Actis exits DFCU

Actis has exited its majority stake in Kampala-listed DFCU, Uganda’s fifth largest bank.

The emerging market specialist had been managing the 60 percent stake owned by CDC, the UK government development arm, after gaining its independence from the group in 2004. Based on DFCU’s share price at the time of the sale, the transaction values the company at nearly $100 million.

The new acquirers are Norfund, the Norwegian DFI, and Rabo Development, a subsidiary of Dutch group Rabobank, which will both own 27 percent of the company upon completion of the sale. CDC will directly retain a 15 percent stake, with the remainder owned by Uganda’s social security fund and a range of institutional and retail investors.

The shares were sold through a block trade on the Uganda Stock Exchange in collaboration with CDC, which retained the option to take part of its stake in DFCU back on its balance sheet, Michael Turner, managing director of Actis in East Africa, told Private Equity International. CDC’s decision to retain a direct holding is in line with the current reorientation of its private equity programme, with more capabilities and capital devoted to direct investing.

Originally known as the Development Finance Company of Uganda, DFCU was co-founded in 1964 by CDC and the Ugandan government. It was part of the handful of local DFIs set up at the time by international institutions, which also included Tanzania’s Development Finance Corporation and Kenya’s Development Bank.

“These institutions have gone slightly different ways. But in the case of DFCU, it was a local DFI, with lines of credit from the DFI community, that was predominantly investing in project finance and development projects for a couple of decades,” recalled Turner.

The institution gained a banking licence in 2003, after which it could take deposits and became regulated by the Bank of Uganda. CDC acquired an additional 20 percent stake the same year, allowing it to hold a controlling share of the business. It decided to list DFCU on the Ugandan stock exchange in 2004, after which IFC and the Ugandan government, both early investors in the company, exited their investment in the company.

“From then on, it grew as a genuine banking institution, both in term finance and corporate and retail banking,” Turner commented.

Actis, which has held CDC’s legacy stake in its Fund I over the last decade, introduced a new banking system into DFCU and extended its network. The bank now has 30 branches and manages $387 million of assets.

“The history is such that it was mainly a lender to corporates, in particular the SME market,” Turner said. “The key focus of the bank now is to continue developing the retail side of its operations. But that DFI history of DFCU will continue to hold it in good stead, because the bank does have a number of long-term lines of credit from the DFI community for the purpose of lending to SMEs.”

Actis is currently on the road to raise its Global Fund IV, launched in 2011 with a target of $3.5 billion. The firm had garnered $923 million in commitments as at January 2013.