City Trust Ltd Circular to Shareholders

8/10/2019 City Trust Ltd Circular to Shareholders

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THIS CIRCULAR IS DATED JANUARY 21, 2013

CITY TRUST LIMITED(Incorporated in the Republic of Kenya under the Companies Act

(Chapter 486 of the Laws of Kenya), Registration Number C 7/50)

CIRCULAR TO SHAREHOLDERS

IN RELATION TO:

PROPOSAL FOR ISSUE OF UP TO 363,722,034NEW ORDINARY SHARES IN CONNECTION WITH THE

ACQUISITION OF THOSE SHARES OF I&M BANK LIMITED (I&M) NOT ALREADY OWNED BY CITY

TRUST LIMITED (CTL) A PUBLIC LIMITED COMPANY LISTED ON THE NAIROBI SECURITIES

EXCHANGE, BY MEANS OF A SHARE EXCHANGE OFFER

ADVISED BY:

INDEPENDENT ADVISER

LEGAL ADVISER AUDITORS


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City Trust Limited Shareholders Circular_________________________________________________________________________________ _______________________________________________________________________ __________

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Table of Contents

Important Notice................................................................................................................................................. 2

Part I General................................................................................................................................................... 4

1. Timetable Of Key Events................................................................... ................................................. 4

2. Transaction Advisers................................................................ ........................................................... 5

3. Definitions............................................................................................................................................ 6

Part II Chairmans Letter................................................................................................................................ 9

1. Introduction......................................................................................................................................... 9

2. Acquisition Of Shares In I&M Bank Limited..................................................................................... 9

3. Rationale For Undertaking This Acquisition................................................................................... 10

4. Effect Of The Transaction On The Existing Shareholders And The Companys FinancialPosition................................................................................................ ............................................... 11

5. Principal Terms Of The Acquisition............................................................. .................................... 12

6. Proposed Share Split............................................................... .......................................................... 14

7. Statutory Approvals & Related Information......................................................... ......................... 14

8. Extraordinary General Meeting (Egm)........................................................ .................................... 15

9. Recommendations And Voting Intentions............................................................ ......................... 15

Part III I&M Bank Limited............................................................................................................................. 16

Part IV Impact Of The Transaction............................................................................................... .............. 30

Part V Proposed Changes In Board Structure And Profiles Of Proposed Board Of Directors............ 34

Part VI Proposed Amendments To Memorandum & Articles Of Association......................................... 36

Part VII Risk Factors................................................................. ................................................................... .. 38

Part VIII Statutory And General Information......................................................... .................................... 43

Part IX EGM Notice................................................................................................................ ........................ 48

Part X Appendices.......................................................... ................................................................... ............. 51

1. Independent Opinion on the Share Exchange Offer .................................................................... 51

2. Directors Declaration....................................................................................................................... 60

3. Statement from Auditors................................................................... ............................................... 61

4. The OTC Market Prices for I&M Bank Shares...................................................... ......................... 62

5. Notes........................................................ ................................................................... ........................ 63

6. Proxy Form.......................................................... .................................................................. ............. 64


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2. TRANSACTION ADVISERS

Independent Adviser

Dyer and Blair Investment Bank Name/Title Office Contact

10th Floor, Pension Towers, Paul Orem020 324 0108Loita Street Chief Executive Officer

P.O Box 45396, 00100 [email protected]

NairobiLeah Nyambura

020 324 0122Corporate Finance Analyst

[email protected]

Legal Adviser

Kaplan & Stratton Name/Title Office Contact9th Floor, Williamson House4th Ngong AvenueP.O Box 40111, 00100

Oliver [email protected]

020 2841000

NairobiAmar Grewal-Thethy

020 2841000Partner

[email protected]

Auditors

Deloitte & Touche, Name/Title Office Contact

Certified Public Accountants Anne Muraya

020 4230000Deloitte Place, PartnerWaiyaki Way, Muthangari, [email protected]

P.O Box 40092, 00100,

020 4230000Nairobi

Fred [email protected]
mailto:[email protected]:[email protected]:[email protected]:[email protected]


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3. DEFINITIONS

In this Circular, its annexure and enclosures, unless otherwise stated, the words in the first

column have the meaning stated opposite them in the second column, words in the singular

include the plural and vice versa, words signifying one gender include the other gender andreferences to a person include references to juristic persons and associations of persons:

"Acquisition" The proposed acquisition of shares in I&M Bank not presently

held by CTL pursuant to the Offer.

AIMS The Alternative Investment Market Segment of the NairobiSecurities Exchange.

Bank One Bank One Limited, a company incorporated in the Republic ofMauritius, company number 40612, and licensed by the BOM as

a commercial bank.

Banking Act Banking Act (Chapter 488 of the Laws of Kenya).

Banks Shareholders The holders of the issued share capital of I&M Bank other thanCTL.

BCR Banque Commerciale du Rwanda Limited, a company

incorporated in the Republic of Rwanda, company number R.C.

A010/Klg, and licensed by the BNR as a commercial bank.

BNR The National Bank of Rwanda, the Central Bank of Rwanda.

Board or Directors The board of directors of either CTL or I&M Bank as indicated.

BOM The Bank of Mauritius, the Central Bank of Mauritius.

BOT The Bank of Tanzania, the Central Bank of Tanzania.

CIL Ciel Investment Limited, Mauritius.

Circular This Circular dated January 21, 2013, together with itsAppendices and the enclosed Notice of EGM and Proxy Form.

CMA The Capital Markets Authority of Kenya, a statutory regulatoryauthority established under the Capital Markets Act.

Capital Markets Act The Capital Markets Act (Chapter 485A of the Laws of Kenya).

Central Bank of

Kenya or CBKThe Central Bank of Kenya, a statutory corporation established

under the Central Bank of Kenya Act (Chapter 491 of the Laws

of Kenya).

CEO Chief Executive Officer.


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Companies Act The Companies Act (Chapter 486 of the Laws of Kenya).

CTL orCity Trustor

CompanyCity Trust Limited, a company incorporated under the

Companies Act (No. 7/50) and listed on the Nairobi Securities

Exchange.

DEG DEG - Deutsche Investitions Und Entwicklungsgesellschaft mbH,registered in the Republic of Germany.

ED Executive Director.

EGM Extraordinary General Meeting.

FMO Nederlandse Financierings-Maatschappij voor

Ontwikkelingslanden N.V., registered in the Netherlands.

I&M orI&M BankorBank

I&M Bank Limited, a company incorporated under theCompanies Act (No. C.8/90) and licensed by the CBK as a

commercial bank.

I&M Bank Group I&M Bank and its Subsidiaries and Associates.

I&M Bank Shares The ordinary shares of KES 100/- each in the issued and paid

up share capital of I&M.

I&M-Tz I&M Bank (T) Limited, a company incorporated in the Republic

of Tanzania, registration number 41958 and licensed by theBOT as a commercial bank.

IFC International Finance Corporation, a member of the World Bank

Group.

KES orKShs Kenya Shillings, being the lawful currency of the Republic of

Kenya.

Key Shareholders The four largest shareholders of CTL post-acquisition

MIMS The Main Investment Market Segment of the Nairobi SecuritiesExchange.

New Shares The 363,722,034 new ordinary shares of City Trust Limited to

be issued pursuant to the Offer.

NSE The Nairobi Securities Exchange.

Offer The proposed offer by City Trust Limited to acquire all the

remaining 26,704,995 shares in I&M Bank Limited not already

held by City Trust Limited.


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Proparco Socit de Promotion et de Participation pour la Coopration

Economique, registered in the Republic of France.

Subsidiaries or

Associates

I&M Bank (T) Limited, Tanzania; Banque Commerciale du

Rwanda Limited, Rwanda and Bank One Limited, Mauritius.

"Take-Over

Regulations"

The Capital Markets (Take-Overs and Mergers) Regulations,

2002.

TKF The Kibo Fund, a private equity fund, registered in the Republic

of Mauritius.

TShs Tanzania Shillings being the lawful currency of the Republic of

Tanzania.

Rwf Rwandan Francs being the lawful currency of the Republic of

Rwanda.


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PART II CHAIRMANS LETTER

To: All Shareholders of City Trust Limited (CTL)

Dear Shareholder,

PROPOSED ACQUISTION OF SHARES IN I&M BANK LIMITED NOT ALREADY HELD

BY CITY TRUST LIMITED BY WAY OF SHARE EXCHANGE

1. INTRODUCTION

On 3rd October 2011, your Board issued a cautionary announcement regarding on-going

negotiations with a regional Bank for the acquisition of its shares in exchange for shares in

your Company.

