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raising its shareholding in FBCH to 35 percent.
NSSA owns 22 percent in FBCH. It also owns 40 percent in FBC Building Society while 60 percent is owned by FBCH.
The transaction would boost the capital position of FBCH’s banking operations in compliance with the Reserve Bank of Zimbabwe minimum capital thresholds, the group said in a statement.
Commercial banks would be required to have a minimum capital base of US$50 million by end of this month, while building societies would be required to have US$40 million.
“Individually, these units will not be able to comply with these scheduled minimum capital requirements, hence the need to combine and maintain one banking licence that can offer both commercial banking and mortgage finance services,” said FBCH.
“It is the board’s intention to surrender FBC Building Society’s banking licence and migrate the mortgage business to FBC Bank.”
Under the proposed transaction, NSSA would swap its 40 percent shareholding in FBCBS for shares in FBC Holdings. NSSA would be issued with 80 million FBCH shares on the basis of 7,33 shares in FBCH for every 100 held FBCBS.
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NSSA has 1,09 billion shares in FBCBS. The share swap represents 13,53 percent of FBCH prior to the share swap and 11,92 percent after the share swap. FBCBS would be 100 percent owned by FBCH while NSSA would raise its equity in FBCH to 35 percent. An extraordinary general meeting to seek approval would be held on June 27.
The value of FBCH used for the share swap was determined by the market capitalisation of FBCH on the ZSE.
FBCBS’s valuation was derived through a weighted average of four valuation methods – net asset value, discounted cash flow, excess return valuation and sustainable earnings.
A discount factor of 31 percent was applied to the computed value of FBCBS to rationalize the imbalance between the computed value and the market value, as FBCH is trading at a 31 percent discount to its book value.
FBC Bank and FBCBS offer retail banking services to more or less the same target markets, resulting in duplication of services and products.
Although commercial banks do not enjoy the same tax benefits currently accorded to building societies, the timing of the merger will be determined by the regulatory capitalisation deadlines as well as consideration of the applicable tax regimes.
Failure by both FBCBS and FBC Bank to meet the minimum capital requirements of US$40 million and US$50 million, respectively, by 30 June 2013, could result in a corrective order being issued by the RBZ.
This would stifle the ability by the two institutions to attract external lines of credit and institutional depositors, for on-lending. This would also lead to a loss of confidence in the FBC brand due to a weak capital position and an incapacity to underwrite more business, owing to a weak capital position.
“There will be no loss of business as a result of the corporate restructuring transaction, as the existing mortgage finance portfolio will be transferred and integrated into FBC Bank’s core activities,” said FBCH.
Online Reporter