Nairobi — Equity Bank has tentatively agreed to buy a 20 per cent stake in Housing Finance from CDC, making an entry into the mortgage business.

In addition, under a private transfer agreement, CDC yesterday agreed to sell its 24.9 per cent holding in the mortgage company to both Equity and British American Investments Company (Kenya) Limited (BAIC), who will take up the remaining 4.9 per cent.

Actis, the managers of CDC's investments, confirmed that the three firms had signed conditional agreements to be finalised within the next three months.

"The agreements and the sales of the shares is conditional on regulatory approvals being obtained from the Capital Markets Authority and the Central Bank of Kenya, and completion is expected in the third quarter of 2007," Actis noted in a statement.

Shareholders advised

Following the signing of the agreement Equity and Housing Finance, both listed at the stock market, issued notices requesting their shareholders to exercise caution in dealing in their shares until further announcements were made.

Equity Bank CEO, James Mwangi said the deal was consistent with their growth strategy of diversifying their offerings to the banks 1.3 million plus customers, by giving them more innovative, and cheaper products. He was optimistic that it would go through. "We want to combine our fast growth with strong strategic partnerships to deliver significant return on equity as well as cement our growing dominance in the making sector as a true Kenyan-owned, Kenyan-run financial institutions," said Mwangi who promised to issue a separate statement later.

The announcement ends months of speculation that Equity was planning to make a strategic buy into the mortgage financier.

The agreement goes contrary to speculations by section of media that CDC and other principal investors - National Social Security Fund (10.36 per cent), and the Government (7.32 per cent) - would cede their rights to facilitate entry of strategic investors.

Housing Finance expects that a nod from the regulators will pave the way for the company's rights issue, will be announced later. Proceeds from the sale of 115 million shares in the issue was meant to strengthen Housing Finance's capital base, qualifying it to take more deposits and increase its lending.

If the deal goes through, it will be the second time lucky for CDC in its attempt to exit from the mortgage financier, after last year's plan to sell out to Transcentury fell through, after the parties failed to agree on a price.

In its growth strategy, Equity Bank had this year set up a war chest target of Sh7 billion to buy into the mortgage market.

Last year, Housing Finance posted a 56 per cent increase in pre-tax profit to Sh141 million, while Equity's profit rose by 120 per cent to break the magical Sh1 billion mark, with a Sh1.1 billion pre-tax profit.