It now gives me great pleasure to inform you that your Board has since concluded these

negotiations and, in principle, pending shareholder approvals, agreed on the terms with the

regional bank being I&M Bank Limited. You are aware that your Company already holds

7.28% of the shares in I&M. It is proposed that your Company will acquire all of the

remaining 92.72% shares in I&M. The payment consideration for the acquisition of these

remaining shares in I&M will be through the issuance of 363,722,034 New Shares credited

fully paid up to the shareholders of I&M. The effect of this acquisition will be that I&M will

become a wholly owned subsidiary of CTL.

This document provides pertinent information on the effect and impact on your Companys

financial position and the various approvals required to consummate this transaction. The

purpose of this document is to provide you with (i) information on the background and

rationale for undertaking this transaction, (ii) outline the key terms of the proposed

transaction, and most importantly (iii) to seek your approval to proceed with the proposed

offer.

2. ACQUISITION OF SHARES IN I&M BANK LIMITED

Under the offer, CTL will seek to acquire the remaining 26,704,995 shares comprising

92.72% of the issued and paid up shares in I&M.

By way of background information, I&M possesses a rich heritage in banking. Founded in

1974, the Bank has evolved from a community financial institution to a full-fledged

commercial bank offering a wide range of corporate and retail banking services, making it a

significant player in the Kenyan market. Known for its innovative and wide range of products

and services, it is backed by state-of-the-art technologies, staff strength of close to 500 and

a branch network of 20 in Kenya. I&M has in the recent past established its presence in

the region with 15 branches spread across Mauritius through its associate Bank One

Limited; 6 branches in Tanzania through its subsidiary I&M Bank (T) Limited and 15

branches in Rwanda through its subsidiary Banque Commerciale du Rwanda Limited

(BCR).


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Two leading European Development Financial Institutions (DFIs) Proparco (French) and DEG

(German) own approximately 10.68% of the Bank while the rest is owned by a consortium

of Kenyan investment companies and individuals. Total assets of the I&M Bank Group

exceed KES 144 billion as at 30thSeptember 2012. More details about I&M are set out under

Part III of this circular.

3. RATIONALE FOR UNDERTAKING THIS ACQUISITION

This transaction represents a win-win situation for both CTL and I&M shareholders as

explained below:

As at the date of this Circular, CTLs investment in I&M Bank represented 7.28% of

the Banks shareholding. Based on the Banks current valuation and CTLs current

market price, CTLs shares are trading at a discount; this being attributed to the

indirect holding of the Banks shares.

From CTL s Pe r spec t i ve

In deciding to proceed with the acquisition, the Board took into consideration several

factors, the most important of which include the following:

However on conclusion of the transaction, I&M Bank will become a wholly owned

subsidiary of CTL, enabling the current shareholders of CTL and potential investors

to directly hold shares in I&M. This will not only enable shareholders of CTL to

directly benefit from the Banks financial performance, but also provide an

opportunity to participate in I&Ms substantial asset base and businesses in the

region. We believe that, this would over a period of time, steer the price of CTL

shares to better reflect the direct shareholding in I&M Bank.

Further, the share swap mechanism has been structured in a manner that is most

beneficial to shareholders of CTL. The structure is such that on completion of the

transaction, CTLs shareholding will, in all material respects, resemble the current

shareholding structure of I&M Bank. Taking into consideration the value of CTLs

other investments, the current shareholders of CTL will collectively hold 7.30% on

conclusion of this transaction, reflecting a marginal increase from their current

shareholding of 7.28%. The Board appreciated that, in contrast, had the share swap

mechanism been structured on market values of the two entities namely I&M Bank

and CTL, the shareholders of CTL would have been significantly diluted in the

process.

Facilitate the increase of the shareholder base of CTL and thereby enhance liquidity

of the Companys shares on the NSE.

Enable CTL to upgrade its listing status on the NSE from the AIMS to the MIMS

following the enhanced shareholder base.


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Enable I&M achieve its long term objective of listing its shares on the Nairobi

Securities Exchange whilst simultaneously providing liquidity for its institutional,

corporate and individual shareholders.

F rom I M s Pe r s pe c ti v e

Similarly for I&M and its shareholders, this transaction provides several advantages which

are listed below:

Provide I&M with a platform to raise additional capital in the future to facilitate the

achievement of its long term growth and expansion strategy, and thereby, improve

upon its capabilities to successfully manage the growth achieved in the last few

years.

4. EFFECT OF THE TRANSACTION ON THE EXISTING SHAREHOLDERS AND THE

COMPANYS FINANCIAL POSITION

The Board acknowledges that this transaction will result in a dilution of your shareholding in

CTL. However, the Board has ensured that transaction be structured in such a way to

ensure that there shall be no dilution of your current indirect shareholding in I&M Bank.

Further, all due care has been exercised to safeguard that the ultimate beneficial

shareholding of the Bank remains materially unchanged. This is illustrated in Part IV, under

shareholding on page 31.

This acquisition will have a significant positive impact on the financial position of your

Company and this has been outlined in further detail under Part IV on pages 32 and 33. For

instance, following the proposed share split and the issuance of the new Ordinary Shares to

I&M Bank Shareholders, CTLs issued share capital will increase from KES 28,640,005 to KES

392,362,039.

A l l f i gures in KES

City TrustUnaudited

5mthsI&M Bank I&M Holdings

31-12-2011 31-12-2011 Consolidated

Consolidated ConsolidatedPost-

acquisition*

Shareholders' Equity

Paid up/ Assigned share capital 28,640,005 2,880,245,300 391,827,937

Share premium 155,000 3,773,237,119 13,135,209,676Retained earnings (postacquisition)

250,328,270 7,185,254,003 319,575,922

All other reserves 0 778,067,127 778,067,127

Total Shareholders' Equity 279,123,275 14,616,803,549 14,624,680,662

* The d i f f e rence i n these f i gures a r i ses f rom the conso l i da t i on e f fec t as per IFRS. Deta i l ed account s show ing

the fu l l conso l ida t i on o f account s a re i nc luded under Par t IV on pa ge 33


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5. PRINCIPAL TERMS OF THE ACQUISITION

i. Offer: Once approved at the EGM, CTL will make an offer to the shareholders of

I&M under section 210 of the Companies Act to acquire all the shares not presently

held by CTL in exchange for shares in CTL. No cash payment will be made and a

cash alternative will not be provided.

ii. Share Exchange Ratio:The share exchange ratio as agreed and approved by your

Board is 13.62 shares in CTL with the proposed par value of Kshs. 1.00 (post share

split) for every 1 share in I&M with a par value of Kshs. 100/-. The share-exchange

ratio has been determined keeping in mind that the most equitable basis of valuation

would be based on I&M. In this regard, as CTLs most significant asset is its

shareholding in I&M, CTLs valuation has been based on the fair value of I&M. This

derived value is the basis of the share exchange ratio. The following factors have

also been taken into consideration in determining the share exchange ratio:

CTLs and I&Ms most recent audited financial statements available at that time;

A valuation of I&M Bank carried out by Deloitte for the private placement inNovember 2010.

An updated valuation of I&M Bank carried out by Dyer and Blair Investment Bankin October 2012.

CTLs value per share based on a proportionate share of I&Ms computed value asabove.

Ensuring that in carrying out the transaction and as a result thereof, the ultimateshareholding of I&M Bank remains materially unchanged.

The transaction is such that I&M Bank shareholders will receive 13.62 new ordinary

shares in CTL for every one share they hold in I&M. Consequently, the consideration

to I&M shareholders will be in the form of an allotment of 363,722,034 New Shares of

CTL which will be credited as issued and fully paid up.

The New Shares, when issued, will have the same rights as the existing ordinary

shares of the Company.

iii. Change in Name & Board of Directors

It is intended that, upon completion of the Acquisition, the name of the Company will

be changed to I&M Holdings Limited.

The current membership of CTLs Board is as shown below.

