Finally, Old Mutual secures seat at NSE

By James Anyanzwa

Old Mutual Kenya Asset Managers have made entry into stockbroking with a unique business model, which will give a huge impetus to the recuperating equities market.

The investment firm’s partnership with Reliable Securities has given the fund managers the much-sought ticket to directly participate in trading at the Nairobi Stock Exchange (NSE).

The firm is now better positioned to market its collective investment schemes (unit trusts) to a larger huge pool of retail investors.

The deal is also meant to boost Old Mutual’s range of products and possibly lift its earnings by between 20 and 30 per cent in the next two to three years.

Reliable securities is one of the oldest stockbrokers in the country with agents spread across the country. The broker also has a presence in selected Nakumatt Supermarket branches.

Old Mutual intends to exploit this heritage to diversify its market presence by tapping into the informal sector (Jua Kali), whose potential has largely remained untapped.

The broker is currently undergoing a three-month integration process after which it will acquire a new name and fresh capital to bolster its muscle in stockbroking.

Huge initial cost outlays on investor education and designing of the right type of financial products have been cited as some of the roadblocks to firms seeking to penetrate this market segment.

"Old Mutual is excited about the deal after trying to acquire a stockbroker licence two years ago," Mr Tavaziwa Madzinga, the firm’s chief executive told the Financial Journal saying Old Mutual bought a 70 per cent stake in the brokerage house.

"We are fortunate that we are directly trading at NSE at the right time; when the market is heading upwards," he said.

Previously the investment firm would trade at the NSE through stockbrokers at a fee.

Formal sector

While stock trading has mostly been associated to investors in the formal sector, Old Mutual intends to break away from the tradition by making foray into an informal market that is estimated to hold between five and eight million investors.

"The informal sector is big and the bulk of the market is not captured. For us this is where we are focused," said Madzinga.

The firm’s trading model is expected to draw a huge chunk of retail investors from the Jua Kali sector.

"We are targeting the informal sector and introduce investors to our new products," said Madzinga.

Apart from the broker’s network, Old Mutual expects to leverage on its large countrywide distribution network and its partnership with the State-owned Postal Corporation of Kenya (PCK) to reach out to investors.

Old Mutual has 11 branches distributed in major towns with PCK operating on 100 branches.

"There is a lot of work to be done in terms of financial education for people to understand the value of our products," he said.

Old Mutual’s previous attempts to acquire a seat at the bourse failed, with the investment firm missing out on a chance to acquire the then vacant seat occupied by collapsed brokerage firm Francis Thuo in 2007.

Despite placing an offer of Sh440 million for the Francis Thuo’s seat, Old Mutual failed to secure the brokerage licence to the Russian investment bank Renaissance Capital, which surprisingly paid only Sh251 million.

Old Mutual’s partnership with Reliable Securities is a windfall for the investment firm, which has long held ambitions of acquiring a seat at the bourse to manage its trading costs and directly participate in the stock market.

"We have been engaging market regulators for approval of the transaction, which they have," said Madzinga.

NSE’s current ownership structure as a mutually owned firm has made it close to impossible for aspiring firm to obtain a brokerage licence.

Institutions seeking a foothold in the brokerage industry have had to bid for existing business or buy licenses of failed brokerage firms.

Separate ownership

Plans to demutualise the NSE are under way in a development that is expected to separate ownership from management and enhance corporate governance.

The South Africa based Old Mutual Plc is a global financial solutions provider with interests in insurance, banking and asset management.

Last year, the company pumped Sh2 billion fresh capital into its Kenyan operations to support the on-going local expansion drive.

The first beneficiary was the insurance business despite already having a capital base way above the new Sh150 million minimum base required for life insurance companies to have by June.

Brokerage firms and investment banks are also faced with stringent requirements to recapitalise, and limit their share ownership by individuals to not more than 33 per cent.

Stockbrokers and investment banks are expected to re-capitalise to the tune of Sh50 million and Sh250 million, up from Sh5 million and Sh30 million respectively by December this year.

Buyouts and transfer

But attempts by brokers and investment banks to comply with these rules have mostly ended up in buyouts and transfer of ownership to strategic investors.

Old Mutual Kenya boosts of an asset portfolio of about Sh75 billion limited to life insurance, unit trusts and asset management.

Old Mutual operates in South Africa, UK, US, Kenya, Malawi, Swaziland, Namibia and Zimbabwe.