Business Daily (Nairobi)
James Makau
3 March 2008
In an interview with Business Daily last year, Mr James Mwangi, Equity Bank's chief executive, joked about his status as a 'paper billionaire'. Well that is about to change, with Mr Mwangi finally getting the chance to realise some if not all of his "paper wealth."
In August this year, the two-year share lock-in period for Equity Bank's main shareholders will end, paving way for the bank's major shareholders to dispose the shares at their discretion.
The impact of this move is that the free float - shares available for trading - of Equity Bank shares would be enhanced, thus increasing liquidity of the bank's shares at the Nairobi Stock Exchange (NSE).
Analysts say the major impact would be the signal conveyed from the actions the directors of the bank would take immediately after the end of the lock-in.
"An immediate quick volume disposal or sell of shares from the directors would send a mixed signal to the market that as insiders they do not buy into and lack confidence in the bank growth business model," reckons Odhiambo Ocholla, the General Manager at Suntra Investment Bank.
But it can also mean that as any investor, by selling their shares they are unlocking the value of their investment in the bank.
Following its public offer at the bourse in 2006, Equity Bank's major shareholders were barred by Capital Markets Authority regulations from off loading their shares for a period of two years.
The locking up of shares is meant to assure investors buying into the listing firm that principal shareholders are not using the listing as an exit strategy.
A free float refers to the number of shares available for trading while the liquidity is the frequency at which shares change hands. But stock market analysts point out that the pent-up liquidity could have a downward pressure on share price.
Keeping principal shareholders who are also managers in the firm - such as chief executive officer - bounds the fate of the managers and the bank together in the event it turned out to be a loss-making venture.
But by holding onto the shares even after the lapse of the lock-in period the directors would be sending a strong positive signal to the market that they believe in the bank business model and they are confident of its future performance.
"So any move or actions by Equity Bank directors either way would definitely send a signal to the market," says Mr Ocholla.
In the event the directors dispose or sell their shares substantially then shareholder structure of the institution would change considerably.
Mr Mwangi, the CEO, holds approximately 5.49 per cent.
Equity Bank had been the one firm at the NSE that had remained largely unscathed in the wake of the market correction early last year.
It will be remembered that in the market downturn in March 2007, the bank has steadily raised its profile at the bourse amidst widespread share devaluations that have led to a dip in the rating of the NSE 20Share index.
The NSE20 Share index - the market performance indicator - last week closed at 5,269 points, 731 points off the milestone 6,000-point mark it had crossed early in the year.
But even as the market downturn continued to persist, Equity maintained its upward march trading at an average record high of Sh248 in February last year.
While it was easy to cite Equity Bank's solid performance last year and its innovative rural banking business model as a driver to this rally, the question still remained as to why other counters which have announced equally impressive results, have failed to mirror its performance.
But the locking up of shares acts as a double-edged sword. It translates into lower shares available for trading and with high demand, the share price of a stock shoots up.
Last year Equity Bank sold a 24.99 per cent stake to a London-based private equity fund firm in a record-breaking deal. Helios EB Investors paid Sh11 billion to acquire 90 million shares at Sh122 each.
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