Name Position on Board Occupation Nationality

Mr. Anil Raja Chairman CharteredAccountant

British

Mr. Parag Anil Raja Non-Executive Member Businessman British

Mr. MadabhushiSoundararajan

Independent Non-Executive Member

Banker Indian

Mr. Daniel Ndonye Independent Non-Executive Member

Certified PublicAccountant

Kenyan


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It is proposed that the Board of CTL will be reconstituted and will comprise the

following persons:

Name Position on Board Occupation Nationality

Mr. Daniel Ndonye Chairman (IndependentDirector)

Certified PublicAccountant

Kenyan

Mr. SBR Shah, MBS Non-Executive Director Banker Kenyan

Mr. Michael J. Karanja Independent Non-Executive Director

Business man Kenyan

Mr. Sarit S. Raja Shah Non-Executive Director Banker Kenyan

Mr. MadabhushiSoundararajan

Independent Non-Executive Director

Banker Indian

Ms. Christina Gabener

Non-Executive Director

Senior Investment

Manager

German

Mr. Gudi AnanchNon-Executive Director Investment Analyst French

A brief profile for each of these Directors has been provided under Part V on pages

34 and 35 of this Circular.

iv. Amendment to the Memorandum and Articles of Association

Your Board is of the view that the transaction represents an opportune moment to

review the Memorandum and Articles of Association for the Company. This document

was drawn up in 1950 and has not been substantially reviewed since then. From 1950there have been significant changes in the operating and regulatory environment

including the adoption of best practices in areas such as Corporate Governance which

need to be factored into the amended Articles of Association. It is also important to

note that your Company will now become the holding company for the Bank. With

these factors in mind, the Notice of EGM contains resolutions amending the

Memorandum of Association of the Company and adopting new Articles of

Association. Details on the amendments proposed have been provided under Part VI

on page 36 of this Circular.

v.

Transfer of CTL shares from AIMS to MIMS

CTL had applied to the CMA to transfer its shares from the AIMS to MIMS listing, the

Main Board of the Nairobi Securities Exchange. Following the successful completion

of this transaction, CTL will be fully eligible in all aspects to list on the MIMS, save for

the requirement to have 1,000 shareholders. To this end, CTL had requested CMA for

a 6-month period exemption within which the Company will have to increase its

shareholder base from approx. 700 to the required minimum of 1,000 shareholders.

CMA vide its letter dated 6thNovember 2012 conveyed its approval of the exemption.

It is intended to achieve this as below:


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Following the conclusion of this transaction, Biashara Securities Limited (BSL), an

existing shareholder of I&M, will hold approx. 13.92% of CTL. BSL is a holding

company that has approx. 1,000 individual shareholders.

It is intended that BSL shall, subject to receipt of court approval and all other

necessary regulatory approvals, be wound up allowing its approx. 1,000

shareholders to hold shares directly in CTL. Consequently CTLs shareholder base will increase to approx. 1,700 shareholders

thereby being in full compliance with the MIMS requirement. It is anticipated that

this requirement will be met within the 6-months period as required by the CMA.

vi. Transaction Costs: The transaction costs in relation to the acquisition of shares in

I&M, details of which have been provided in Part VIII on page 46 will be funded from

a special dividend to be declared by I&M at completion of the transaction.

6. PROPOSED SHARE SPLIT

Your Board is simultaneously proposing to undertake a share split. The main objective ofthis action would be to increase the number of shares in circulation, which would enhancethe liquidity of the shares on the NSE.

It is proposed that the ordinary shares of the Company be split so that the shareholders willreceive 5 new shares for every share they currently hold in CTL. This will reduce the parvalue per ordinary share from the current KES 5.00 to KES 1.00.

The current share price of CTL shares is KES 400.00, and thus restricts trading activity inview of the fact that minimum transaction size is 100 shares. Following the share split, theprice of each share would also decrease by the same factor of 5 thereby increase the

affordability of the Companys shares. Over time, this action would in all likelihood increasethe shareholder base. Likewise, the increased affordability of the shares would improve theCompanys ability to raise funds through the capital markets.

In addition, the split will result in an increase of the current authorised shares for CTL from10,000,000 ordinary shares with a par value of KES 5.00 to 50,000,000 ordinary shares witha par value of KES 1.00. Similarly, the issued and fully paid shares will increase from5,728,001 ordinary shares to 28,640,005 ordinary shares.

The proposed register closing date for the share split is May 28, 2013 following which theincreased shares will be uploaded for trading on June 11, 2013. The same will serve as the

date of commencement of trading in the shares.

7. STATUTORY APPROVALS & RELATED INFORMATION

In compliance with the terms of CMA approval, the key shareholders have agreed to lock in

their shareholding for a period of 24 months effective from the completion of the proposed

transaction. More details on the terms and conditions of the Offer are set out under the

Statutory and General Section on page 43 of this Circular.

Included in Parts III-IX of this Circular are additional information and disclosures on CTL and

I&M Bank, and the future of the Company including pro forma financial information.


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8. EXTRAORDINARY GENERAL MEETING (EGM)

The various resolutions required for the purpose of effecting the proposals set out above

have been outlined in the EGM Notice on Page 48 of this Circular and seek your approval

for:

1. The proposed share split;

2. The increase in authorised share capital;

3. Issuance of the New Shares;

4. The making of the Offer;

5. Amendments to the Companys Memorandum of Association;

6. The adoption of new Articles of Association; and

7. The change of the name of the Company

Each of these resolutions will be submitted for consideration at the EGM of the Company to

be held on Wednesday, February 20, 2013. Subject to approvals by the Shareholders,

regulators and other authorities as applicable, it is expected that the transaction will be

concluded before June 30, 2013.

For purposes of the EGM, you will find enclosed a form of proxy for your use in relation to

the EGM. A proxy need not be a shareholder of CTL. The completion of a form of proxy will

not prevent you from attending and voting in person if you wish to do so.

The form of proxy should be returned to the Companys registered address so as to reachthe registrar no later than 10.00 amMonday, February 18, 2013

9. RECOMMENDATIONS AND VOTING INTENTIONS

For the reasons given in this Circular, your Board is of the opinion that the transaction is in

the best interests of the Company and its shareholders.

The Directors unanimously recommend that all CTL shareholders vote in favour of the

resolutions to be proposed at the EGM, as they intend to do in respect of their own

beneficial holdings of shares, if any.

If you are in any doubt as to what action to take, it is recommended that you seek

independent advice from your stockbroker, bank manager, lawyer, accountant or other

professional adviser.

Yours sincerely,

CHAIRMAN

[DATE]

ON BEHALF OF THE BOARD OF DIRECTORS


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PART III I&M BANK LIMITED

I&M Bank Limited (Bank) possesses a rich heritage in banking. The Bank was established

in 1974 as a financial institution that grew to be a full-fledged commercial bank in 1996.

Today, the Bank has a network of 20 branches and 21 ATMs covering the major financial

centers in Kenya and with an access to over 3,000 ATMs across the country as part of othernetworks. I&M Bank has grown to be a significant player in the Kenyan market. The Bank

was recently ranked overall 4th best bank in the industry out of 43 banks, by the 2012

Banking Survey.

The Bank offers a wide range of commercial banking and financial products and services,

and prides itself on introducing innovative products and services based on the needs of its

customers. In 2010, I&M became the first bank in East and Central Africa to be licensed by

VISA for E-Commerce acquisition. This important step has been well perceived in the East

Africa market as plugging the missing link for promoting E-commerce in the country.

I&M Bank is privileged to count, amongst its shareholders, two leading Europeandevelopment financial institutions (DFIs), Proparco and DEG, who together own

approximately 10.68% of I&M Bank. A major portion of the remaining approx. 90%

shareholding in the bank is held by a consortium of Kenyan investment companies. In

November 2010, the Bank successfully raised KShs. 2.4 billion (approx. USD 30 Million)

through a private placement which resulted in an expansion of the Banks shareholding

base. The Bank also successfully set up and issued shares under an Employee Share

Ownership Plan (ESOP) in July 2011.

As at September 30, 2012, I&M Banks issued and paid up share capital was KShs. 2.88

billion, with a share premium of KShs. 3.77 billion. The total Shareholders Equity as at thisdate, stood at KShs. 16.567 billion.

I&M Bank has over the last few years successfully pursued a regional expansion strategy

and established operations in (i) Mauritius through its associate Bank One Limited; (ii)

Tanzania through its subsidiary I&M Bank (T) Limited, and (iii) Rwanda through its

subsidiary Banque Commericale du Rwanda Limited. A summary of each is outlined below.

