Brokers differ over valuation of their stakes at the NSE

Nairobi Securities Exchange trading floor.  Nation Media Group

By George Ngigi

In Summary

• Dispute could derail the expected self-listing of the Nairobi Securities Exchange later this year.

Stockbrokers have differed sharply over the valuation of their shareholding at the Nairobi Securities Exchange (NSE), sparking a row that could set back the expected self-listing of the bourse later this year.

At least three brokers have valued their stake at the NSE below the Sh251 million figure that was set in 2007 following the sale of a seat to Renaissance Capital, while most have maintained the figure in their balance sheets.

NSE vice-chairman Bob Karina, however, said in an interview the worth of the stockbrokers’ seat at the bourse is currently “higher” than the 2007 valuation, accusing the brokers of under-valuing their stake.

In their full-year financial statements for 2012, stockbrokerage firms NIC Securities, Genghis Capital and ABC Capital valued their NSE seats at Sh191 million, Sh148 million and Sh223 million respectively.

“The seat had been revalued at Sh251 million, based on an arm’s length transaction of a similar seat. This seat was converted to ordinary equity shares in NSE in 2012 and has been reclassified under investments valued at Sh191 million,” reads the NIC annual report.

NIC has booked a loss to account for the revaluation. “I don’t know why they have done that, we have actually valued it higher,” said Mr Karina who is also the chairman of Faida Securities.

(Read: NSE shops for advisers ahead of listing)

NIC Group managing director James Macharia however said the company was just being prudent in its valuation method.

“With the change of structures at the NSE following demutualisation it required revaluation of those seats. We have to be prudent with the change in circumstances,” said Mr Macharia in an interview.

There has also been disagreement on whether or not the brokers should include the value of their seat in their financials, with some such as Old Mutual and CFC Stanbic Financial Services leaving it out. Currently there is no standard way of treating the value of the seat on the financial statements.

A section of the members of the exchange includes the value of the seat as part of their intangible or long-term assets in their balance sheets and consequently shareholder funds, while some leave it out all together.

Most of those who have been booking it have been valuing it at Sh251 million.

Genghis Capital, a subsidiary of Chase bank, slashed its other long term assets to Sh148 million from Sh251 million while ABC Capital, a subsidiary of ABC Group cut the seat valuation to Sh223.7 million.

On the other hand Dyer and Blair, Kingdom Securities, Kestrel Capital, RenCap and African Alliance had the Sh251 million valuations in their books. Faida Investment Bank valued its “intangible assets” at Sh309.5 million, though it is not clear whether the figure includes other assets.

“In our case the valuation can only be going up given the boom last year and this year, the fact that it is being listed and introduction of new products,” said Stanley Ngaine the chairman of Sterling Capital.

He said the valuation process of the bourse which intends to list this year by means of introduction is currently ongoing. A valuation report of the exchange was one of the documents expected to accompany an application for demutualisation to the Capital Markets Authority. The listing of the bourse is in line with its vision of expanding its ownership beyond the brokers.

The NSE 20 share index has been up 21.5 per cent since the beginning of the year closing at 5,020 points on Friday with the market having received a boost from the peaceful elections and fluent transition of power.

The Sh191 million valuation by NIC Securities puts the value of the bourse at approximately Sh4.4 billion. This is based on the fact that there are 22 seats after inclusion of collapsed brokers and the government is to be allocated a five per cent stake due to its role in sustaining investor confidence in the market.

RenCap got a seat at the bourse following the collapse of Francis Thuo, which later went to court to have it and other collapsed brokers included in the sharing of the seats during demutualisation, arguing they had also contributed in the development of the stock market.

Since the Rencap transaction at least four stockbrokerage firms have transferred either partial or full ownership of their shares privately with the Rencap deal providing the basis of valuation.

In 2008, NIC Capital acquired about 60 per cent shares in Solid Investment Securities for an estimated Sh150 million, while ABC Bank paid an estimated Sh171 million to acquire 100 per cent shares in Crossfield Securities.