Diageo’s EABL share purchase gives brokers a shot in the arm
Diageo CEO Ivan Menezes at the Nairobi National Park as EABL, a Diageo subsidiary, celebrated with a toast its 100-year-old past on May 19, 2022. PHOTO | DIANA NGILA | NMG
The recently concluded Sh22.7 billion purchase of additional EABL shares by British multinational Diageo helped generate millions in trade commissions for stockbrokers representing investors who sold their shares in the tender offer.
Equities trades at the Nairobi Securities Exchange (NSE) normally attract a commission of up to 2.1 percent for transactions below Sh100,000, and a maximum of 1.7 percent for those above this threshold, inclusive of the regulator, custodial and bourse levies.
On paper, Diageo’s total spend of Sh22.7 billion would generate commissions worth Sh386.4 million for the market intermediaries, but this was likely lower given the provision for room to negotiate.
Multiple market sources said that Diageo was responsible for paying the commission on the transfers of shares from the minority investors —with the deal described as a one-way transaction since it was a tender offer.
“The people selling were not charged a commission but Diageo was paying to brokers,” said Muathi Kilonzo, head of equities brokerage at EFG Hermes Kenya.
“The commission paid depends on the negotiated rate with each broker who gave different rates. This was an arranged transaction therefore they paid below normal commission charge.”
The block purchase through a tender netted Diageo an additional 14.97 percent stake in the NSE-listed brewer, taking its ownership to 65 percent.
It bought a total of 18.39 million shares at a unit price of Sh192 in the offer, which was oversubscribed by 21 percent.
The sale was done in two phases from February 6 to 24, and between February 27 and March 17, with both phases posting oversubscription.
The block trade had the effect of boosting the NSE’s monthly equity turnover to a record high of Sh32.37 billion in March.
For the market intermediaries, the commission's windfall is a welcome boost in a period of generally falling income.
The industry has suffered a tough stretch in recent years characterised by a bear run and reduced equities trading activity at the stock market, which provides their main line of revenue in terms of commissions from stock sales and purchases.
Last year, stockbrokers recorded a 13.5 percent fall in brokerage commissions to Sh1.69 billion, which saw their net profits decline by 24 percent to Sh500.6 million.
This was after equities turnover at the NSE fell to a 10-year low of Sh97.3 billion from Sh137.4 billion in 2021, while market capitalisation shrank by Sh606.8 billion to Sh1.986 trillion.
At the same time, bonds turnover fell by Sh215.1 billion to Sh741.85 billion –retreating from the record of Sh957 billion seen in 2021.
The present earnings for the industry are a far cry from those seen a decade ago when the NSE was on a bull run that had been partly driven by steady listings that introduced hundreds of thousands of new investors to the market.
In 2014, when the equities market hit an all-time high traded turnover of Sh215.7 billion, the stockbrokers made Sh3.7 billion in trade commissions, driving their net profits to Sh1.26 billion.
