dfcu Limited Information MEMORANDUM 2 dfcu Limited INFORMATION MEMORANDUM dfcu limited (Incorporated in the Republic of Uganda on 14 May 1964) (Company Registration No.: 2256) dfcu Ordinary Share Code: dfcu (“dfcu” or “the Company”) Regarding 0.53 for 1 Rights Issue of 263,157,895 ordinary shares at UGX 760 per ordinary share Date of issue: 31 August 2017 dfcu Limited 3 INFORMATION MEMORANDUM Caution Application has been made to the Capital Markets Authority (“the CMA”) and approval has been granted for this Information Memorandum. As a matter of policy, the CMA assumes no responsibility for the correctness of any statements or opinions made or reports contained in this Information Memorandum. The securities that are the subject of the Information Memorandum have neither been approved nor disapproved by the CMA. Approval of this Information Memorandum and the subsequent listing of the New Shares are not to be taken as an indication of the merits of the Company or of the New Shares. This Information Memorandum is issued by dfcu Limited (“dfcu” or “the Issuer” or “the Company”) and has been prepared in respect of the issue for subscription of 263,157,895 new ordinary shares (“the New Shares”) in the share capital of the Company (the “Rights Issue”) and subsequent listing of the New Shares on the Main Investment Market Segment (“MIMS”) of the Uganda Securities Exchange (“the USE”). This follows approval of the Rights Issue by the Board and shareholders through resolutions dated 24 July 2017 and 08 June 2017, respectively. The USE has given permission for listing of the New Shares on the MIMS. It is anticipated that trading of the New Shares will commence on 10 October 2017. The USE assumes no responsibility for the correctness of any of the statements made or opinions or reports expressed in this Information Memorandum. Admission of the New Shares on MIMS is not to be taken as an indication of the merits of the Company or of the New Shares. A copy of this Information Memorandum has been delivered to the Registrar of Companies for registration in accordance with Section 90G of the Capital Markets (Amendment) Act 2011 and Section 60 of the Companies Act 2012. This Information Memorandum contains information that is provided in compliance with the requirements of the Companies Act 2012, the requirements of the Capital Markets Authority Act (Cap 84), as amended by the Capital Markets Authority (Amendment) Act 2011 and the Capital Markets Authority (Amendment) Act 2016, the rules and regulations made under the Capital Markets Authority Act and the USE Listing Rules 2003, as amended by the USE Listing Rules (Amendment) Rules 2005. Eligible shareholders should carefully consider the matters set forth in this Information Memorandum under the caption Risk Factors in section 11 together with all other information contained in this Information Memorandum and any other information in the public domain. If you are in doubt as to the meaning of the contents of this Information Memorandum or what action to take, consult your investment banker, financial advisor, stockbroker or other professional advisor, duly authorized under the Capital Markets Authority Act to advise on securities. If you wish to exercise your Rights, you must follow the procedure set out in the Terms and Conditions of the Rights Issue in section 12. Prospective allotees shall, before acquiring any of the New Shares, be required to have a securities account with USE. 4 dfcu Limited INFORMATION MEMORANDUM Table of contents The definitions and interpretations, set out on pages [10] to [13] of this Information Memorandum shall apply to the following table of contents: CAUTION 3 ADVISORS TO THE ISSUE 5 CORPORATE INFORMATION 6 LETTER FROM THE CHAIRMAN 8 DIRECTORS’ STATEMENT 10 5. DEFINITIONS AND INTERPRETATION 11 6. PARTICULARS OF THE RIGHTS ISSUE 15 7. COUNTRY AND FINANCIAL SECTOR OVERVIEW 22 8. OVERVIEW OF DFCU GROUP 27 9. CORPORATE GOVERNANCE 37 10. STATUTORY AND GENERAL INFORMATION 47 11. RISK FACTORS 52 12. TERMS AND CONDITIONS OF THE RIGHTS ISSUE 59 ANNEXURES 69 i. Legal Opinion 69 ii. Reporting Accountant’s Report. 76 iii. 3 Year Profit Forecast of dfcu Limited for the Years Ending 31 December 2017, 2018 and 2019 189 iv. Condensed consolidated interim financial statements (unaudited) for the 6 Months period ended 30 June 2017 193 v. Provisional Allotment (Pal) Forms 198 Provisional Allotment Letter 199 Form of Renunciation – (‘Form R’) 201 Form of Entitlement – (‘Form E’) 203 Application for Rump Shares (Rump Form) 205 vi. Irrevocable Bank Guarantee 207 vii. Letter of Undertaking 208 viii. Authorised Selling Agents 209 dfcu Limited 5 INFORMATION MEMORANDUM Advisors to the issue Transaction Advisor and Sponsoring Broker Legal Advisor African Alliance Uganda Limited Sebalu & Lule Advocates 1st Floor, Workers House, Pilkington Road S&L Chambers P.O Box 70828, Kampala, Uganda 14, MacKinnon Road, Nakasero, Kampala Tel: +256 414 235577 