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Britam slashes stake in Equity Bank over volatile stock market

By Moses Michira | June 26th 2016

Britam has slashed its stake in Equity Bank as part of a long term strategy to reduce exposure in the stock market.

It’s estimated that the transaction that saw Britam cut its stake in the region’s most profitable bank by more than one per cent could be valued around Sh2 billion.

Britam chairman Amb Francis Muthaura (in spectacles) and Group Managing Director Benson Wairegi (second right) join other shareholders in marking the the firm's 50 years in business at the Safari Park Hotel.

Dr Benson Wairegi, the group managing director of the listed insurer, told shareholders at the firm’s annual general meeting held Friday that the deal helped claw back investments in the volatile stock market, but did not give any figure.

“As you would know, returns from the stock market are more volatile than property where we want to go big,” Mr Wairegi said.

Among the biggest investments in the property market is the Britam Tower that is nearing completion at a cost of over Sh5 billion. At the end of 2014, Britam held a 10.63 per cent stake in Equity Bank whose current vale is estimated at about Sh150 billion.

Now, the insurer owns just about nine per cent of the regional bank which has operations in six countries, including Uganda, Tanzania, South Sudan, Rwanda and the Democratic Republic of Congo.

Equity Bank, like all other listed firms, has suffered the impact of a meltdown at the stock market that has seen major dip in the valuation. It is such losses that have hit earnings of pension funds and insurers hard, bearing in mind that the bulk of their investments are in the stock markets.

Average prices of blue chip firms at the NSE are at four-year lows, with the index that tracks the performance of the top 20 stocks closing Friday at about 3,700 points- levels last reported in May 2012.

Shareholders of the regional insurer approved a Sh0.30 dividend per share despite the firm reporting a net loss which the chairman Ambassador Francis Muthaura described as ‘paper losses’.

A paper loss is an accounting term that refers to a reduction in the valuation of an asset an investor is holding on to, with the intention to sell at a later time.

Mr Wairegi however did not disclose when the transaction happened but insiders reckoned that the shares were disposed gradually over the year to avoid causing a glut, and subsequently a price dip.

Former Transport Permanent Secretary Nduva Muli and former chief executive of the public pension scheme (NSSF) Richard Langat were dropped as directors at the Friday’s AGM. Their exit came after Equity Bank founder Peter Munga and Britam director acquired an additional 23.3 per cent stake in Britam in a transaction estimated at about Sh10 billion.

Mr Munga, a billionaire entrepreneur, bought the shares from the government of Mauritius which had confiscated the asset from the firm’s former key shareholder Rawat Dawood - who was accused of running a Sh100 billion Ponzi scheme back at home.

Mr Dawood was the single largest shareholder in Britam and the accusations of impropriety, which have however not been proved, were weighing down on the valuation of the insurer.

“The Mauritius issue would have been disastrous for our company but I am glad that Mr Munga has helped us in getting out of it,” Wairegi said in an interview with the Standard on Sunday.

Uncertainties created by the claims leveled against Dawood and the subsequent takeover of his stake in Britam by the Mauritian government is thought to have caused investor jitters and possibly affected the share performance of the insurer.

Apart from the Mauritian angle, Britam was also dealing with another issue relating to a construction firm called Acorn, where it had a minority stake.

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