive growth in financial inclusion and services in the country. The emergence of the financial services sector as a target for PE investors in East Africa is mainly driven by:

A rapidly growing, and entrepreneurial, population seeking access to credit to finance growing ventures;
Low financial services inclusion in the region, as measured by the percentage of people within a 5 km radius of a financial access point, with Kenya leading at 77% while Uganda and Tanzania are at 43% and 35%, respectively;
Increasing ease of exit in the financial services sector, most recently witnessed by Helios’ full exit of Equity Bank.
Given

the abundance of global capital looking for opportunities in Africa,

the attractive valuations in private markets compared to public markets, and

better economic growth in Sub Saharan Africa as compared to global markets

We remain bullish on PE activity in financial services, retail and FMCG, services, and manufacturing sectors.

An excerpt of the Cytonn Report