CIC Insurance has invested at least Sh1 billion in real estate over the last 18 months as it seeks to boost revenue from one of the fastest growing sectors.
Its information memorandum for listing on the Nairobi Securities Exchange (NSE) says that entry into the property market is part of the group’s future outlook, in addition to investing outside Kenya.
The memorandum notes that the firm has already broken ground in Nairobi and bought property for development.
The soon-to-be-listed company is putting up a 12-storey office block in Nairobi, which is under construction by Epco Builders. Epco was contracted on September 5, 2011 and the project should be complete by early 2013.
“Under the agreement, the building was to be 10 floors. This was later varied to 12 floors. The contract sum is Sh651,391,246 and the term of the contract is 78 weeks,” says the memo. On December 3, 2010, CIC Insurance bought 200 acres of freehold land in Kiambu County from Kamiti Properties for Sh560 million. “The property is... in the process of being subdivided from Land Reference Numbers 4896 & 6913 located in Kiambu County,” says the document. Analysts say investing in property acts as a means of diversifying revenues and giving the company a reliable source of earnings. “Income from rental properties ensures that you stabilise your revenues,” says Johnson Nderi, a research analyst at Suntra Investment Bank. UAP and Pan Africa Life insurers have already gone into the real estate sector.
In the past, insurers that have portfolios heavily skewed toward stocks and fixed income securities, which are more susceptible to interest rates fluctuation and inflation, have experience volatile profitability. British American Investments Company, for example, posted Sh1.9 billion net loss in the year to December 2011 as the NSE 20 Share Index declined by 27.7 per cent. A year earlier, when the index had was 36.49 per cent up, the insurer posted Sh2.7 billion net profit.
To diversify its revenue sources further, CIC Insurance is planning to work with Saccos in the transport sector to venture into the public service vehicle (PSV) industry.
Mr Nderi, however, noted that this is a tricky area that may sour market sentiments given the risk associated with the industry.
“The Sacco element is the deciding factor since CIC has been built and run by co-operatives. They are therefore looking to exploit their competitive advantage,” said Moses Waireri, a research analyst at Genghis Capital.
The market perception as viewed through the share price will be known on July 19 when the firm is expected to float 2.2 billion shares at Sh3.50 each on the NSE, giving the insurer a valuation of roughly Sh7.7 billion.
The lock-in period, however, limits the shares that will be available for trading, free float, to slightly above a quarter (550 million shares). Co-operative Insurance Society Limited, which has a 75 per cent stake, will not offload shares for five years. Directors and senior management will not sell off 35 per cent of their shareholding for a two-year period.
