Insurance group Britam #ticker:BRIT has sold 21.6 million shares of Equity Group #ticker:EQTY with a current market value of about Sh765 million, further reducing its ownership in Kenya’s second-largest bank.
This is the latest in a series of divestments from the lender as Britam seeks to comply with regulatory guidelines capping investment in a bank at 10 percent of an insurer’s total assets.
The Nairobi Securities Exchange-listed firm held 275.7 million shares of the bank equivalent to a 7.3 percent stake as of December 2019, according to its latest annual report.
This stake was valued at Sh14.7 billion in the review period and accounted for 11.7 percent of Britam’s total assets of Sh125.2 billion. The holdings dropped from 297.3 million shares representing a 7.8 percent ownership in the lender in December 2018 that was valued at Sh10.3 billion. This accounted for 9.9 percent of its total assets of Sh103.6 billion at the time when it complied with the investment limits.
Britam has in recent years moved to reduce its exposure to Equity, which in 2014 represented 26 percent of its total assets on the back of the lender’s long-term stock price rally.
The Insurance Regulatory Authority (IRA) in 2015 published investment guidelines that, for instance, capped an insurer’s investment in a bank at 10 percent of its total assets.
Britam started buying Equity shares in 2004 and holds them directly and through its various insurance subsidiaries.
Gains in its investment portfolio including the Equity stake helped the insurer report a net profit of Sh3.5 billion in the year ended December 2019, reversing a net loss of Sh2.2 billion the year before.
Its net unrealised fair value gains on financial assets rose to Sh4.3 billion, transforming from paper losses of Sh3 billion. The gains were driven by a rally in banking stocks in the fourth quarter after the repeal of interest rate controls.
“The main contributor to the difference between the reported profit before tax and the total comprehensive income in 2019 is the gains resulting from the revaluation of the strategic investment in Equity Group Holdings Plc, which is marked to market,” Britam said.
Britam and other insurers are likely to record major paper losses this year from the stock market rout that started in March due to the Covid-19 pandemic.
Britam’s other significant investment at the Nairobi bourse is mortgage financier HF Group #ticker:HFCK, in which it holds a 48.2 per cent stake. Britam has in the past written off billions of shillings of its investment in the company. In the recent past, HF has taken steps towards profitability.