Equity Bank’s 2010 annual report shows anchor shareholders cut back on their stakes pointing to a continued harvesting of investments in the firm. Photo/FILE
Equity Bank chief executive James Mwangi significantly reduced his stake in the bank last year in a move that earned him more than half a billion shillings.
The bank’s 2010 annual report shows that other anchor shareholders also cut back on their stakes pointing to a continued harvesting of investments in the firm.
The report shows that Mr Mwangi’s stake dropped to 3.83 per cent at the end of December compared to 4.32 per cent a year earlier – meaning the bank’s CEO that is believed to be among Kenya’s richest people reduced his holding by 28 million shares.
This earned him more than Sh560 million given that the share traded above Sh20 at the Nairobi Stock Exchange (NSE) for the most of last year.
Besides Mr Mwangi, other individual investors such as the late Nelson Muguku and John Kangema have also reduced their interest in the bank in what analysts attribute to the near maturity of the bank’s shares.
“It is a case of profit taking as the business moves to maturity. It makes business sense for investors to reduce their interests gradually rather than wait until the stock matures,” said an analyst who cannot to be named because he consults for the bank.
He added that Equity Bank is unlikely to witness the phenomenal growth that saw it double its profits in a span of three years – driving its share price to a peak on increased investor demand.
Mr Muguku’s shareholding dropped by 66 million shares — cutting his stake to 4.3 per cent last year from 6.08 per cent the previous year — earning the family more than Sh1.2 billion.
This, however, could had been led by distribution of the late Muguku’s shares among his dependants, but sources at the Capital Markets Authority (CMA) say that the regulator has not approved a private transfer on the 225 million shares held by the family in 2009.
Mr Kangema reduced his stake by 39 million shares estimated to be worth more than Sh700 million.
Since the bank’s debut at the NSE on August 7, 2006, its stock has appreciated the most over the nearly five-year period, ushering in billionaires such as Mr Mwangi and opening way for other investors to cede some of their shares for outsized returns.
The share has appreciated by more than 900 per cent since listing when one account for the share splits and bonus stocks.
Mr Mwangi has been reducing his stake in the bank since the expiry of the golden handcuffs period that the regulator imposed on the major shareholders to prevent them from abandoning ship in the first two years of going public.
This has allowed him to cede part of his shareholding for a profit besides allowing him to comply with the central bank requirements that does not allow executive directors to own more than five per cent of a bank’s shares.
In 2007, he had a 7.3 per cent stake, and the share sale has seen him earn more than Sh1 billion.
Investors in Equity with a market value of Sh91.6 billion--have particularly attracted attention because of the speed at which the once scrappy bank has minted billionaires and multimillionaires — from among its employees, directors and founders such as Peter Munga and the late Muguku whose stake has risen to Sh5.8 billion from Sh522 million in 2006.
Mr Mwangi’s stake is worth Sh3.2 billion while Mr Munga, the bank’s chairman, reduced his interest in 2009 which removed him from among the top 10 shareholders list where he had a 3.2 per cent stake in 2007.
Twin banks
At Sh91.6 billion, investors have valued Equity Bank at higher level than Kenya Commercial Bank (Sh65.6 billion) and Barclays Bank of Kenya (Sh90.2 billion) despite the twin banks being far much bigger by assets and on the profitability front.
Equity Bank assets stood at Sh143 billion in December 2010, Barclays was at Sh172 billion while KCB closed the year at Sh251 billion.
“What investors are saying is that they believe Equity Bank can give them better future returns than either Barclays or KCB,” said an analyst at African Alliance.
When it was awarded a banking license in 2004, Equity broke ranks with the big boys of the industry and immediately embarked on a rural expansion binge at a time when most banks were running away to the cities.
Annual rate
Equity also broke new ground when it allowed customers to open bank accounts without any deposits-- a model that has since being taken up by other banks.
Targeting the mid and low end of the market has seen Equity grow its client base at an annual rate of 30 per cent making it the largest bank by this measure.
The bank reported a 69 per cent growth in net profits to Sh7.1 billion last year.
