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Stockbrokers push for valuation of NSE seat
Twenty stockbrokers and investment banks own the NSE and are entitled to 80 per cent of the shares that should be demutualised by the end of this month. Photo/FREDRICK ONYANGO
Stockbrokers are pushing for the recognition of the value of their seats at the Nairobi Stock Exchange (NSE) as assets in their balance sheets, setting them on a collision course with the market regulator just one week to the deadline for new minimum capital requirements.
NIC Securities, Genghis Capital and ABC Capital have all booked Sh251 million as a long-term assets in their balance sheets to reflect the value of their claim to the NSE seat in the 2010 annual results.
CFC Financial Services however did not include the valuation, with chief executive of the firm, Nkoregamba Mwebesa saying there was a need for fresh valuation of the seat.
The Sh251 million valuation is based on the last sale price of a Francis Thuo and Partners seat to Renaissance Capital in 2007.
Stockbrokers are supposed to raise their minimum capital to Sh50 million from Sh5 million by end of this month, while investment banks are supposed to increase theirs to Sh250 million from Sh30 million.
Many of the market intermediaries are not ready for the new capital requirements, and many investment banks are said to have opted for a downgrade of their licences to stockbrokerage firms.
Currently there is no standard way of treating the value of the seat on the financial statements with a section of the members of the exchange including the value of the seat as part of intangible or long term assets in their balance sheets and consequently shareholder funds and others leaving it out all together.
It is, however, not considered as part of the members share capital by the market regulator.
There are 20 stock brokers and investment banks who own the NSE and who are entitled to 80 per cent of the shares of the bourse that should be demutualised by the end of this month according to plans by the CMA released at the end of January this year.
The members of the exchange who will get a four per cent stake are pushing for an independent valuation of the seat which is currently booked at Sh251 million on their financials —the price paid by Renaissance Capital for collapsed firm Francis Thuo and Partners Limited’s stake in 2007.
“We have written to the CMA for them to give us a value of the four per cent that for each member which should not be less than the current Sh251 million and this value should also be recognised as part of each brokers minimum capital,” said Willy Njoroge chief executive officer Kenya Association of Stockbrokers and Investment Banks (KASIB).
“This was the value of the last seat and until an independent valuation is done our assumption is that the 4 per cent should be at least Sh251 million,” he said, adding that the members were not against any reforms at the NSE.
The different treatment of the value of the seat by different market intermediaries has seen Genghis Capital and ABC Capital — which are stockbrokers - have included the value as long term and other assets and part of share capital but have excluded the seat from shareholder fund disclosures.
NIC securities has booked the Sh251 million as an intangible asset, part of share capital and total shareholder fund disclosures while CfC Stanbic Financial Services Limited has left out the value of the seat from its balance sheet.
“This is a huge asset and it was valued at Sh251 million by the NSE so anybody valuing it at that would be within the range but the CMA does not include it for the purposes of capital,” said James Wangunyu, executive chairman Standard Investment Bank.
“The CMA looks at the capital excluding the seat, it is actually has a higher value now. When we were selling Francis Thuo, we had quotations of up to Sh450 million but to be conservative it is put on the statements at Sh251 million,” he said.
CfC Financial Services, managing director Nkoregamba Mwebesa, who is also a former chief executive of the NSE, said a valuation was needed but his firm had decided to leave it out.
“We are members of the exchange but we do not think it needs to be disclosed because… how do we get to that valuation?” he posed.
Drummond Investment Bank Chairman Ndungu Gathinji said the seat has to have an estimation of value that the members have paid for and should be included on the balance sheet.
“The question is what the current value of the seat is. The NSE issued a statement saying that it was valued at Sh251 million and if this has changed, it owes it to its members to say whether the value has gone up or down and what the current value is,” he said.
