Business Daily (Nairobi)
Washington Gikunju
19 March 2008
A long-running dispute pitting former owners of stockbrokerage firm Town and Country Securities and prospective buyers has finally been resolved.
The move paves the way for the stockbroker's readmission to the Nairobi Stock Exchange (NSE) just in time for what has been billed as the region's biggest ever initial public offer.
Town and Country Securities has been at the centre of a dispute arising from rival sale offers involving TransCentury chairman James Gachui and Chase Bank managing director Zafrullah Khan, on the one hand, and, a former dealer at the NSE, Mr Bernard Kahindi. But with just eight days to the much awaited Safaricom IPO, the Business Daily has established that the three-year transfer row has been resolved.
Mr Benjamin Nyamweya, a director with Chase Bank, and one of the new shareholders of Town and Country, confirmed that the stockbroker has received a Capital Markets Authority licence renewal for 2008, and is only awaiting re-admission to the stock exchange.
Mr Nyamweya says the new owners have submitted an application for re-admission to the NSE board and was hopeful that their plea would be granted during an NSE full board meeting on the eve of Easter.
The application is likely to meet little resistance from the NSE directors, especially coming at a time when there is anxiety over the capacity of brokers to handle the massive Safaricom IPO.
Though the transaction details are scanty, the valuation of a stock brokerage seat has since shot almost five times from the Sh50 million valuation by NSE, at least going by last year's auction of collapsed stockbroker Francis Thuo's seat for Sh251 million.
Asset managers Old Mutual were ready to fork as much as Sh452 million for a seat on the NSE's high table, while NIC Bank offered to pay Sh180 million in the unprecedented auction that went in favour of new market entrant Renaissance Capital.
NIC later paid Sh150 million for a 65 per cent stake in Solid Investment Securities and the transfers are about to be completed.
Mr Mweresa Eboso of Eboso Wandago and Company Advocates who handled the legal aspects said an out-of-court settlement had paved the way for Town and Country's return to the market.
"The matter has been resolved through arbitration to the satisfaction of all parties," said Mr Eboso, adding that the Kahindi group had received some consensual damages for the termination of their sale agreement.
"It is true that the matter has been resolved by arbitration," Mr Kahindi told the Business Daily.
Town and Country was one of the stockbrokers that suffered a severe financial distress in the late 1990s when the stock market was at an all time low as the economy suffered virtual stagnation.
The CMA suspended the broker's licence on February 24, 1999, after the regulator's investigations revealed "an unsatisfactory operational and financial position."
Though the shareholders were able to pay off the company's debts which amounted to about Sh5 million, they were unwilling to continue holding onto the firm, and they opted to sell it off in 2004 after their licensing suspension by CMA was lifted.
Some of the other CMA licensing requirements included an order to upgrade the company's IT system, procure a registered office and recruit competent staff.
Mr Nyamweya confirmed that Town and Country is likely to change its name to reflect change in its management and its affiliation to Chase Bank.
"The new ownership has a relation with the current Chase Bank directors and the two organisations are likely to operate as affiliate entities," said Mr Nyamwea. That makes Prudential Building, Chase Bank's head office, a natural home for the new broker.
Chase Bank's tie up with a stockbroker brings to three the number of local commercial banks that have entered the equities market after CFC Bank and NIC Bank.
A number of commercial banks are also understood to be gunning for Nyaga Stockbrokers, now under statutory management, as a freeze on new licences imposed by the CMA in the 1990s continues to block new entrants.
The Town and Country dispute erupted in March 2005 after the original shareholders declined to proceed with an intended sale to a group of four potential buyers led by Mr Kahindi.
The other three prospective buyers in Mr Kahindi's team were Mr Titus Wageni, Mr Samuel Karanja and Ms Carol Wandimi. The group had paid Sh1 million of the Sh4 million agreed on before allegedly failing to raise the balance.
Town and Country later sought to terminate the sale contract after receiving a more lucrative offer of Sh12 million from another group of four Chase Bank directors, namely Mr Gachui, Mr Khan, Mr Nyamweya and Mr Duncan Kabui.
But even as Mr Kahindi's team protested the alleged breach of agreement to the Town and Country shareholders, the NSE unwittingly threw a spanner into the works when it passed a resolution in early 2005 stating that all its licensees shall reflect in their books a Sh50 million asset to reflect the valuation of their NSE seat.
Coming at a time when the stock exchange was experiencing an unprecedented boom, Mr Kahindi alleges that the Town and Country shareholders realized they were sitting on a goldmine stonewalled the sale.
What followed then was an intense behind-the-scenes power play with the Chase Bank group seemingly emerging the winners, after the three year dispute was decided in an out of court settlement.
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