Money Markets

Kenya’s new capitalists go big on private equity

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Young executives leave the corner office to venture in the world of investment 

By Emmanuel Were

Posted  Friday, June 5  2009 at  00:00

Until early this year, Mr Tony Wainaina was one of the young and savvy CEOs who managed key corporate players in a bullish economy whose growth peaked at 7.1 per cent in 2007.

When the economic boom began in 2004, Mr Wainaina was the chief executive of ICDC-I, a private equity firm that last year changed its name to Centum Investment.

He then spent some time in the UK before coming home to head one of Kenya’s most prestigious investment clubs, TransCentury that grew under his watch from a club of friends worth less than Sh30 million in 1997 to a private equity firm valued at more than Sh8 billion.

Then came February 2008 and Mr Wainaina announced he was leaving TransCentury to pursue personal interests— a revelation that drew curiosity in corporate Kenya.

Little did it occur to many that in quitting his job at TransCentury, Mr Wainaina was following in the footsteps of his peers who have recently left their executive suites to set up own private equity funds.

That list includes Mugo Kibati, who quit as managing director of East African Cables to establish Miliki Ventures and Paul Kavuma, who until December last year was the head of private equity at Actis East Africa.

These new firms have raised the number of private equity firms in Kenya from 12 to 20 in the past 12 months at a time when private equity has come under immense pressure from the global financial crisis.

This growth in the private equity is increasingly being seen as the product of a widening of the gap in financial markets left by commercial banks who have limited their lending to shield themselves from loan defaults in a turbulent business environment.

Kenyan firms are also finding it difficult to access credit from offshore financiers where the traditional lenders have come under immense pressure from market collapse that came with the crisis.

Though some analysts see the growth of private equity firms as directly linked to the freeze in commercial bank lending, others see it as playing a complementary role to bank lending.

“Private equity firms strengthen company balance sheets giving bankers the confidence to lend to these companies,” said George Odo, East Africa’s managing director of Afric Invest Capital partners that is set to commence operations Kenya at the beginning of next month.

Private equity firms are also seen to play a critical resource allocation role by raising money from high-net worth retail investors or institutional investors and investing in the most promising sectors of the economy.

With official figures indicating that the economy is expected to grow at a maximum rate of 3 per cent this year compared to 7.1 in 2007, companies are preparing for slower profit growth but the new private equity capitalists are only seeing opportunity.

“Economic downturns force companies to think about how to make their operations more efficient and more robust,” says Phillip Muema, who is in charge of private equity at consulting firm KPMG.

Mr Wainaina reckons that there are more investment opportunities this year because company valuations are lower. He is looking for deals with a minimum threshold of $100,000 (about Sh8 million), which effectively means that his net is cast further and wider among the SME segment of the economy.

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