Bank One Limited, Mauritius

Bank One Limited, formerly known as First City Bank Limited (FCB), is a commercial bank

in Mauritius, licensed to do both on-shore and off-shore banking business, and regulated by

the Bank of Mauritius. FCB was formerly owned by Government of Mauritius institutions,

which divested from the bank by selling their equity in 2008 to I&M Bank and CIEL

Investment Limited, who own 50% each in Bank One.

Bank One represents I&Ms maiden expansion in terms of overseas investments, and

marked the beginning of its strategic expansion outside Kenya. Through Bank One, I&M

offers international off-shore banking, wealth management and trade finance services to a

widespread clientele.

The Mauritian bank has a network of 15 branches, with total assets of Mauritian Rupees

(MUR) 18.072 billion (approx. KShs. 47.71 billion) as at 30th September 2012.


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I&M Bank (T) Limited, Tanzania

I&M Bank (T) Limited (I&M-Tz), formerly known as CF Union Bank Limited (CFUB), is a

commercial bank in Tanzania, licensed and regulated by the Bank of Tanzania. CFUB was a

privately-owned bank, incorporated on 15th April 2002 arising from the merger between

Furaha Finance Limited and Crown Finance & Leasing Limited. CFUB was acquired by I&M

Bank, Proparco, The Kibo Fund and Mr. Michael N. Shirima on 14thJanuary 2010.

I&M-Tz represents I&M Banks first major expansion into the regional East African market,

and was I&Ms first step towards establishing an integrated presence to form a truly regional

Bank serving as the financial gateway to East and Central Africa.

I&M-Tz has a network of 6 branches, with total assets of Tanzanian Shillings (Tzs) 246

billion (approx. KShs. 13.7 billion) as at 30thSeptember 2012.

Banque Commerciale du Rwanda Limited, Rwanda

Banque Commerciale du Rwanda Limited (BCR) was founded in May 1963 and is theoldest commercial bank in Rwanda. The Bank enjoys a strong reputation of reliability,

innovation and solidity. In July 2012, I&M Bank, along with DEG and Proparco, concluded

the acquisition of 80% of BCRs shareholding. Of the remaining 20%, 19.8% is held by the

Government of Rwanda and the balance by Rwandan nationals.

BCR has a network of 15 branches, with total assets of Rwandan Francs (Rwf) 108 billion

(approx. KShs. 15.4 billion) as at 30thSeptember 2012.

Share Capital

I&M Banks authorized share capital as at 30th September 2012 stood at KShs.

3,000,000,000/- divided into 30,000,000 ordinary shares of a par value of KShs. 100/- each

while the Banks issued and fully paid-up share capital on the same date stood at KShs.

2,880,245,300/- divided into 28,802,453 ordinary shares of a par value of KShs. 100/- each.

The Banks detailed shareholding structure has been outlined in Part IV of this Circular.

Financial Highlights

i) Balance Sheet SummaryIn KES 000

Unaudited Audited

Sep-12 Dec-11 Dec-10 Dec-09 Dec-08 Dec-07

Cash and bankbalances

23,541,476 16,907,146 11,574,636 7,988,560 4,171,292 2,505,917

Loans & advancesto customers

85,547,474 66,365,870 50,257,349 30,480,353 29,775,366 19,214,788

Investmentsecurities

28,469,926 19,685,792 20,787,432 12,478,398 5,940,879 5,295,305

Property &

equipment

2,546,215 1,915,490 1,734,368 1,530,411 1,373,322 1,091,662

Other assets 4,122,542 3,189,414 2,528,369 1,956,745 1,597,079 1,318,467

Total assets 144,227,633 108,063,712 86,882,153 54,434,467 42,857,938 29,426,139


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Unaudited Audited


Deposits frombanks

7,387,035 2,546,060 1,393,755 221,805 948,644 879,140

Deposits fromcustomers

111,182,146 85,212,904 68,208,428 44,759,148 34,420,747 23,625,870

Long termborrowings

5,047,446 3,435,773 2,143,250 1,301,547 1,318,325 238,713

Other liabilities 2,541,446 1,702,3051,286,283

689,047 991,719 815,462

Total liabilities 126,158,073 92,897,042 73,031,716 46,971,547 37,679,435 25,559,185

Shareho lders

equ i t y

16 ,566 ,838 14 ,616 ,803 13 ,360 ,254 7 ,462 ,920 5 ,178 ,503 3 ,866 ,954

Minority Interest 1 ,502 ,722 549 ,867 490 ,183 - - -

144,227,633 108,063,712 86,882,153 54,434,467 42,857,938 29,426,139

ii)

Income Statement Summary

In KES 000Unaudited Audited


Interest income 10,339,893 9,031,131 6,552,914 5,081,667 3,927,414 2,765,869

Interest expenses (5,735,385) (3,468,275) (2,779,117) (2,608,456) (1,830,206) (1,057,178)

Net Interest Income 4,604,508 5,562,856 3,773,797 2,473,211 2,097,208 1,708,691

Net fees & commissionincome

1,147,414 1,286,040 946,522 644,805 559,645 425,948

Other income 1,094,855 1,110,554 1,200,097 365,264 354,632 202,225

Operating income 6,846,777 7,959,450 5,920,416 3,483,280 3,011,485 2,336,864

Operating expenses (2,910,227) (3,005,557) (2,393,934) (1,688,446) (1,419,936) (1,042,700)

PBT 3 ,936 ,550 4 ,953 ,893 3 ,526 ,482 1 ,794 ,834 1 ,591 ,549 1 ,294 ,164

Tax (1,170,236) (1,481,169) (1,001,914) (547,419) (477,873) (411,312)

PAT 2,766,314 3,472,724 2,524,568 1,247,415 1,113,676 882,852

Board of Directors

The Board of Directors of I&M Bank as at the date of this Circular are:

Director ProfileSuresh Bhagwanji

Raja Shah, MBS,

Chairman and Non-

Executive Director

Mr Suresh Bhagwanji Raja Shah, a Kenyan national aged 68 years,

is a founder of I&M Bank. He has vast experience in the banking

industry and in business and in December 2002, he was bestowed

the honour of a Moran of the Order of the Burning Spear. He sits

on the boards of several companies.

Sarit S. Raja Shah,

Executive Director

Mr Sarit S. Raja Shah, a Kenyan national aged 44 years, joined I&M

Bank in 1993 as the Executive Director after completing his Masters

degree from City University, London. He underwent his training at

Biashara Bank of Kenya Limited. He sits on the boards of severalcompanies.


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Director Profile

Michael J. Karanja,

Independent, Non-

Executive Director

Mr Michael J. Karanja a Kenyan national aged 73 years was the

Deputy Group Chairman and Managing Director of East African

Breweries Ltd from 1993 to 2000. He holds a BSc. in Biochemistry

from Makerere University, Kampala and a Post Graduate Diploma in

Brewing from Herriot-Watt University, Edinburgh, Scotland. He is a

fellow of the Institute of Brewing (U.K) and is the Chairman of

Cooper Kenya Ltd. He sits on the boards of several companies.

Eric M. Kimani

Independent, Non-

Executive Director

Mr Eric M. Kimani, a Kenyan national aged 54 years, was formerly

the Managing Director of Sameer Africa Ltd and is a former CEO of

Kenya Tea Development Agency. He is a Certified Public Accountant

and an advocate of the High Court of Kenya. He has also previously

worked as a financial controller of Williamson Tea, Kenya. He sits

on the boards of several companies, charitable and professional

associations.

Sachit S. Raja Shah


Mr Sachit S. Raja Shah, a Kenyan national aged 40 years joined the

board in 2001 from Citibank London. Prior to this, he dealt with

asset management at AMP Asset Management in London and was

an Equities Analyst at HSBC Bank Plc, London.

P.C. Mugo Kibati

Independent Non-

Executive Director

Mr Mugo Kibati, a Kenyan national aged 43 years, joined the board

in 2008. He is a seasoned business professional recognized for

talented and bold business development and strategy in both East

African and International jurisdictions. Mr. Kibati is the DirectorGeneral of the Vision Delivery Secretariat (VDS), created by the

Government of Kenya to ensure timely implementation of the

flagship projects of Vision 2030. Mr. Kibati, the former Chief

Executive Officer of East African Cables Limited, holds a Master of

Science degree from the Massachusetts Institute of Technology,

USA and an MBA from George Washington University, USA. Mr

Kibati has also been recognized as a Young Global leader by the

World Economic Forum.

