Billionaire businessman Peter Munga is betting big on Britam with the announcement of his intention to acquire a 23.3 per cent stake in the listed financial services firm at an estimated cost of up to Sh9.9 billion.
The deal, which was announced yesterday, indicates that Mr Munga, through his investment vehicle Plum LLP, is acquiring the stake belonging to Dawood Rawat — the disgraced Mauritian director of the firm — temporarily as Britam searches for a strategic investor to buy from him.
This means Mr Munga is willing to put the substantial amount of money at stake in the hope that Britam’s fortunes will change for the better and allow him to sell to the strategic investor at a premium.
The Mauritian government is disposing of the 452,504,000 shares seized from Mr Rawat — who it accused of running a Ponzi scheme — in a transaction it hopes will help recover the Sh9.9 billion it paid victims of Mr Rawat’s Ponzi scheme.
This means the Mauritian government could prize the stake at Sh9.9 billion but leave room for negotiations based on the current market price.
Mr Rawat’s shares are currently valued at Sh6.3 billion based on Britam’s trading price of Sh14 per share at the Nairobi Securities Exchange, meaning that either the Mauritian government will have to take a haircut or Mr Munga places a huge bet on the stake to pull the deal through.
“The proposed acquisition will give Britam and its shareholders the time it needs to identify a strategic investor with the institutional fit to support the company in the future,” said Plum LLP in a public statement signed by Mr Munga.
Mr Munga declined to disclose the price at which he is buying the stake, citing confidentiality clauses in the agreement. He, however, confirmed he had already paid a commitment fee and was waiting for regulatory approvals to complete the transaction.
Mauritian minister for Financial Services Sudarshan Bhadain told the country’s parliament on March 29 that the government had opted to retain Britam’s shares instead of selling them before the June 30, 2015 deadline in the hope of fetching a better price.
The Mauritian government took a 3.5 billion Mauritian Rupee (Sh9.9 billion) loan from its central bank to pay investors in what it has termed Mr Rawat’s Ponzi scheme while awaiting a better price on the tycoon’s Britam stake.
“We will have to repay that loan and we will repay that loan through the recovery procedures,” the minister is quoted as saying in the Mauritian parliament’s hansard.
Mr Munga is betting on a steady recovery of the Britam share that was trading at around Sh28 in April last year before the assets were seized.
“I invested in Britam when I was 30 years old and I would not want to see someone who is not aligned to our strategy of growing the company come in,” Mr Munga said.
Upon completion of the deal, Mr Munga’s stake in Britam will rise to 38.5 per cent, worth Sh10.3 billion at the current price of Sh14 per share.
The share has gained 19.3 per cent in the last three months.
Britam traded at a high of Sh40 a share in 2014 before a tumultuous period marked by the seizure of Mr Rawats stake, an alleged multi-billion shilling fraud involving former senior executives and a profit warning saw it fall to a low of Sh10.
Mr Munga hopes to calm nerves in the market and turn around Britam’s fortunes in a move that could earn him over Sh1 billion if the share price rises more than Sh2.2 above the acquisition price.
The billionaire businessman holds a direct stake of 3.87 per cent in Britam and an additional 11.33 per cent held through two investment vehicles, Filimbi Limited and Equity Holdings.
Filimbi — owned equally between Mr Munga and Jane Wangui, the wife to Equity Bank’s chief executive James Mwangi — has a 3.02 per cent stake in Britam, putting Mr Munga in control of 1.51 per cent of the financial services firm.
Equity Holdings, a partnership between Mr Munga and Jane Michuki, has a 20.9 per cent stake in the insurer, giving him an additional 9.8 per cent stake in the firm for a total 15.2 per cent shareholding. The deal will, however, have to be approved by Insurance Regulatory Authority (IRA) and the Capital Markets Authority.
The IRA has capped individual ownership in an insurance company at 25 per cent. The approval of the deal will put Mr Munga in breach of the regulation — even if temporarily — indicating the regulatory nod, if granted, is also set to be time-bound.
The Mauritian government took control of Mr Rawat’s stake in Britam following the collapse of Bramer Banking Corporation (BBCL), which was part of Mr Rawat’s Seaton Investment conglomerate. The collapse followed a run on the bank after it was linked to a Sh69.3 billion Ponzi scheme.
The Mauritian government then opted to sell Mr Rawat’s assets to pay its citizens who had been duped in to the scheme.
Mr Munga said Britam had negotiated for more time to complete the sale and that the deal would be complete by end of next month.
Mr Munga is best known for his founding role in Kenya’s largest retail lender, Equity Bank from where he has been divesting in recent years and now has a 0.5 per cent stake.
His business empire includes Equatorial Nut Processors Limited, a company that he founded in 1994 to process macadamia nuts, peanuts and cashew nuts, and Greystone Industries Limited, a concrete poles business he founded two years ago.
Last year, the businessman bought Meru Ginneries and revamped it into an operation that now serves 300,000 cotton farmers in Meru, Embu, and Tharaka Nithi counties.
Mr Munga has also invested in education where he owns Pioneer High School in Maragua, Murang’a and St. Paul’s Thomas Academy, which is located in the same neighbourhood.
He chairs Pioneer International University (PIU), a Nairobi-based institution of higher learning that started as a college in 2005 but has since moved on to offer degree programmes after it received a letter of interim authority from the regulator.
Britam Holdings posted a Sh1 billion after-tax loss last year down from a Sh2.5 billion profit a year earlier.
The loss was attributed to unrealised losses from investments in listed shares and government securities.
Insurance companies are required to factor any loss or profit they would make if they disposed of their shares at the time of preparing financial statements in an accounting concept referred to as marking to market.
The insurer has operations in seven countries, including Uganda, Tanzania, Rwanda, South Sudan, Malawi and Mozambique.