World Bank’s IFC to acquire 10 per cent stake in Britam for Sh3.6b

Britam Group Managing Director Benson Wairegi. [Photo: Elvis Ogina/Standard]

The International Finance Corporation (IFC) has made an entry into Kenya’s insurance industry by acquiring a significant stake in Britam Holdings Ltd.

IFC, which is the investment wing of the World Bank Group, will pay about Sh3.55 billion to gain a 10.37 per cent control of the financial services provider.

The transaction, whose details have been communicated to the capital markets regulator, Capital Markets Authority (CMA), will see IFC acquire 224,187,697 ordinary shares from Britam Holdings at a subscription price of Sh15.85 per share.

“Britam Holdings Ltd (Britam or the company) hereby announces for the benefit of its shareholders and the investing public that it has on December 30, 2016 entered into a share subscription agreement with the International Finance Corporation (IFC) pursuant to which IFC will subscribe (the Proposed Subscription) for two hundred and twenty four million one hundred and eighty seven thousand six hundred and ninety seven (224,187,697) ordinary shares to be issued by the company, at a subscription price of Kenya shillings fifteen and eighty five cents (Sh15.85) per share,” reads part of Britam’s announcement published in today’s local dailies. On Friday December 30, 2016, the stock was trading at Sh10.

“The proposed subscription is subject to conditions that are customary to transactions of this nature, including receipt of shareholders’ approval and regulatory approvals. Upon completion of the proposed subscription, IFC will hold approximately 10.37 per cent of the issued ordinary shares of the company.”

The decision is not only a shot in the arm for Britam as a company but also on the entire insurance sector as a viable area of investment. Although insurance penetration has stagnated at around three per cent for a very long time, the international lender could be angling for a windfall that will result following the expected implementation of Section 20 of the Insurance Act Cap 487. This section requires all importers to insure their goods locally.

The insurance law prohibits placement of marine insurance in the hands of foreigners except in exceptional circumstances. About 90 per cent of cargo import, insurance in Kenya is currently handled by foreign firms, with importers paying the premiums as part of a package (cost, insurance and freight (CIF) to exporters who handle the underwriting.

The transaction is IFC’s largest-ever in the insurance sector in Sub-Saharan Africa and demonstrates confidence in the long-term future of the local insurance industry following a tough operating environment in the past two years.

IFC has also pumped money in other local companies, either as equity or debt. These companies include Kenya Power, Gulf Energy, Electrawinds Kenya Ltd, Kenya Tea Development Authority and Gulf African Bank. IFC also has a stake in national carrier Kenya Airways.

The benefits of this partnership and investment to the regional economy will become evident as Britam deploys the funds raised for growth within the region.

Although not expressly stated in the available information, the transaction follows a pattern the IFC has deployed in the Caribbean where it has been expanding its investment activities in the insurance sector, with the goal of increasing availability of insurance products that address individual needs such as health insurance and access to insurance products for smaller businesses, micro-finance institutions, and agribusinesses.

Potential of marine insurance

The effort involves partnering with global and regional insurance companies that are focused on expanding in emerging markets. In 2011, IFC invested $100 million (Sh10 billion) in Barbados-based Sagicor Financial Corporation to bolster market confidence in the insurance industry and to expand insurance services in the Caribbean.

Statistics show Kenya imports goods worth Sh1.57 trillion annually, a majority of which are insured with offshore providers. The imports are expected to hit between Sh2 trillion and Sh2.2 trillion by 2020, yielding potential marine cargo insurance spend of over Sh30 billion annually in premiums.

Mid last year, Plum Holdings, a company associated with Equity Bank chairman Peter Munga, acquired an additional 23.34 per cent shares in Britam Holdings Ltd.