MadabhushiSoundararajan

Independent Non-

Executive Director

Mr Madabhushi Soundararajan is an Indian national aged 62 yearsand joined the board in 2009. A veteran banker with 38 years in

the banking industry, Mr. Soundararajan was previously the

Managing Director of CFC Bank Limited, Kenya and has held senior

positions in several banking institutions in both Kenya and India.

Christina Gabener


Ms Christina Gabener, is a German national aged 47 years. She

represents DEG on the Board. She is currently the Senior

Investment Manager in DEGs New Business Africa Department that

is charged with origination of financial sector projects across Africa.

She has previously worked with DEG for the last 11 years in variouscapacities, mainly within their Financial Institutions department.


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COMPOSITION FUNCTIONS

Board Procurement Committee

3 Independent Non-executive

Directors,

1 Executive Director,

CEO,

Head of Business Support

Head of Finance (Secretary)

Review & approve the Procurement Policy

Review & consider significant procurement proposals /

consultancy assignments above Managements Delegated

Authority limits

Review and approval of procurement of goods and services

from related parties.

Review & ratify unbudgeted capital expenditure above

Managements Delegated Authority limits

Board Capital Structure Strategy Committee

2 Independent Non-Executive

Directors

1 Executive Director CEO

1 External Advisor

Head Corporate & Strategic

Planning (CSP)

Chief Manager-CSP

(Secretary)

Review and approve Strategy & Objectives on additional

capital needs.

Ensure optimal capital structure with appropriate mix of debtand equity to support Banks Strategy

Risk assessment & approval of capital raising avenues

proposed by management.

Regularly review structure and terms of debt capital.

Board Share Transfers Committee

2 Non-Executive Directors

1 Executive Director

Company Secretary

(Secretary)

Ensure that any new shareholders meet the Boards criteria

of good standing.

Approve / reject applications for the transfer of shares and

approve registration of such transfers.

Give guidance and approve any share allotment arising out

of a bonus / rights issue.

Sign the Share Certificates, under Company Seal, to be

issued to any shareholder.

Board Nomination & Remuneration Committee

2 Independent Non-Executive

Directors

1 Executive Director

Invitees:

CEO


Head of HR (Secretary)

Assessment of Board requirements for non-executive

directors, including requisite competencies.

Development programs to build individual skills and improveBoard effectiveness.

Board and Senior Management succession planning.

Performance evaluation of the Board, Individual Directors

and of the ED & CEO.

Set remuneration policies & strategic objectives of Board, ED

& CEO.

Set Employee Share Ownership Plan Policy and provide

requisite guidance to Scheme Trustee.


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Organizational Structure

I&Ms Organization Structure is guided by the following principles:

To have a lean & flexible structure to ensure fast turnaround time and efficient

customer service delivery standards;

Simultaneously to have a structure that ensures adequate internal controls, checks

and balances in place to minimize operational risks.

Given below is the top level organization structure for the Bank.

BOARD OF DIRECTORS

Executive Director

Board Committees

Internal AuditChief Executive Officer

Corporate Banking

Commercial Banking

Institutional & Premier

Marketing & Product Development

Card Products

Information & Communication Technology

Operations

Finance

Human Resources

Corporate & Strategic Planning Business Development Treasury

Risk Management

ProjectsBusiness Support

Credit

Legal

Operational,

Market Risk &

Trade Services


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Senior Management

The members of the senior management of I&M Bank consist of banking professionals who

have a wealth of experience with local as well as multinational banks. As at the date of this

Circular the senior management of the Bank are:

Name Profile

Arun S. Mathur,

Chief Executive Officer

Mr Arun Mathur, a Kenyan national aged 59 years, joined I&M

Bank in 2000 and was promoted as CEO in 2002. Mr Mathur holds

a B.Tech (Hons) degree and started his banking career in 1976

with the State Bank of India. He joined the Grindlays Bank, India

in 1982, and worked in their office in Nairobi, Kenya from 1990 to

1994, and has subsequently worked in several other banks in East

Africa.

Amritlal V. Chavda,Senior General Manager

Mr Chavda is a Kenyan national aged 69 with 49 years experiencein banking. He joined I&M in 1985 and holds a ProfessionalBanking Part I certificate from the Kenya Institute of Bankers.

RamalingamV.Narasimhan,

Senior Executive Manager

Mr Narasimhan is a Kenyan national aged 74. He has over 31

years banking experience. He holds a B. Com degree and is a

member of the Chartered Institute of Bankers.

L.A. Sivaramakrishna,

Head of Business Development

Mr Sivaramakrishna is an Indian national aged 55 with 31 years

banking experience. He joined I&M in 2003 as the Head of

Corporate Banking. He holds a Msc. Horticulture and a professional

banking qualification CAIIB.

Lucy Thegeya,


Ms Thegeya is a Kenyan national aged 50, with 17 years banking

experience. She joined I&M in April 2010, having previously

worked at CFC Stanbic Bank Limited. She holds an MBA in

Finance and is a member of the Institute of Certified Public

Accountants.

Ruma Shah

Group Head of Internal Audit

Ms Shah is a Kenyan national aged 41, who joined the I&M Group

in 1998 as Head of Finance. She is a Fellow of the Association of

Chartered Certified Accountants and a member of the Institute of

Certified Public Accountants of Kenya.

Gauri Gupta

Head of Corporate & Strategic

Planning

Ms Gupta is a Kenyan national aged 38, who has 15 years

experience in banking covering Credit, Risk Management, Finance

and Strategic Planning. She holds a B.Com degree and is a Fellow

member of the Association of Chartered Accountants of India.

Henry Kirimania

Head of Treasury

Mr Kirimania is a Kenyan national aged 41, with 17 years banking

experience. He joined I&M in 2011 as the Head of Treasury,

having previously worked in similar functions at CfC Stanbic Bank

and Co-operative Bank of Kenya. He holds a Bachelor of Education

of Arts degree from Moi University.

Chhanda C Mishra Mr Mishra is an Indian national aged 53, with over 29 years

banking experience. He joined I&M in 2012 as the Group Head of


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Name Profile

Group Head of Projects Projects. He previously worked at IBM India, where he was the

Managing Consultant, in business analytics and optimization

practice. Prior to his engagement with IBM, he worked as a

Deputy General Manager (Operations) with State Bank of India. He

holds a post graduate degree in Commerce and an MBA in

Information Systems, as well as a bachelor of Law degree and a

diploma in International Banking and Finance.

Ravi Ramamoorthy

Head of Corporate Banking

Mr Ramamoorthy is an Indian national aged 54 with 33 years

banking experience. He joined I&M in June 2010, and holds BSc

in Mathematics and is a Certified Associate of the Indian Institute

of Bankers (CAIIB).

Srinivasan Parthasarthy

Head of Commercial Banking

Mr Parthsarathy is an Indian national aged 47 with 21 years

banking experience. He joined I&M in December 2005 as General

Manager, Commercial Banking. He holds a M.Comm and is a

Certified Associate of the Indian Institute of Bankers (CAIIB).

Suprio Sengupta

Head of Marketing &Product

Development

Mr Sengupta is a Kenyan national aged 49 with 23 years banking

experience. He joined I&M in 2000 to develop and market new

products. He holds an MBA (Finance & Marketing) and a CAIIB

professional banking qualification.

George Kariuki

Head of Institutional Banking

Mr Kariuki is a Kenyan national aged 54 years with 25 yearsbanking experience. He joined I&M May 2010 and holds a BScdegree in Marketing and a Masters of Business and Public

Administration.

John Njoroge

Ag. Head of Card Products

Mr Njoroge is a Kenyan national aged 43 years, with over 18

years banking experience. He joined I&M Bank in 2011.

Previously, he has worked with CBA, Imperial Bank, CfC Bank and

Eco Bank. He holds a Bachelors degree in Economics and is

currently pursuing a Masters degree.

Vincent Chisaka

Head of Trade Services

Mr. Chisaka is a Kenyan national aged 46 years with 24 yearsbanking experience. He joined I&M in 2001, and holds a Bachelorof Commerce Degree, Management option, and is an Associate ofthe Kenya Institute of Bankers.

Rohit Gupta

Head of Information &

Communication Technology

Mr Gupta is an Indian national aged 41 with 17 years banking

experience. He joined I&M in 2006 as General Manager ICT. He

holds a degree in Technology and has professional ICT

qualifications in Oasis IST, ATM, Finacle eChannels.

