Business Daily (Nairobi)
Washington Gikunju And Albert Muriuki
15 May 2008
In many ways the initial public offering of the Kenya Electricity Generating Company (KenGen) in 2006 was a watershed in the history of the country's capital markets. It was the first big flotation in a decade in a market thirsting for new offers by the government since the Kenya Airways share issue in 1996.
To Mr Patrick Gakiavih, the managing director of Nyaga stockbrokers (currently under statutory management), it was an eye opener. When the tallying of applications was done, Nyaga Stockbrokers emerged third among the brokers who had placed the highest number of applications.
It was a satisfying level of market presence for the man known as just Gakiavih to his relatives and friends and the crowning moment in an 18-year struggle, that started on a small farm in Embu, breaking into the height of high finance in Kenya. The journey started in 1988 soon after joining Kenyatta, one of Kenya's prestigious public universities.
In those days, university students used to be paid a stipend, commonly known as boom, in the range of Sh5, 000 in a semester of four months.
Though the boom was actually a government loan now managed through the Higher Education Loans Board, many "freshers" were wont to spending it on broadening their social horizons, acquiring music systems and tasting the forbidden life hitherto forced on them mostly by the humble backgrounds of their parents.
Not so for Mr Gakiavih, 40, the son of a peasant family in Embu, on the foothills of Mount Kenya.
He invested the first boom in the pursuit of additional professional certificates to supplement the undergraduate course in Economics and Business that he was taking at Kenyatta University.
A first degree in 1991 was no guarantee for employment as it had been a few years earlier, and the papers ensured the workaholic Gakiavih did not have to look for a job after graduation.
He joined Nyaga Stockbrokers as a trading floor clerk, the first step in a career that would, at the time Nyagah Stockbrokers fell into administration in March this year, take him to being one of the longest serving directors at the Nairobi Stock Exchange and a founder director in the Central Depository and Settlement Corporation.
On joining Nyaga Stockbrokers, Mr Gakiavih, impressed the proprietors by putting in long hours, sacrificing time and resources on company needs, providing leadership and solutions to matters that even his seniors in the firm found daunting.
With time he became the most trusted lieutenant rising to be managing director and allowing the owner time off for other businesses.
As economic growth slowed to a virtual halt towards the sunset years of President Daniel arap Moi's reign in 1992, so did the fortunes of the stock market tumble with the NSE 20 share index resting at 1,000 at some point.
Stock prices of even blue chip firms were dirt cheap. Combined with uncertainties surrounding the Moi succession, many business owners contemplated quitting the more volatile interests like stockbroking in favour of stable lines like professional and advisory services.
The proprietors of Nyaga Stockbrokers were among those who preferred to leave the stock market for the predictable auditing and company registry businesses they had set up a couple of years soon after independence.
In the intended exit, Mr Gakiavih saw an opportunity to own the firm. Despite being constrained for resources, his offer to the owners of Nyaga Stockbrokers was a mark of both genius and sacrifice.
He would forego a salary and other benefits attached to his position, like the Biblical Jacob, until the assessed value of the business was offset. In place for this sacrifice, he gained an entry into the most protected businesses in Kenya's capital market by buying a seat on the Nairobi Stock Exchange. A seat at the NSE is currently valued between Sh350 million to Sh500 million.
"It was a difficult time for stockbrokers and most were almost closing. But the labour exchange was at the market price," he told The Business Daily yesterday. Asked of the determination, he said: "I have always been a go getter, "waking up early, sleeping late and making the most of the time and opportunities."
That self appraisal fits with descriptions of Mr Gakiavih by his high school colleagues. One of them recalls him as a student who was focused with studies, interspersing with field activities where his love was Volleyball. "He would have made the school team. But he viewed this as a distraction from his studies," said a corporate lawyer practising in Nairobi.
The deal was sealed in 1999 and the transfers effected, giving him the sole authority to direct the firm, one of the six founding stockbrokers at the Nairobi Stock Exchange. The gamble to buy out Nyaga when stockbrokers were almost closing shop following years of economic mismanagement in the Moi era was a big one, but Mr Gakiavih had tasted the pudding having entered into the stock broking fray in the early nineties.
Despite his new position as owner and managing director, Mr Gakiavih continued to accompany his dealers for trading sessions at the NSE floor, first at IPS building and later at Nation Centre. The NSE has since advanced electronically so that brokers handle business from the comfort of their offices.
Nyaga Stockbrokers after the firm was placed under receivership
This hands-on approach had its bright side. It gave him visibility in the market, drawing many small traders to Nyaga Stockbrokers for his accessibility. It also won him respect among fellow stockbrokers who entrusted many tasks to him. Besides the directorships, the most notable moment was when he took President Kibaki through the operations of the NSE during the president's visit to the bourse in 2006.
The Capital Markets Authority (CMA) describes Mr Gakiavih as an overbearing manager who likes to run the show single-handedly.
"It appears that all decisions in Nyaga Stockbrokers are made solely by Mr Gakiavih especially with regard to the organization restructuring," says an investigative CMA report on Nyaga written by the Authority's technical committee after an inspection audit last year.
But visibility also had its dark side. He was regularly caught up in the power politics-with many of his rivals viewing him as the sidekick of Mr Jimnah Mbaru, NSE's powerful chairman and owner of Dyer & Blair Investment Bank. The boardroom politics took a predictable path with some directors openly declaring support for their preferred parties during the last general elections.
It is these politics that have shaped the sequence of events since late last year that saw the Capital Markets Authority send investigators to Nyaga Stockbrokers in December, the NSE inject in it Sh100 million in February and the firm placed under statutory management in March. He is now facing civil prosecution from his own company with accusations of embezzling Sh523 million.
The case will be heard on June 9 but the Capital Markets Authority CMA has already obtained orders from Lady Justice Jessie Lessit freezing the bank accounts and assets of Mr Gakiavih in Embu, Sagana and Runyenjes.
It is understood, however, that he was just about to sign an equity deal with a strategic partner before the CMA moved in to close the firm. Under the deal, the capital would have been enhanced to Sh200 million from Sh80 million held then and the firm upgrade to an investment bank.
Mr Gakiavih said the injection was necessary to increase liquidity in the firm after it had spent money on expansion to position itself to reap from the broad interest in the stock market generated by KenGen.
Statistics of total equity turnover in 2006 show that Nyaga traded shares valued at Sh8.4 billion, accounting for 4.11 per cent of the Sh205 billion total equity turnover that year.
"We opened new branches in Thika, Limuru, Nakuru, Karatina, Nyeri and Kangari, to minimize congestion at the Nairobi office," he said. The branches were networked to allow a centralized operation and are still intact.
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