How State can realise maximum returns from Kenya Re investment
The government should attract a strategic investor by selling 50 per cent of its stake in Kenya Re, reducing its ownership from 60 per cent to 30 per cent.
As the government struggles with significant revenue shortfalls post-Finance Bill 2024, one wonders why it isn’t fully applying itself to realising short-term cash returns from its huge investment portfolio.
Partially privatised companies present a compelling opportunity for optimising the Government of Kenya’s (GoK’s) investment portfolio as, unlike new privatisation initiatives, they don’t have to run the gauntlet of competing political and economic interests.
This is especially the case for companies like Kenya Reinsurance Corporation Ltd (Kenya Re) which have successfully delivered on their strategic national priority.
Part of Kenya Re’s mandate at inception included regulating the insurance industry as well as increasing re-insurance retention capacity in the country.
Regulatory and market-driven changes since that time have resulted in the Insurance Regulatory Agency (IRA) as the industry regulator, while foreign and local investors have successfully set-up insurance businesses in the country, thus boosting domestic retention capacity.
Kenya Re has crossed Kenya’s borders and now underwrites re-insurance business in over 80 countries while operating subsidiaries in Cote d’Ivoire, Uganda, and Zambia.
To maximise its cash return from Kenya Re, the government should first direct the company to reduce its huge cash pile through payment of a substantial special dividend.
Thus far, Kenya Re has not provided returns that justify preserving its massive cash pile, whether through its outsized earnings retention policy orstock dividends policy.
The time is also nigh for GoK to invite a strategic investor into Kenya Re who can provide much needed strategic valu-addition.
As it stands, Kenya Re’s geographic footprint is rather incongruous compared to the highly successful expansion strategy of Kenyan banks into East and Central Africa. Kenya Re has a subsidiary in Zambia and another in Cote D’Ivoire.
The company’s 2019 share bonus issue was informed by the need to set up shop in the Arab-speaking North African country of Egypt and the 2024 share bonus was about expansion into a yet to be named market.
Kenya Re has already deployed an investment approach to regional expansion with very successful investments in companies like Zep Re and instead of running subsidiaries in far flung markets with different regulatory regimes, it should focus on enhancing its investments in its investee companies, such as Africa Trade and Investment Development Insurance, that are attracting world class insurance investors.
An indication of how stretched Kenya Re’s management is with respect to running its subsidiaries is the Auditor-General’s inability to confirm the effectiveness of management control and supervision of the operations of the Cote D’Ivoire subsidiary, due to incomplete statutory audits for four years, as noted in the Auditor General’s Report contained in its FY 2023 financial statements.
The government should invite a strategic investor by selling 50 percent of its stake in Kenya Re (reducing its stake from 60 percent to 30 percent).
The company’s aforementioned book value of Sh49 billion means that GoK could conservatively earn about Sh15 billion by selling 50 percent of its stake in the company.
Given that Kenya-Re is already listed at the Nairobi Securities Exchange, in a period of six months or less, GoK can earn at least Sh21 billion from a combination of special dividends and selling down its equity stake to a strategic investor.
By so doing, the government will maximise the cash returns from its Kenya Re investment at a time when it urgently needs to fund its budget shortfall.
The writer is a financial advisory consultant and shareholder of Kenya Re