Joseph Njomo

Head of Operations

Mr Njomo is a Kenyan national aged 46 with 26 years banking

experience. He joined I&M in 2000. He holds a B.Comm in

Accounting.


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Name Profile

Jyoti Patel

Head of Finance

Ms. Patel is a Kenyan national aged 42 who has several years ofexperience in Audit and Finance. She joined I&M in 2007 as theHead of Finance. She is a member of the Association of CharteredCertified Accountants and a member of the Institute of Certified

Public Accountants of Kenya.

John Waka

Group Head of Human

Resources

Mr. Waka is a Kenyan national aged 54 with 18 years bankingexperience. He joined I&M in 2004 as head of Human Resources.He holds a B.A in Economics and a Post graduate Diploma inEconomics.

George Jaba

Head of Credit

Mr Jaba is a Kenyan national aged 43 who has several years ofbanking experience. He joined I&M in 1992 in the Creditdepartment. He holds a B.Com degree, CPA Level II and adiploma from the Kenya Institute of Bankers.

Nina Madanguda

Head of Legal

Ms Madanguda is a Kenyan national aged 31, with over 8 yearsbanking experience. Prior to her appointment at I&M Bank in

2010, she worked with the Consolidated Bank of Kenya. She holds

a Bachelor of Law degree from the University of Nairobi and a

diploma in Law, from the Kenya School of Law.

Kenas Otieno

Head of Risk and Compliance

Mr Otieno is a Kenyan national aged 37, with over 12 years

banking experience. He joined I&M in February 2011. Prior to his

appointment, he worked for Standard Chartered Bank and KCB. He

holds a B. Com in Management Science from the University of

Nairobi

Key Strengths of the Bank

Loyal and growing Customer baseI&M Bank has a strong, well-diversified and loyal customer base that is continually

growing, on the strength of the Banks innovative and convenient products.

Customer FocusedThe needs of the Banks customers are of utmost importance to I&M and one of the

main factors influencing critical decisions such as location of branches, improvements

made to service delivery standards and the products which are introduced. At every

stage, efforts are made to ensure that our customers experience superior quality and

convenient banking services, making I&M the Bankof Choice

Turnaround TimesA key strength of the Bank is its rapid turnaround times for products and services

offered to customers across the board. This has always been a highly-valued aspect of

the services the Bank offers to its customers.

Regional Presence

In line with the needs of our customers, as well as the growing interconnectedness ofthe East African and Sub-Saharan economies, I&M has embarked on a regional

expansion programme, and currently has subsidiaries in Tanzania and Rwanda and an


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Directors who are able to bring their considerable expertise to the table, while the

Banks Management is composed of seasoned bankers who continue to ably steer the

Bank in achieving its strategic objectives.

Products & Services

I&M offers a wide range of commercial banking and financial products and services, and

prides itself on introducing customer-centric innovative products and services.

Given below is the list of the Banks product offering under various business lines:

( i )

Corpo ra te Bank ing:

Business Bank Account Plans Sapphire, Biashara, Alpha, Savannah, Noble

Term and Working Capital Loans

Project Financing

Property Development Financing

Insurance Premium Financing

Asset Financing

Collateral Management Financing

Guarantees

Trade Finance Products

E Commerce

( i i )

Pe r s ona l Bank i ng

Personal Bank Account Plans Select, Sapphire, Bahati, Tayari, Malaika, Young

Savers Term Deposits

Recurring Deposits

Home Mortgage Loans

Personal Loans

VISA Credit and Debit Cards

VISA Prepaid Cards

International American Express

Travellers Cheques

Gift Cheques

Safe Deposit Lockers

( i i i )

A l t e rna t e B ank i ng Channe l s

Payment Cards: Customers have easier and safer access to funds through various

payment cards such as:

International VISA Debit Cards

International VISA Credit Cards

Local and International I&M VISA Prepaid Cards

Co-branded Cards Nakumatt, Safaricom, Tamarind, AAR, USIU

Further, customers have access to their accounts through:

24 hour call centre Access to live customer service


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PART IVIMPACT OF THE TRANSACTION

The transaction has been analysed on the impact it will have on the shareholding structure

and financial presentation of the Company as below.

1.

Shareholding structure (Pre- and post-transaction)

Current C i ty Trus t shareho ld ing s t ruc ture (Be fore sp l i t )

The shareholding structure of City Trust as at December 31, 2012 is as follows:

ShareholderShareholding as at 31-12-2012

No. of Shares % Holding

1 Prime Securities Investment 2,862,702 49.98%

2 Rakesh Prakash Gadani 331,670 5.79%

3 Minard Holdings Limited 272,155 4.75%

4 Beechwood Overseas Limited 240,000 4.19%

5 Mahendra Dahyabhai Patel 140,062 2.45%

6 Fatima Sadrudin Karim Jiwa 138,317 2.41%

7 Mr. Rajnikant Nathoobhai Shah 70,009 1.22%

8 Cannon Assurance (Kenya) Limited 67,451 1.18%

9 Subodh K. Gadani 57,662 1.01%

10 Vijay Vashdev & Ashwin Vashdev 50,300 0.88%

11 Others (Approximately 591 Others) 1,497,673 26.15%

TOTAL 5,728,001 100%

Current C i ty Trus t shareho ld ing s t ruc ture (Af te r Sp l i t )

The shareholding structure of City Trust as at December 31, 2012 after the proposed share

split would be as follows:

Shareholder

Shareholding as at 31-12-2012

No. ofShares

before split

No. ofShares after

split% Holding

1 Prime Securities Investment 2,862,702 14,313,510 49.98%

2 Rakesh Prakash Gadani 331,670 1,658,350 5.79%3 Minard Holdings Limited 272,155 1,360,775 4.75%

4 Beechwood Overseas Limited 240,000 1,200,000 4.19%

5 Mahendra Dahyabhai Patel 140,062 700,310 2.45%

6 Fatima Sadrudin Karim Jiwa 138,317 691,585 2.41%

7 Mr. Rajnikant Nathoobhai Shah 70,009 350,045 1.22%

8 Cannon Assurance (Kenya) Limited 67,451 337,255 1.18%

9 Subodh K. Gadani 57,662 288,310 1.01%

10 Vijay Vashdev & Ashwin Vashdev 50,300 251,500 0.88%

11 Others (Approximately 591 Others) 1,497,673 7,488,365 26.15%

TOTAL 5,728,001 28,640,005 100%


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Cur ren t I M Bank shareho ld ing s t ructu re

Details of the significant shareholders of I&M Bank as at December 31, 2012 are as follows:

Particulars of ShareholdersShareholding as at 31-12-

2012*No. of Shares % Holding

1 Minard Holdings Limited 4,875,759 16.93%

2 Biashara Securities Limited 4,008,740 13.92%3 Tecoma Limited 4,800,000 16.67%4 Ziyungi Limited 5,400,000 18.75%

5 DEG 1,800,000 6.25%

6 Proparco 1,275,000 4.43%

7 City Trust Limited 2,097,458 7.28%

8 The Registered Trustees Bhagwanji RajaCharitable Foundation

694,848 2.41%

9 Quadrant Services Ltd A/C I&M ESOP Trust 100,000 0.35%

10 Others (approximately 103 others) 3,750,648 13.02%Total 28,802,453 100.00%

* Shareholding amended to reflect transfers in progress, further explained below

Share Transfers in progress

As at the date of this Circular, the following share transfers are in progress, and shall be

concluded prior to the opening of the Offer Period:

Proparco has reduced its shareholding in I&M Bank, by selling 1,300,000 of its shares

in I&M Bank to Minard Holdings Limited and Ziyungi Limited.

Further, DEG has reached an agreement to sell 1,300,000 of the shares which it

holds in I&M Bank to Tecoma Limited and Ziyungi Limited.

Pro- fo rm a imp act o f the acqu is i t ion on CTL s shareho ld ing s t ruc ture

Following the split, on the assumption that 100% of I&M Bank Shareholders accept the

Offer, the resulting shareholding in City Trust will be as set out in the table below.

