Riddle of NSSF’s Sh15bn sunk in Discount Securities
Shareholders flock to the Discount Securities offices to offload their shares in panic after the stock brokerage firm was placed under the management of auditing firm KPMG in 2009. FILE
What you need to know:
The fresh disclosure comes as a surprise to pension savers who had been made to believe NSSF’s full exposure at Discount Securities was Sh1.2 billion.
The Business Daily learnt that the Sh1.2 billion disclosure relates to sums the NSSF has little hope of recovering but the full amount involved in the Discount Securities transactions was more than Sh15 billion.
NSSF has share certificates in its name for the Sh14.3 billion assets but cannot access it because the anti-corruption agency stopped dealings in the same shares in 2010.
The anti-corruption agency has frozen assets worth Sh14.3 billion that the National Social Security Fund (NSSF) invested in the stock market through collapsed broker Discount Securities, raising questions on the actual amount that contributors lost in the dubious deal.
The fresh disclosure comes as a surprise to pension savers who had been made to believe NSSF’s full exposure at Discount Securities was Sh1.2 billion.
Pension industry regulator, the Retirement Benefits Authority (RBA), made the disclosure in its latest report which also shows that NSSF’s assets are currently worth Sh121.5 billion, excluding the frozen amount.
“December 2012 does not include Sh14.3 billion securities held directly by NSSF (frozen by ethics and anti-corruption authority),” RBA said in its report.
RBA’s one-line commentary on the pension saver’s finances means the amount was once again not disclosed in the books of accounts continuing its concealment from the public.
NSSF said the shares were linked to the Discount Securities meltdown that left savers at risk of losing billions of shillings invested in stocks through the broker.
“The securities mentioned in the RBA report relate to shares earlier frozen due to the Discount Securities matter currently pending at the Anti-Corruption Court,” said NSSF managing trustee Tom Odongo.
The Business Daily learnt that the Sh1.2 billion disclosure relates to sums the NSSF has little hope of recovering but the full amount involved in the Discount Securities transactions was more than Sh15 billion.
NSSF has share certificates in its name for the Sh14.3 billion assets but cannot access it because the anti-corruption agency stopped dealings in the same shares in 2010 as part of the evidence against Discount Securities. The stockbroker is facing criminal charges for non-delivery of share certificates worth more than Sh1 billion.
“NSSF has duly made an effort to seek the release of these shares. It has formally written to the Ethics and Anti-Corruption Commission and the Director of Public Prosecutions (DPP) Keriako Tobiko seeking to have the share certificates released to the fund,” said Mr Odongo.
Discount Securities, which was one of the brokers the NSSF used to buy shares, collapsed under serious liquidity challenges. It has since emerged that NSSF issued cheques to Discount Securities for the purchase of shares which on calculation were worth more than Sh15 billion.
Discount Securities is known to have opened more than 80 nominee accounts through which it invested NSSF money in the stock market.
After the collapse of Discount, NSSF was able to get share certificates for Sh14.3 billion worth of shares it has not been able to unlock due to the freeze. Apart from the actual shares unaccounted for, the stockbroker has been accused of failing to pass on dividends payable to NSSF worth over Sh100 million.
The freeze has denied the NSSF an opportunity to find better investment opportunities for the money, slowing down the rate of return for contributors. Thirty-four per cent of NSSF assets are invested in shares.
The NSE grew by 36.5 per cent in 2010 before declining to an average of 27.7 per cent in 2011 and ultimately recovering by 27.4 per cent last year.
The social security services provider has a considerable stake in KCB, National Bank, BAT, Bamburi, and EABL. Most of these counters performed above market average in the past three years, underlining the lost opportunity.
In 2010 NSSF raised its annual payout for the first time to 7.5 per cent but other schemes rewarded their customers with double-digit returns in the same year.
In a report released late last month the Auditor-General cast doubt on the fund’s ability to recover the remaining Sh1.2 billion, which is what has been in the public domain.
Questions remain on why NSSF opted to transact in share certificates instead of the electronic and the more fraud-proof Central Depository System. The fund has also been blamed for failing to consistently reconcile its accounts with those of Discount Securities, opening the window for fraudulent transactions.
“Once released, the share certificates will be swiftly immobilised to enable the fund engage in normal securities trade at the Nairobi Securities Exchange,” said Mr Odongo. Historical issues have haunted NSSF even as it seeks to rebrand itself and gain public confidence.
The Auditor-General’s report on the fund showed social security savers had lost more than Sh3 billion in dubious contracts, land and share purchase deals that are unlikely to be recovered.
Other deals, beside the Discount transactions, involve the Sh1.13 billion that the agency invested in Karura and Ngong forest land but cannot access, the Sh251.51 million it invested in Euro Bank and the unremitted rental income of Sh30.68 million collected from tenants in Bruce House, Viewpark Towers and Nyayo Estate.
Erosion of public confidence has seen private pension schemes gain ground as companies opt to put their employees’ future in more efficient baskets. As at end of December last year Pine Bridge Investments, the largest scheme, had a portfolio of Sh117 billion compared to NSSF’s Sh121.5 billion.
More recently as it tried to build a new image line with its transformation, NSSF has transferred assets worth Sh39.4 billion to six fund managers.
The fund is also seeking a review of the current law governing it as it seeks to get more from the employees and entrench efficient administration. The proposals, which are facing stiff opposition from the rest of the industry, caps the mandatory contributions to NSSF at six per cent for the first four years before one can opt out.
On its end NSSF is to ensure that the administration expenses fall to below two per cent of the fund, a huge task considering the expenses currently exceed 50 per cent.
