Corporate News

Rise of the billionaire CEOs at Nairobi bourse

ARM managing director Pradeep Paunrana. Earlier this year, Mr Paunrana inherited shares worth Sh4.1 billion in the company.  Photo/FILE
ARM managing director Pradeep Paunrana. Earlier this year, Mr Paunrana inherited shares worth Sh4.1 billion in the company. Photo/FILE Nation Media Group

Kenya’s club of billionaire CEOs widened this year with the entry of Pradeep Paunrana who inherited shares worth Sh4.1 billion in Athi River Mining.

Mr Paunrana joins Equity Bank’s James Mwangi and Scangroup’s Bharat Thakrar in a union whose wealth at the Nairobi bourse has grown by hundreds of millions of shillings, confirming them as the oligarch’s of Kenya’s equity market.

Mr Mwangi’s 3.45 per cent stake in Equity is now valued at Sh2.99 billion while Mr Thakrar’s 18.19 per cent stake in Scangroup is worth Sh3.49 billion.

These CEOs have acquired their wealth either through inheritance or by taking companies they have helped build to the stock market and their rising influence is unsettling the corporate scene that is used to chief executives who are only employees.

Corporate governance experts say chief executives who hold major stakes in the companies they shepherd are likely to become dominant, making it difficult for the board to exercise effective oversight.

“There is a need for balance of power and influence between the board and CEOs and this is why banks have limited shareholding by executives,” said Dr Joshua Okumbe, the CEO of the Centre for Corporate Governance.

Kenya’s banking laws bar executives from owning more than five per cent of the shares in banks they are running in a bid to cut the influence of managers in the boardroom and executive suite.

This is the reason Mr Mwangi has cut his direct stake in Equity Bank from 5.37 per cent in 2008 to 3.45 per cent, through several share sales that have earned him about Sh1.6 billion over the past three years. His overall holding is now 4.88 per cent because of an indirect stake of 1.43 per cent held through British American Investments and the bank’s Employee Share Ownership Plan.

READ: Mwangi sells another 5m shares in Equity Bank

Since the Equity’s debut at the NSE on August 7, 2006, its stock has appreciated the most over the five-year period, opening the way for investors to skim their holdings at decent capital gains. The share has appreciated by more than 900 per cent since listing, when share splits and bonus stocks are taken into account.

Equity —with a market value of Sh87.9 billion — has particularly attracted attention because of the speed at which the bank has created wealth for its owners, including employees, directors and founders.

The bank’s share has gained 42.22 per cent over the past year to the current price of Sh23.75, lifting Mr Mwangi’s stake from Sh2 billion at the start of the year. This has made him one of the wealthiest executives in corporate Kenya, reaffirming the stock market’s position as the shortest route to fortune in an economy whose performance has oscillated between strong growth and rock bottom slowdown.

Mr Thakrar, the founder of media services firm ScanGroup and holder of an 18.9 per cent stake in the firm, has seen the value of his stake rise to Sh3.4 billion based on the current share price of Sh67.50, from Sh474 million on the day of its listings in July 2006. This reflects a six-fold growth in six years.

Mr Thakrar’s stake was worth Sh2.27 billion at the start of the year in a period that saw the Scangroup CEO make his first share sale since bringing the firm to the Nairobi bourse. Regulatory filings show that his stake dropped to 18.19 per cent at the end of November compared to 19.25 per cent in December last year, meaning he reduced his holding by three million shares. Mr Thakrar has earned about Sh150 million from the sale.

READ: Scangroup chief makes first share sale since IPO

Scangroup shares have gained 60 per cent over the past year to the current price of Sh67.50. Mr Thakrar is the second largest shareholder after global media firm WPP Group, whose stake stands at 29.09 per cent.

The Athi River Mining chief executive has taken a different path to the billionaire status: inheritance. This has made him the richest CEO among the 57 companies listed at the Nairobi bourse. His 18 per cent stake is currently worth Sh4.1 billion and has grown from Sh2.7 billion in January, aided by the cement maker’s 36.23 per cent share price appreciation to Sh223 a piece.

READ: Athi River CEO inherits shares worth Sh3.5bn

The Paunrana family has distributed its shares in the cement firm among its members making managing director Prandeep the single largest shareholder in the cement firm.

The family’s investment vehicle - Amanat Investment - was split and the managing director, Pradeep Paunrana, offered 17.9 million shares (18 per cent stake). The move was part of the distribution of the wealth of ARM’s founder H. J. Paunrana among his descendants after he passed on in 2009.

The father, who spent decades in the board of ARM helped establish the cement firm in 1974 with financing from friends and relatives whom he offered stakes and remained with a 25 per cent ownership.

Most of the founders have exited the firm and the Paunrana family has grown their ownership to 45 per cent in the company in which the National Social Security Fund has 870,000 shares. But it’s during Mr Pradeep’s tenure that the firm has grown faster, diversified its products and geographic scope and shepherded its listing at the NSE.

vjuma@ke.nationmedia.com