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Rise of the billionaire CEOs at Nairobi bourse

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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

By VICTOR JUMA

Posted  Sunday, December 30  2012 at  17:45

In Summary

  • The 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.

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.

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.

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