Reliable buyout earns Old Mutual seat at the bourse

Old Mutual Kenya’s decade-long push to acquire a seat at the Nairobi Stock Exchange (NSE) has finally come to an end with the buyout of brokerage firm Reliable Securities Ltd.

While specific details on the purchase remained sketchy, Old Mutual on Tuesday announced it had acquired 70 per cent of the Kenyan stock brokerage firm, giving it the opportunity to trade securities at the NSE.

With an estimated Sh80 billion in assets under management, Old Mutual’s acquisition of Reliable Securities is a boon for the investment firm which has long held ambitions of acquiring a seat at the bourse to better manage its trading costs and directly participate in the stock market.

“This is an excellent strategic fit and we expect the acquisition to give us immediate presence in the stock broking market and ability to generate substantial cost and revenue synergies,” said Tavaziva Madzinga, Old Mutual Kenya’s chief executive officer, adding that the buyout introduces a well capitalised stockbroking firm with the necessary risk management systems and processes in the local market.

The NSE’s current ownership structure as a mutually owned firm has made it close to impossible for aspiring licensees to obtain a brokerage licence.

Institutions seeking a foothold in the brokerage industry have had to bid for existing business or buy licenses of failed brokerage firms.

Plans to demutualise the NSE are under way in a development that is expected to loosen the stranglehold of the tight -knit brokerage fraternity in the capital markets.

“This is an important acquisition for Old Mutual, instantly providing access to a broader client base and expanding our offering to our customers,” says Mr Madzinga.

Old Mutual’s previous attempts to acquire a seat at the bourse failed, with the investment firm missing out on a chance to acquire the then vacant seat occupied by collapsed brokerage firm Francis Thuo.

Despite placing an offer of Sh440 million for Francis Thuo’s seat, Old Mutual failed to secure the brokerage licence, with market players citing political undercurrents in the decision to instead award the seat to Russian investment bank Renaissance Capital.

It is believed that consequent valuations have been based on the 2007 auction price of Francis Thuo seat, which was sold to Renaissance Capital Kenya for Sh251 million.

Since then, at least four stockbrokerage firms have transferred either partial or full ownership of their shares privately.

The fair value of individual stockbrokerage firms is, in addition to the valuation of their seats, dependent on other factors such as the asset-liabilities position of a firm and its profitability— which is used to affix goodwill payable in addition to the net assets value.

In 2008, NIC Capital acquired about 60 per cent shares in Solid Investment Securities for an estimated Sh150 million, while ABC Bank paid an estimated Sh171 million to acquire 100 per cent shares in Crossfield Securities.

Two other brokerage firms, Town and Country, and Bob Mathews, have also changed ownership.