Reports that listed coffee plantations company Eaagads is not part of the Tatu City project halted a one-and-a-half week rally of the firm’s share price, as the stock dropped 9.5 per cent from Friday’s closing price.
The sharp retreat to Sh71 in Monday’s trading at the Nairobi Stock Exchange (NSE) marked a reversal of a two-week climb that saw the stock touch a one-year high of Sh78.50.
The rise was driven by expectations of higher returns, as investors got the impression that Eaagads was venturing into Kenya’s booming real estate sector.
Information that Eaagads’ land would not be used for construction of the proposed Sh240 billion Tatu City was released by the company’s management on Friday, when board chairman Fabian Philippart, said the firm’s land will continue to be used for coffee farming.
Russian based investment bank, Renaissance Capital, is the majority shareholder in Eaagads, and is also the lead investor in the consortium of promoters for the Tatu City project.
“The market in now reacting to the information that the firm (Eaagads) has nothing to do with the proposed city but the management should have cleared the air earlier,” said Brian Okwiri, a portfolio analyst at Stanbic Investments.
A research analyst with an investment bank that has a minority ownership stake in Eaagads said the company’s management owed investors an explanation .
“They would have specified the interests that the majority shareholder had in the company rather than leaving them to grapple with facts that may not be necessarily true,” said the researcher.
Since the launch of the City’s master plan on October 26, the share price has leapt by two-thirds, exposing investors who had bought the stock last week to huge losses in case of a deep price correction.
At last Friday’s close, the market had valued Eaagads at Sh1.26 billion indicating the shareholders collectively gained Sh800 million over the two weeks, but this paper wealth could be wiped out if the share price continues on its free fall.
Eaagads’ rally raised the stock to the top performer at the NSE in the past 12-months having almost quadrupled from its yearly low of Sh19.
Agricultural stocks have generally recorded a stellar performance between the last quarter of last year to the end of the first half this year, buoyed by heavy rains that supported their production. Resurgence in the global economy has also pushed up tea and coffee prices in export markets.
The usually illiquid Eaagads’ counter characterised by low volumes of trade experienced surging trade volumes as the stock had become highly-sought on promises of higher returns that the Tatu City, a real estate development, would deliver.
More than 92,000 shares of the company were traded last week, more than 20 times the ordinary weekly average for the firm that is listed under the Alternative Investments Market Segment, AIMS.
Tatu City directors say they intend to continue doing the coffee growing business and have formed a local company, Kofinaf, for purposes of running the agricultural plantations.
This means that Kofinaf, the current owner of all the agricultural assets that Waguthu Holdings acquired from Socfinaf, is the largest shareholder in Eaagads.
Waguthu Holdings, which changed its name to Tatu City Limited on August 23, 2010 is the company that will use part of the more than 11,000 acres of land it acquired from Socfinaf for the real estate project – clearly separating Eaagads from the plan.
The Tatu City project seeks to use private capital to construct a whole new city of 62,000 residents, who will live in a well planned environment of manicured homes, office blocks, shopping malls and industrial parks on 1,000 hectares in Kiambu County, behind Kenyatta University.
There are no plans to change the core business of Eaagads from coffee farming or to diversify the company’s business to incorporate real estate development,” said Mr Philippart.
Eaagads’ previous majority shareholder, Socfinaf, sold out its 62 per cent stake in to Renaissance Capital in March.
Lucas Omariba, a director at Eaagads, said the company holds 385.8 hectares of land, out of which 207 hectares is planted with coffee.
“The rest of the land is under forests, a factory, labour quarters and grasslands used for mulching,” he added.