VENTURES AFRICA – UK-based private equity fund, Fusion Capital, has stopped plans to acquire a controlling stake in Suntra Investment Bank, slowing down the Kenyan stockbrokerage firm’s recapitalisation plans.
Fusion Capital had intended to increase its shareholding in Nairobi-based Suntra to 55 percent from the current 9.73 percent, in a deal that would have been worth Sh688 million ($8 million). According to Suntra chief operations officer Erustus Kirongothi, the transaction hit a snag because financial regulators in Guernsey Island have not “approved release of the cash” belonging to the private equity fund.
With its capital base currently standing at Sh108 million ($1.3 million), Suntra has been forced to apply for a downgrading of its trading licence from that of an investment bank to a stockbroker as new regulations by the Capital Markets Authority (CMA) stipulates that the minimum capital requirement for investment banks should be Sh250 million ($3 million) effective last year, while stockbrokers are supposed to have minimum capital of at least Sh50 million ($582,000). The firm will change its name to Suntra Capital.
A Fusion Capital acquisition would have given the investment bank access to a wider pool of funds, in addition to increasing its capital base.
“We decided to apply for a brokerage licence because we could still earn the bulk of our income from commissions. It is challenging to make a return on the investment banking licence when there is little activity,” said Mr Kirongothi.
Fusion Capital’s increased stake in Suntra was also meant to give it fiscal power to roll-out new products with the expected opening of a futures market, real estate investment trusts and the introduction of the growth and enterprise market segment at the Kenyan bourse.
The CMA’s policy on minimum capital requirements for investment banks was put in place to strengthen institutions and brokers against low seasons that eat into their profits.