Particulars of Shareholders

CTL Shareholding PostAcquisition

No. of shares % HoldingZiyungi Limited 73,548,000 18.75%

Minard Holdings Limited 67,768,613 17.27%

Tecoma Limited 65,376,000 16.66%

Biashara Securities Limited 54,599,039 13.91%

DEG 24,516,000 6.25%

Proparco 17,365,500 4.43%

Prime Securities 14,313,510 3.65%

The Registered Trustees Bhagwanji RajaCharitable Foundation

9,463,830 2.41%

I&M ESOP Trust 1,362,000 0.35%Held by Public 64,049,547 16.32%

Total 392,362,039 100%


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2. Pro-forma Financial Statements

Sum mary p r o - fo rma c on so li da t e d p r o f it and l o s s s ta t emen t

To allow you to appreciate the potential financial implications of the newly acquired

subsidiaries on the consolidated results of City Trust, the table below comprises a pro-forma

consolidated summary profit and loss statement for the year ended 31st

December 2011.This pro-forma profit and loss statement has been prepared on the assumption that the

acquisition transactions and related refinancing of the newly acquired subsidiaries had been

completed on 31stDecember 2011.

A l l f i gu res in KES

City Trust I&M Bank I&M Holdings

Unaudited 5mths 31-12-2011 Consolidated

31-12-2011 Consolidated Post-acquisition

Interest Income 1,559,493 9,031,130,752 9,032,690,245

Interest Expense - (3,468,274,810) (3,468,274,810)Net Interest Income 1,559,493 5,562,855,942 5,564,415,435

Non-operating Income

Net Fees & Commission Income - 1,286,040,072 1,286,040,072

Investment / Dividend income - - -

Other income - 1,110,553,805 1,110,553,805

Total Non-Interest Income - 2,396,593,877 2,396,593,877

Total Operating Income 1,559,493 7,959,449,819 7,961,009,312

Other Operating Expenses

Loan loss provisions - 249,952,677 249,952,677

Staff costs - 1,484,091,145 1,484,091,145Premises & Equipment costs - 201,043,272 201,043,272

Depreciation + Amortisation - 204,692,395 204,692,395

Other operating & admin expenses 1,025,027 865,777,640 866,802,667

Total other Operating Expenses 1,025,027 3,005,557,129 3,006,582,156

Profit Before Tax 534,466 4,953,892,690 4,954,427,156

Tax (467,847) (1,481,168,719) (1,481,636,566)

Profit After Tax 66,619 3,472,723,971 3,472,790,590

Minority Interest - (88,686,039) (88,686,039)Profit after tax, minority interest

and exceptional items 66,619 3,384,037,932 3,384,104,551


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Sum mary p r o - fo rma c on so li da t e d ba l an c e s hee t

The table below sets out the potential impact on City Trust's balance sheet of the successful

completion of the Offer.

A l l f igu res i n K ES

City TrustUnaudited

5mths I&M Bank I&M Holdings

31-12-2011 31-12-2011 ConsolidatedConsolidated Consolidated Post-acquisition

ASSETS

Cash (both local and foreign) - 762,300,573 762,300,573

Balances due from Central Banks - 6,235,786,606 6,235,786,606

Investment Securities - 19,685,791,796 19,685,791,796Deposits and Balances due from Localbanking Institutions 32,858,889 658,864,000 691,722,889Deposits and Balances due from bankinginstitutions abroad - 9,250,194,869 9,250,194,869

Loans and advances to customers (net) - 66,365,869,990 66,365,869,990

Investment in subsidiary companies 273,701,470 - -

Property and equipment - 1,915,489,873 1,915,489,873

Prepaid lease rentals - 250,883,040 250,883,040

Intangible assets - 1,225,023,116 1,227,478,425

Deferred tax asset - 324,148,418 324,148,418

Other assets - 1,389,360,098 1,389,360,098

Total Assets 306,560,359 108,063,712,379 108,099,026,577

EQUITY AND LIABILITIES

Liabilities -

Customer deposits - 85,212,903,828 85,212,903,828Deposits and balances due to local bankinginstitutions - 1,458,569,000 1,458,569,000Deposits and balances due to foreignbanking institutions - 1,087,491,409 1,087,491,409

Long term borrowings - 3,435,773,450 3,435,773,450

Tax payable 106,188 326,369,628 326,475,816

Dividends Payable 27,233,511 - 27,233,511

Other Liabilities 97,385 1,375,934,460 1,376,031,845

27,437,084 92,897,041,775 92,924,478,859

Shareholders' EquityPaid up/ Assigned share capital 28,640,005 2,880,245,300 391,827,937

Share premium 155,000 3,773,237,119 13,135,209,676

Revaluation reserves - 142,330,963 142,330,963

Retained earnings (post acquisition) 250,328,270 7,185,254,003 319,575,922

Proposed dividends - 747,424,874 747,424,874

Statutory loan loss reserves - 91,470,947 91,470,947

Available-for-sale reserve - (327,832,140) (327,832,140)

Translation reserve - 124,672,483 124,672,483

Total Shareholders' Equity 279,123,275 14,616,803,549 14,624,680,663

Minority Interest - 549,867,055 549,867,055Total Liabilities and Shareholders'Equity 306,560,359 108,063,712,379 108,099,026,577


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PART V PROPOSED CHANGES IN BOARD STRUCTURE AND

PROFILES OF THE PROPOSED BOARD OF DIRECTORS

Proposed changes in the Board Structure

Upon the successful conclusion of the transaction, it is proposed that CTL will set up the

following committees that will assist the board in its discharge of duties. This will also

ensure compliance with the Capital Markets Act (Cap. 485A) Guidelines on Corporate

Governance Practices by Public Listed Companies in Kenya.

(i)Board Audit & Risk Committee

(ii)Board Remuneration and Nomination Committee

Profiles of the Proposed New Board of Directors

It is also proposed to reconstitute the Board of CTL as under:

Director Name Profile

Daniel Ndonye,

I ndependen t

Cha i rman

Mr Daniel Ndonye, a Kenyan national aged 63, has been a

director on the Board of CTL since October 2010. He is a

chartered accountant by profession, having worked with

Deloitte & Touche for over 30 years, 20 of which he was a

Managing/Senior Partner. He holds a Bachelor of Commerce

degree from the University of Nairobi. He is a fellow of the

Institute of Chartered Accountants in England and Wales, the

Institute of Certified Public Accountants of Kenya and the

Institute of Certified Public Secretaries of Kenya. He sits on the

boards of several companies, among which 4 are listed on the

NSE, including CTL.

Suresh Bhagwanji

Raja Shah, MBS,

Non -Exe cu t i ve

Mr Suresh Bhagwanji Raja Shah, a Kenyan national aged 68

years, is a founder of I&M Bank. He has vast experience in the

banking industry and in business. In December 2002, he was

bestowed the honour of a Moran of the Order of the Burning

Spear. He sits on the boards of several companies.

Christina Gabener

Non -Exe cu t i ve

Ms Christina Gabener, is a German national aged 47 years. She

represents DEG on the Board. She is currently the Senior

Investment Manager in DEGs Africa Department that is charged

with origination of financial sector projects across Africa. She

has previously worked with DEG for the last 11 years in various

capacities, mainly within their Financial Institutions department.

Gudi Anach

Non -Exe cu t i ve

Mr Gud Ainach, is a French national aged 36 years. He is theRegional Representative of the French Development Financial

Institution Proparco headed in Nairobi, and represents Proparco


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on the Board. He has previously worked with Proparco as a

Senior Investment Officer within the Corporate Division, and as

an Associate Director with Calyon Bank in France.

Sarit S. Raja Shah,

Non -Exe cu t i ve

Mr. Sarit S. Raja Shah, a Kenyan national aged 44 years, joined

I&M Bank in 1993 as the Executive Director after completing hisMasters degree from City University, London. He underwent his

training at Biashara Bank of Kenya Limited. He sits on the

boards of several companies.

Michael J. Karanja

I ndependen t Non -

Execu t i ve

Mr. Michael Karanja, a Kenyan national aged 73 years was the

Deputy Group Chairman and Managing Director of East African

Breweries Ltd from 1993 to 2000. He holds a BSc. in

Biochemistry from Makerere University, Kampala and a Post

Graduate Diploma in Brewing from Herriot-Watt University,

Edinburgh, Scotland. He is a fellow of the Institute of Brewing(U.K) and is the Chairman of Cooper Kenya Ltd. He sits on the

boards of several companies.

