CBZ eyes key milestone in ZB merger

CBZ Holdings is confident all regulatory approvals to consummate the merger with fellow banking group, ZB Financial Holdings Limited (ZBFH), will be secured by the end of this month.

The transaction will give birth to a behemoth expected to dominate Zimbabwe’s financial and capital markets, chairman, Luxon Zembe, said in an interview this week.

“It will be the largest financial institution, the most aggressive by assets in terms of net present value, and the largest by market capitalisation. Most likely, it will be the largest institution on our Zimbabwe Stock Exchange.

“It could be larger than the current big boys who are there (on ZSE), so that is what we are creating and more importantly, an institution that is Zimbabwean; that is what is key and important,” he said.

The ZSE is currently dominated by beverages maker, Delta Corporation, the bourse’s most valued entity, followed by telecommunications giant Econet Wireless Zimbabwe.

Zembe said ZBFH presented the most attractive prospects for the merger, as the country’s second-best capitalised banking group after itself.

It is part of a grand scheme that also includes leading insurance services provider First Mutual Holdings Limited (FMHL), with which the banking group is also pursuing a merger.

“We are creating an institution that is Zimbabwean, by Zimbabweans, which Zimbabweans can be proud of on the Zimbabwe Stock Exchange, which drives their economy and economic development,” Zembe said.

He said the group was going through the final phase of approval from the Competition and Tariff Commission (CTC), a process the group is confident will be obtained without any hiccups.

CBZ has already secured exchange control approval for the transaction. Zembe said there had been no hurdles in securing the nod from the Zimbabwe Stock Exchange (ZSE) where both institutions are listed.

Teething issues with ZBFH Intermarket Holdings founder, Nicholas Vingirai, whose company’s assets were incorporated in ZBFH following the group’s controversial acquisition by the Reserve Bank of Zimbabwe in 2006 had been resolved.

Effectively, Vingirai holds 22 percent in ZBFH of the 33 percent that should be returned to the banker.

The Government is exploring alternatives to settle the roughly 12 percent stake balance Vingirai is entitled to in ZBFH to complete the restitution for the assets he lost when the RBZ acquired the bank.

It is expected Vingirai will get the equivalent of the value of his outstanding shares in ZBFH in one of the many institutions owned by the Government.

This comes after an investigation into externalisation charges, which resulted in him losing his value in ZBFH, leveled against him about two decades ago absolved him of any wrongdoing.

Zembe said the merger with ZBFH was planned for completion by the end of this year.

“It has gone reasonably well so far and we are just waiting now for the final approval from Competition and Tariff Commission, which we hope that we should be able to get given the strategic importance of this transaction to the nation,” he said.

Why ZBFH was targeted

Zembe pointed out that the transaction, whose scheme also entailed the merger with leading insurance services provider, FMHL, was key for national development, “especially now as we begin to think about NDS (National Development Strategy) 2”.

NDS 1 is the Government’s economic development plan covering the period 2020 to 2025. NDS 2 will guide the country’s development plan for another five years until 2030.

“We are now thinking about NDS 2, which takes us to 2030 and in terms of our national vision of an upper middle-income economy, we are now beginning to say, how do we strategically position and build institutions that can then support and drive that national vision?”

He said one of Zimbabwe’s challenges was the proliferation of banking institutions that had little capacity to mobilise resources to meaningfully support the economy.

“If you look at the balance sheets of these institutions you will find that they are very small. In their own right, they are okay.

“But when you then superimpose that on our national economy and say do we have strong financial institutions that we can anchor our national strategy on, that can drive our economic development, that can support industry in a very robust, aggressive manner, we do not have such financial institutions,” he said.

“It’s like a small guy trying to lift a boulder, they cannot, you need someone with appropriate muscle to lift the boulder. This is why the merger between CBZ Holdings, ZBFH and First Mutual Holdings Limited is a very important strategic move at a national level to be able to anchor national economic development and support businesses,” he said.

Zembe said the target was to consummate the merger transactions for CBZ, ZB Holdings and FMHL by the end of this year.

All shareholders in the respective institutions, Zembe said, were on the same page in terms of the need to combine the institutions to create a single entity with a bigger balance sheet for resource mobilisation and better prospects for profitability and growth.

“The coming together will result in a very strong institution with a good balance sheet to be able to… mobilise good resources, command good share price on the market.

“We should be able to see a very strong institution, enabling them to marshal resources, and the ability to mobilise resources leads itself into growth opportunities that they can then be able to leverage not only locally but regionally and internationally,” he said.

Zembe said CBZ group and ZBFH were presently well capitalised individually in line with regulatory requirements, pointing out that it was ZBFH’s building society that required fresh capital.

Commercial banks are required to have a minimum capital of US$30 million.

“Two banking institutions that are already well capitalised and are meeting the (regulatory capital requirements), you bring them together, what it does is it releases capital or resources for support to businesses,” Zembe said.

Zembe said CBZ settled on ZBFH and FMHL for the mergers given the three institutions’ dominant positions in the banking, insurance and property sectors.

“We want to create a very good, strong bank; that’s a banking cluster, we want to create a very strong insurance company. Insurance companies come in terms of medium to long-term mobilisation of resources through policies and a lot of other instruments.

“We also want to create a very strong property company, which can drive infrastructure development together with the insurance company. Strategically, that is where we are saying for the economy we need a very strong financial institution, a very strong insurance institution and a very strong property development,” he said.

FMHL part of the bigger picture

CBZ is on record saying a study of the FMHL business model presented a natural fit between the insurance services company and the banking group.

CBZ contends that FMHL is a business that has also been growing over the last few years and, like CBZ, is on the precipice of achieving true market domination.

The banking group said FMHL had begun expanding its operations into the region and is poised to become one of the dominant players within the SADC region.

According to CBZ, a strong partnership with a like-minded institution with deep pockets and access to significant funding lines is precisely what is needed to fully unlock the significant reserves of value that reside in this business and execute the regionalisation strategy of the business.

It also believes that the exploitation of synergies between the two businesses should unlock more value in CBZ, looking to enhance its own insurance and property businesses further and widen its product offering to its significant client base.

“The combination expands the trading abilities of both entities across geographies thereby permitting the extension in product management and distribution capabilities, improving customer product offerings, and better-absorbing market shocks through a deeper and further diversified capital base,” CBZ in a circular to shareholder when it sought their permission for the FMHL merger.

The proposed Transaction therefore offers diversity and synergistic opportunities among the operational units of the two businesses.-ebusinessweekly