Kenyan investors lose Sh1bn in SportPesa share dilution

Kenyan entrepreneurs Paul Wanderi Ndung’u and Asenath Wacera Maina have lost a combined Sh1.1 billion from the dilution of their stakes in the international business of gaming firm SportPesa.

The duo fell out with their fellow shareholders over management and cash transfers in SportPesa Global Holdings Limited (SPGHL) and Pevans East Africa — which previously ran the sports betting business in Kenya.

SPGHL owns SportPesa subsidiaries operating in Italy, Tanzania, South Africa and Russia.

Mrs Maina’s stake in SPGHL was recently slashed to a new low of 1.9 per cent in January, down from 21 per cent when the multinational was incorporated in March 2017.

This has seen her share of the company’s net assets drop to £417,763 (Sh62.6 million) from £4.5 million (Sh689.3 million) based on the company’s latest available financial statements, which put its total book value at £21.8 million (Sh3.2 billion) in the year ended December 2018.

This means that Mrs Maina, a widow of former Nairobi mayor Dick Wathika, has lost £4.1 million (Sh626 million), recording the biggest wealth erosion.

Mr Ndung’u on the other hand has seen his claim of the company’s assets drop to £338,189 (Sh50.7 million) from £3.7 million (Sh558 million), resulting in a loss of £3.3 million (Sh507.2 million).

The businessman has threatened legal action to reinstate the original stock ownership.

The Kenyan investors are being squeezed out after SPGHL conducted a rights issue in which the other shareholders acquired a total of one million additional shares in two transactions at a price of £1 (Sh150) per share.

This was equivalent to 0.45 per cent of the company’s book value per share of £218.8 (Sh32,823).

Mr Ndung’u did not participate in the rights issue that was conducted between November 2019 and last year at a time of increased mistrust and suspicion among the warring factions.

“I still hold it that as per my email below that the original rights issue was not procedural and was not in good faith or good intentions, even the pricing done was to dispossess certain shareholders by giving over 99.5 per cent discount on fair net value per share as per the issue date,” the businessman wrote to Ivaylo Bozoukov, a director of SPGHL, in June last year, according to email correspondence seen by the Business Daily.

SMALL SUMS

He was offered an opportunity to pay a total of £170,000 (Sh25.5 million) in the capital raise, which he said was marred by irregularities.

These included allegedly being asked to send the money to an escrow account in the Isle of Man without knowing who would take care of his interest. He also claimed to have learnt of various correspondence and processes pertaining to the rights issue from various sources despite being a director at the time.

Shareholders who participated in the rights issue boosted their stakes and net worth by a large margin by paying relatively small sums.

By paying the equivalent of Sh55.7 million, Guerassim Nikolov added Sh453.2 million to his net worth. The value of his stake rose from Sh721.5 million to Sh1.1 billion, making him the biggest beneficiary of the capital raise.

Ronald Karauri, a key figure in the SportPesa saga, paid Sh15.1 million and gained Sh91.9 million.

He engineered a series of corporate manoeuvres that brought back the popular SportPesa gaming brand under a new company –Milestone Games Limited— which he controls with a 54.4 per cent stake.

Mr Ndung’u says the biggest problem with the capital raise is that it has no business justification, adding that SPGHL remains cash-rich and has negligible debt according to its own accounts.

“The company is not dependent on the continued financial support of the shareholders in order to enable it to continue operating and meet its liabilities as they fall due,” SPGHL says in its latest available annual report, which was published in October 2019.

The next month, the first rights issue was conducted in what the company said was an effort to boost cash for operations after its Kenyan business ceased operations over tax demands from Kenya Revenue Authority (KRA) that stood at Sh15 billion at the time.

The £1 million (Sh150 million) raised pales in comparison to the company’s retained earnings of £21.7 million (Sh3.2 billion). SPGHL had also just declared a dividend of £100,000 (Sh15 million) after posting a net profit of £11.8 million (Sh1.7 billion).

The current financial health of SPGHL is unclear, with the company delaying the publication of its results for the year ended December 2019 following the resignation of various service providers, including its company secretary Ince GD Corporate Services.