The dispute between minority shareholders of listed Limuru Tea over the sale of a majority stake by Unilever to US private equity fund CVC Capital Partners has once again brought a spotlight on the market valuation of plantation firms versus that of the land they hold.
The six listed agriculture firms, as well as others in the manufacturing and construction sectors, hold thousands of hectares of prime land, whose worth is sometimes downplayed in financial reports by being valued at cost rather than the current market price.
The six firms —Eaagads, Kakuzi, Kapchorua Tea, Williamson Tea, Sasini and Limuru Tea — place a value on their freehold land in their annual reports, with some listing the actual value with up-to-date valuations.
They also hold large tracts of leasehold land, which are however not given a valuation as per accounting rules.
Last month, documents filed in court by Limuru Tea minority shareholders led by tycoon Joe Wanjui and Wainaina Kenyanjui laid a claim of undervaluation of the firm’s land holdings in Limuru.
In their filings, they accused the firm of valuing its 696.8 acre plantation at an average of Sh1 million per acre, instead of about Sh23.3 million that is the prevailing land price in the area as per realtor HassConsult’s land index 2021.
The shareholders’ estimation would put the value of the land at Sh16.2 billion, versus the Sh696 million as per the firm’s valuation.
In its annual report for 2021, Limuru Tea stated that the carrying amount of its buildings and freehold land stood at Sh1.42 billion.
The land valuation claim is part of the shareholders’ petition asking the Capital Markets Authority (CMA) to block the sale of Unilever’s 52 percent stake in Limuru Tea, arguing that they were not offered a chance to buy the shares.
The CMA has ordered Limuru Tea to provide its fixed asset register together with all its land valuation reports and certified copies of land title deeds as part of the probe.
Limuru Tea has hit back at the regulator, arguing it has no valuation reports to show because the property has not been valued afresh in recent years.
Sasini said in its annual report for 2021 that it valued its land and development at Sh6.82 billion, while its market capitalisation stands at Sh4.98 billion.
Kakuzi, the largest firm in the market segment by market capitalisation (Sh7.94 billion), said in its 2021 annual report that the bundled net book value of its freehold land, buildings and dams stood at Sh1.21 billion at the end of last year.
The firm holds about 4,299 hectares of a mix of freehold and leasehold land in Makuyu in Murang’a and Nandi counties.
Williamson Tea put the net value its land and buildings a Sh1.28 billion as at March 2021, while Eaagads said that after a revaluation in December 2020, its 44 hectares in Thika are now valued at Sh815.45 million, pointing to a current market value of about Sh18.5 million per hectare.
The firms have a market capitalisation of between Sh442 million (Eaagads) and Sh7.9 billion (Kakuzi), and also some of the fewest issued shares at the bourse, which limits the availability of their stock to retail investors.
This thin liquidity—for instance, Limuru Tea has only 2.4 million issued shares and 212 shareholders— has brought challenges of price discovery because there aren’t sufficient volumes to sustain demand.
Attractive dividend payments on most of the sector firms have also made those holding these stocks demand an extra premium before selling.
Investors’ eyes were first opened to the potential value of the land holdings on watching the high-stakes battle between Centum and Rea Trading for control of Rea Vipingo, which was delisted in 2015.
British brothers Richard and Jeremy Robinow, who already owned a combined 57 percent in the Sisal firm through Rea Trading and Rea Holdings Plc, initially sought in November 2013 to buy out the remaining shares at a price of Sh40 per share, representing a premium of Sh12.50 on the firm’s last trading price.
Their offer prompted counter offers from fellow listed firm Centum and private investor Vania Investment Pool (VIP), which progressively drove the price higher as each sought to entice shareholders to vote in favour of their offer.
Eventually, the Robinow brothers emerged the successful bidders, taking over the firm at a price of Sh85 per share, which valued the firm at Sh5.1 billion.
Centum dropped its bid in exchange of 10,546 acres of prime Rea Vipingo land in Kilifi at Sh2 billion. Vania’s bid was ruled out on technicality after late submission.
The bidding war was largely informed by the firm’s ownership of nearly 70,000 acres of land in Kenya and Tanzania, especially at the Coast next to the high end Vipingo Ridge golf estate in Kilifi.
Other than the agriculture firms, manufacturing firms holding sizeable pieces in areas such as Nairobi’s industrial area are also sitting on unrealised value.
For instance, tyre distributor Sameer Africa’s land in Embakasi, which is valued on its books at the original acquisition cost of Sh575.4 million, currently has an estimated market value of Sh8.07 billion.
This value is nearly eight times Sameer’s market capitalisation of Sh1.1 billion.
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