29 April 2012

Kenya: Equity May Change Hands to Foreigners

Equity Bank could soon become a foreign majority owned institution if international investors continue buying its shares at the same rate they have been doing. With only a 7 percentage point difference before reaching the 50 per cent shareholding mark, foreign investors have been increasing their stake in the bank at a super normal rate.

Chief Executive James Mwangi said last week foreign investors have been the main buyers of the bank's shares at the Nairobi Securities Exchange accounting for up to 80 per cent of the total buys. The international investors will soon overtake local ones, he anticipates. Since january Equity has had the highest turnover both in traded value and volume of shares.

Largest fund managers in the world, including top four, have snapped up 43 per cent of the bank based on their perception that Equity Bank is undervalued by 50 per cent. Africa-focused private investment firm Helios is currently the largest shareholder in Equity Bank with 24.45 per cent shareholding. On the contrary, local investors have been selling their shares with only a few buying. "The sad thing is that locals will start buying the shares when the prices go up, giving all the money to the foreigners who are buying now when it very affordable," Mwangi said during the release of the first quarter financial results.

According to Mwangi, the foreign investors are looking at the bank's rapid growth and projected profits from its subsidiaries in the five regional countries which are have now started generating profits apart from latest ventures into Rwanda and Tanzania. The two are expected to break even within the next and two years. More than 12 per cent of the bank's profits is now coming from the subsidiaries. The bank posted a Sh2.6 billion after tax for the three months of this year, up from Sh2.3 billion the previous year.

Mwangi says other factors such as reforms in the judiciary are bound to attract more foreigners into the market who feel the environment is safer with lower risks. He says investors are anticipating growth from the ongoing infrastructure projects expected to increase inflows from northern Kenya opened up for economic activities by the South Sudan Ethiopia Transport Corridor, an oil pipeline, railway and motorway expected to be completed within four years.

This is addition to possible fast growth fueled by the newly discovered oil in Turkana, whose effects may mean creation of more wealth flowing through the banking system. "The Kenyan banking sector is rated top in Africa behind South Africa and better China and India. That alone is attractive to a discerning investor in Equity Bank shares. We are very happy that the Members of parliament rejected interest rate caps proposed through the finance bill, because this would have forced us to abandon our core clients, the small borrowers and deal with SME's which would and any others whose risk rating is below four percent. That would have destroyed the economy,"Mwangi said.

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