Madabhushi

Soundararajan

I ndependen t Non -

Execu t i ve

Mr Madabhushi Soundararajan is an Indian national aged 62

years and joined the board in 2009. A veteran banker with 38

years in the banking industry, Mr. Soundararajan was previously

the Managing Director of CFC Bank Limited, Kenya and has held

senior positions in several banking institutions in both Kenya

and India.


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PART VI PROPOSED AMENDMENTS TO MEMORANDUM &

ARTICLES OF ASSOCIATION

Upon successful conclusion of the transaction , it is intended to amend the Memorandum of

Association of CTL and adopt new Articles of Association as set out in the Notice of EGM in

Part IX of this Circular.

The following is a summary of the principal proposed changes. This summary is not

exhaustive and should not be regarded as a substitute for reading the new Articles of

Association which will be circulated with the Notice of EGM.

Memorandum of Association

It is proposed that the objects listed in paragraphs (a) to (f) of Clause 3 of theMemorandum of Association should be abandoned. These relate to the former brewery

business carried on by the Company which are no longer applicable or appropriate for an

investment holding company.

The objects will be expanded by two new objects providing that the business of the

Company will be that of an investment holding company.

Articles of Association

The existing Articles of Association of the Company were drafted many years ago under the

Companies Ordinance, 1933. They are now out of date and have not taken into account

developments in the law, corporate governance and modern communications. It is

proposed that the existing Articles be replaced in their entirety by a new set of Articles.

In addition, substantial holders in I&M Bank wish to preserve some specific shareholder

rights similar to the rights which they enjoy under the Articles of Association of I&M Bank.

Significant changes in the new Articles include:

The removal of the provisions which applied to the original acquisition of the brewery

business (old Articles 3 and 4).

A provision that new shares to be issued by way of rights unless otherwise resolved

by the shareholders by ordinary resolution (new Article 14). The old Article 56 only

requires a rights issue if so resolved on an increase of capital.

The addition of provisions designed to deal with the application of the Depositories

Act (new Articles 20 to 27 inclusive)

The introduction of customary requirements as to the transfer of shares (new Article

42).

The inclusion of provisions allowing the issue of share warrants (new Articles 60 to

62 inclusive)


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The removal of the existing restrictions on borrowing contained in old Article 59.

The extension of the required notice period for General Meetings from 14 days to 21

days (new Article 68).

Power for the Board to postpone meetings due to unforeseen events beyond the

control of the Board (new Article 71).

Change of the quorum requirement from 5 members to 3 members present in person

or by proxy and holding not less than 50% of the issued ordinary share capital (new

Article 73).

More detailed provisions governing the conduct of General Meetings (new Articles 74

to 79 inclusive).

Provisions designed to facilitate the submission of proxies by electronic means (new

Article 95).

An alternative form of proxy where the shareholder wishes the proxy to vote in a

specified manner (new Article 97).

The notice and other communication provisions have been updated to take account

of modern day communications (new Articles 168 to 173 inclusive).

Provisions have been added prescribing the circumstances in which the company

may dispose of records (new Articles 174 and 175).

Special rights of the Development Finance Institutions (DEG and PROPARCO) to

appoint directors or observers, to veto certain matters and to call meetings (new

Articles 178 to 189 inclusive).

Special rights for the principal shareholders to appoint Directors (new Articles 190

and 191).


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PART VII RISK FACTORS

On conclusion of the acquisition, I&M Bank will be a wholly owned subsidiary of CTL. In

addition to the general risk factors that CTL shareholders have previously been exposed to,

this transaction increases their exposure to the banking sector.

I&M Bank, over the years, has had a keen focus on risk management both in its business

processes and products, which have aided the Banks steady growth. Post-acquisition, CTL

will ensure that this keen focus is carried on both at the holding and bank level.

Risk management principles:

The following risk management framework already established at all levels of the Bank, will

be replicated at the holding company to ensure that risks identified are adequately

considered and mitigated:

The Board of Directors at both the CTL and bank level assume the ultimate

responsibility for the level of risks taken and are responsible to oversee the effective

implementation of the risk strategies;

The organizational risk structure and the functions, tasks and powers of the

committees, employees and departments involved in the risk processes are

continuously reviewed to ensure their effectiveness and the clarity of their roles and

responsibilities;

Risk issues are taken into consideration in all business decisions. Measures are in

place to develop risk-based performance measures and this is being supplemented by

setting risk limits at the company level;

Risk management has been integrated into various management processes such as

strategic planning, annual budgeting and performance measurement;

Identified risks are reported in a transparent and timely manner and in full;

Appropriate and effective controls exist for all processes.

Outlined below are some uncertainties and risks that CTL faces currently as well as a result

of the increased exposure to the banking sector. In addition to these, there may be other

risks and uncertainties not presently known to CTL or that it currently believes not to be

material that may also have an adverse effect on CTLs future performance, which maycause the price of shares to decline.

1 General Risks

(i) Political Risk

Kenya, like many developing countries, is subject to political risks that may arise from

political unrest which could adversely impact the general economy and specifically, the

banking sector. Following the last general elections, Kenya went through a period of civil

unrest that resulted in a slowdown of the economy. Banks in particular saw a decline in

demand for credit and financial services, which led to a decrease in performance. It ishoped that with the implementation of the new constitution and measures in place, that

the Country shall not experience the same unrest.


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(ii)Economic Risk

Inflation has been on an increasing trend since 2008 directly impacting various sectors

of the Countrys economy. Likewise, other economic factors that have adversely affected

the performance of the Kenyan economy include the exchange rate fluctuations of the

Kenya Shilling, erratic interest rates and reduction in bilateral and multi-lateral aid.Efforts are being made on infrastructural improvements and investments in most sectors

of the economy, throughout the country aimed at lowering the cost of doing business in

the Kenya. Additionally, as I&M Bank operates within the wider region, the stability of

other East African economies could impact CTLs overall performance.

2 Risk factors relating to the Business

This section provides details of the Banks exposure to risk and describes the methods used

by management to control risk. The most important types of risk to which the Bank is

exposed are liquidity risk, credit risk, market risk and operational risk. Market risk includes

currency risk and interest rate risk.

(i) Regulatory Risk

Regulatory risk relates to the risk of non-compliance with laws, rules, regulations,

prescribed practice or ethical standards issued from time to time. Regulatory risk may

arise in instances where the laws and rules governing the conduct of business may be

ambiguous or change drastically.

CTLs regulatory risks arise from its compliance to the Companies Act as well as the

Capital Markets Act and other guidelines as may be stipulated by the relevant

authorities. Likewise, on conclusion of this transaction, CTL will to some extent be

regulated by the Central Bank of Kenya. Banking services in Kenya are regulated by the

Banking Act (and its amendments), the Finance Act and the CBK, under which I&M Bank

is regulated. New policy guidelines and regulations issued by the CBK could impact on

the operations of the Bank and hence CTLs performance.

(ii) Credit Risk

Credit risk is the risk of financial loss to the Bank if a customer or counterparty to a

financial instrument fails to meet its contractual obligations, and arises principally from

the Banks loans and advances to customers and other banks and investment securities.For risk management reporting purposes, the Bank considers and consolidates all

elements of credit risk exposure.

The Board of Directors has delegated responsibility of the management of credit risk to

its Board Credit Committee. A separate Bank Credit Risk Management Committee

reporting to the Board Credit Committee is responsible for oversight of the Bank credit

risk.

The risk that the counter-parties to trading instruments might default on their obligation

is monitored on an on-going basis. In monitoring credit risk exposure, consideration is

given to trading instruments with a positive fair value and to the volatility of the fairvalue of trading instruments over their remaining life.


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To manage the level of credit risk, the Bank deals with counter parties of good credit

standing, enters into master netting agreements wherever possible and when

appropriate, obtains collateral.

The Bank also monitors concentrations of credit risk that arise by industry and type of

customer in relation to Bank loans and advances to customers by carrying a balanced

portfolio. The Bank has no significant exposure to any individual customer or counter-party.

To determine impairment of loans and advances, the Bank assesses whether it is

probable that it will be unable to collect all principal and interest according to the

contractual terms of the loans and advances.

(iii)Liquidity Risk

Liquidity risk includes the risk of being unable to meet the Banks financial obligations as

they fall due because of inability to liquidate assets at a reasonable price and in an

appropriate timeframe.The Bank continually assesses liquidity risk by identifying and monitoring changes in

funding required to meet business goals and targets set in ter

City Trust Ltd Circular to Shareholders

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