P.O. Box 2255, Kampala Fax: +256 414 235575 Tel: +256 0312 250013 / 0312 202 030 Email: [email protected] Email: [email protected] Website: www.africanalliance.com Website: www.sebalulule.co.ug Reporting Accountant Receiving Bank Ernst & Young dfcu Bank Limited 18 Clement Hill Road Plot 26, Kyadondo Road, Kampala P.O Box 7215, Kampala, Uganda P.O. Box 2767, Kampala, Uganda Tel: +256 414 343520/4 Tel: +256 414 351 000 / Fax: +256 414 251736 : +256 312 300 200 Email: [email protected] Email: [email protected] Website: www.ey.com Website: www.dfcugroup.com Share Registrar Deloitte (Uganda) Limited 3rd Floor, Rwenzori House, Lumumba Avenue P.O Box 10314, Kampala, Uganda Tel: +256 417 710 000 Email: [email protected] Website: www.deloitte.com 6 dfcu Limited INFORMATION MEMORANDUM Corporate Information Registered dfcu Limited Office: P.O. Box 2767, Kampala dfcu Towers Plot 26, Kyadondo Road Nakasero, Kampala Uganda Auditor: KPMG Certified Public Accountants 3rd Floor, Rwenzori Courts, Plot 2 & 4 Nakasero Tel: +256 414 340 315 Kampala, Uganda Legal Advisors: Kenneth Akampurira Advocate & Commissioner for Oaths Ground Floor, Lourdel Towers Plot 1, Lourdel Road P.O. Box 2658 Kampala, Uganda Karuhanga. Tabaro & Associates Solicitors & Advocates Ground Floor, Esami House Plot 52, Bombo Road P.O. Box 37366 Kampala, Uganda Ligomarc Advocates 5th Floor, Western Wing, Social Security House 4 Jinja Road P.O Box 8230 Kampala, Uganda Bowmans (AF Mpanga, Advocates) 4th Floor, dfcu Towers Plot 26, Kyadondo Road Nakasero P.O. Box 1520 Kampala, Uganda dfcu Limited 7 INFORMATION MEMORANDUM 8 dfcu Limited INFORMATION MEMORANDUM Letter from the Chairman On behalf of the Board of dfcu, it is my pleasure Bank’s existing products lines. to present this Information Memorandum to you It is expected that the Acquisition, which placed dfcu and extend our invitation to you to enhance your Bank amongst the top three banks in the market in investment by taking up more shares in your terms of total assets, will accelerate the growth of the company. group and result in transforming it from a niche to a Over the last five years our business has grown universal bank with superior financial performance steadily resulting in a balance sheet size of UGX 1.8 and significantly enhanced shareholder value. trillion at the end of 2016. Similarly, the profit before Whilst the Acquisition was successfully completed, it tax over the period grew by 45% from UGX 40.3 required dfcu Bank to remain adequately capitalized billion in 2012 to UGX 58.4 billion in 2016. We have for the future. The Company took a decision to recorded a 52% increase in net loans and advances provide the additional capital required by the Bank. from UGX 555 billion in 2012 to UGX 842 billion in The capital injection was funded by a short-term 2016. Customer deposits grew by 86% from UGX 591 bridging loan facility of USD 50 million from our billion in 2012 to UGX 1.1 trillion in 2016. largest shareholder Arise B.V. In January 2017, our wholly owned subsidiary, dfcu Bank Limited, acquired some of the assets and liabilities of Crane Bank Limited (in receivership) The Rights Issue is an (“the Acquisition”). This was a great opportunity for dfcu Group which your Board considered carefully invitation to existing and made a decision to undertake. shareholders to increase their The key highlights of the transaction were: investment in the Company • an increase in branch network from 43 to 67 with over 100 ATMs; and be a part of the growth of • growing customer numbers to over half a million; a very vibrant business with and • enhancing of our skills base and capacity as a anticipated higher earnings result of staff integration. from a larger customer base Following the Acquisition, the post integration balance sheet as at 31 March 2017 reflects total assets of UGX 3.1 trillion (2016: UGX 1.8 trillion), net At its meeting on 24 July 2017, the Board, in line with advances of UGX 1.3 trillion (2016: UGX 0.8 trillion) its objective to ensure that the Bank is adequately and customer deposits of UGX 1.8 trillion (2016: UGX capitalised, resolved to raise UGX 200 billion through 1.1 trillion). The balance sheet as at 31 March 2017 a Rights Issue, to repay the loan. The Rights Issue takes into account the fair valued acquired assets will be of 263,157,895 ordinary shares at UGX 760 and assumed liabilities. per ordinary share made on the basis of 0.53 new Crane Bank products included corporate and ordinary share for every one existing ordinary share. customer loans, savings, VISA debit and credit cards, The Rights Issue is an invitation to existing mortgages and investments. These product lines shareholders to increase their investment in the have successfully been merged into dfcu Company and be a part of the growth of a very vibrant business with anticipated higher earnings from a larger customer base, a stronger liquidity and deposit base and overall enhanced efficiencies.