NSSF headquarters, Nairobi. A fresh competition front for stockbrokers and investment banks has opened as the multi-billion shilling National Social Security Fund seeks to sign in a new list of service providers.
A fresh competition front for stockbrokers and investment banks has opened as the multi-billion shilling National Social Security Fund seeks to sign in a new list of service providers.
At stake are the millions of shillings in brokerage fees paid by NSSF in trading on its Sh52 billion equity and bonds portfolio held at the Nairobi Stock Exchange (NSE).
In a tender notice placed in the local dailies yesterday, the State provident fund is seeking five stockbrokers and investment banks to join its list of pre-qualified service providers, as it engages a higher gear in trading at the NSE, two months after resuming business.
The fund, whose monthly investments at the bourse runs into hundreds of millions of shillings, had suspended its investment plans after a series of scandals forced the government to freeze its new investments until last November.
NSSF Managing Trustee Alex Kazongo said the planned review of the list is meant to safeguard workers life savings by placing it under stockbrokers with strong financial and management footing.
The Fund is currently smarting from losses amounting to millions of shillings occasioned by flawed dealings involving stockbrokers.
Besides over Sh1.4 billion locked in the troubled Discount Securities Limited (DSL) which was contracted to transact shares on behalf of NSSF, the fund lost Sh252 million in 2002 through stockbroker Shah Munge which placed the money in Euro Bank, a weak commercial bank which was closed a few months later.
The transaction led to the suspension of Shah Munge and Partners from the Nairobi Stock Exchange.
DSL was placed under statutory management last October after it fell into financial woes. It had procured shares worth Sh2.2 billion on behalf of NSSF.
Clientele base Analysts said the review of the list of stockbrokers could as well break the cartel of firms which have controlled the multi billion shilling NSSF equity portfolio over the years, especially during the time when it was rundown.
“We will be seeking to get the best stockbrokers in the market to guarantee prudent management of our investment portfolio,” Mr Kazongo told Business Daily. “Of more importance to us will be bidders turnover, clientele base as well as management structures.”
The changes are part of the latest reforms at the Fund to safeguard retirement savings for millions of Kenyan workers and restore confidence eroded by years of fraud and plunder.
A tough fight of who gets into the list among the 18 licensed stockbrokers and investment banks is expected especially coming at a time when the firms are experiencing reduced earnings as retail investors shun the market and institutional investors turn to the safety of government and corporate bonds.
As a result, managing out sized investments such as that of NSSF whose equity and bond portfolio stands at Sh38 billion and Sh14 billion respectively is highly prized in the local stockbroking scene.
With brokers’ commissions set at between 1.0 and 1.5 per cent, handling of NSSF portfolio generates revenues running into millions of shillings in every year.
“The NSSF account is big business for stockbrokers when the Fund is at full flight in the NSE,” said James Wangunyu, the managing director at Standard Investment Bank in a previous interview.
“At this time when there is depressed trading, this can lift a broker’s fortunes especially if NSSF makes a full return to trading,” he added.
According to financial reports published late last year, only six stockbrokers out of the 18 reported positive earnings for the first six months of 2009, down from 14 that posted pre-tax profits in the same period last year, a signal that the current bear run at the stock market, had squeezed their earnings to a trickle.
Mr Kazongo said the fund has transacted in shares worth over Sh1 billion over the last three months. This means it has generated more than Sh15 million for brokers.
Five stockbrokers––Dyer & Blair Investment Bank Ltd, Apex Investment Bank Ltd, Suntra Investment Bank Ltd, Standard Stocks Ltd and Sterling Securities––who are in the current list of service providers will be battling to be retained.
CFC Financial Services, Kestrel Capital (East Africa) Ltd and Reliable Securities Ltd, all which were in its roll of brokerage services in previous years, could also be fighting for a comeback. Interested firms have up to February 11, 2009 to bid.
According to Mr Kazongo, it will be crucial to check the credit and business risk analysis of interested brokers.
NSSF he said, will rely heavily on the Capital Market Authority (CMA) for such information.
Six custodians
A November 2008 audit on the Fund by the Inspectorate of State Corporations said the board of trustees had in the past disregarded such scrutiny measures, exposing workers contribution to plunder. A recent appointment of six custodians and two fund managers to handle NSSF investment programmes is also expected to cushion it from future losses.
The recruitment of new stockbrokers is crucial to NSSF as it adopts to a new government investment directive requiring schemes that receive statutory contributions to invest only in government securities and infrastructure bonds issued by public institutions.
The directive announced by Finance Minister Uhuru Kenyatta in June was to be effective beginning this month.
“We are set to comply with the directive in the coming month, ” said Mr Kazongo.
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