NSSF plans to list on Nairobi bourse risk workers’ assets, pension benefits

 

NSSF House in Nairobi. FILE 

By DAVID NAHINGA

In Summary

• The proposal seems satisfactory at face value, but there are several questions that need to be addressed. Is it a prudent move?
• In its latest move, NSSF seems to be eyeing the exchange to tap a greater pool of “investors”, who will be drawing returns from their investment in form of dividends.
• By pegging its hopes on capital gains of its assets, favourable year-to-year valuation, more buying shareholders and possibility of the underlying value of the assets being manipulated, I think NSSF is making a miscalculated move.

An article that appeared in the Business Daily on July 16 revealed that the National Social Security Fund (NSSF) plans to list properties built using workers’ retirement contributions on the Nairobi Securities Exchange (NSE).

The proposal seems satisfactory at face value, but there are several questions that need to be addressed. Is it a prudent move?

According to the article, NSSF has a solid portfolio of assets generating substantial cashflow in rental income to the tune of Sh809 million with another Sh363.7 million classified as accrued income.

The fund is not perfect, no one is. On March 22, 2012 the Daily Nation reported that NSSF lost Sh830 million in compensating a contractor.

In its latest move, NSSF seems to be eyeing the exchange to tap a greater pool of “investors”, who will be drawing returns from their investment in form of dividends.

By pegging its hopes on capital gains of its assets, favourable year-to-year valuation, more buying shareholders and possibility of the underlying value of the assets being manipulated, I think NSSF is making a miscalculated move.

If indeed it seeks “an injection of cash” into its books, the institution should have improved the properties without subjecting them to the vagaries of the exchange.

Facility improvement and efficiency in collection of rents and attracting higher net worth clients would have yielded an infinitely higher return on the assets than shifting the wealth into the exchange through real estate investment trust (REITs).

One is speculative the former is a stubborn historical fact.

The masses of the people who made substantial contributions in establishing the very assets, may not be able to be participants in shareholding at the exchange (REITs).

Since only the middle class and upper class could be the key investors, this is viewed in many circles as a shifting of the wealth upwards with a possibility of “market forces” liquidating the assets.

The pressure on the assets to extract greater profit expectations by the new shareholders is a matter worth thinking about.

My contention that NSSF is wrong is not a null-argument. I’m simply questioning the notion that an easy way out of the cashflow problems at institution is to offload its assets at the exchange where there is an anticipated influx of new money.

This is a narrow view that ignores long-term value creation and the stake of the majority stakeholders of NSSF — the millions of workers who will never set foot at the securities exchange as “investors” but have nevertheless trusted NSSF.

The notion that listing on the exchange will boost NSSF’s cashflow is an accounting fiction because there is no new asset class being created.