Capital Markets

NSE investors lose Sh86bn in State-controlled firms

nse

The Nairobi Securities Exchange: The fortunes of these companies have dipped despite some of them operating as virtual monopolies, enjoying government backing and offering essential goods and services. FILE PHOTO | NMG

Six State-controlled and Nairobi Securities Exchange-listed firms have caused investors a combined paper loss of Sh86 billion in the past five years alone, underlining the effect of corruption and gross mismanagement that has driven some of them to near collapse.

East African Portland Cement Company (EAPCC) #ticker:PORT, National Bank of Kenya (NBK) #ticker:NBK, Kenya Airways (KQ) #ticker:KQ, Kenya Power #ticker:KPLC, Mumias Sugar Company #ticker:MSC and Uchumi Supermarkets #ticker:UCHM had a combined market value of Sh113.6 billion on November 1, 2013.

But a mix of heavy loss-making, mismanagement and theft has whittled that down to Sh26.9 billion and left Mumias and Uchumi all but dead.

Unlike bear markets that signify temporary decline in share prices and ultimately the market valuation of public listed firms, the troubled six’s fortunes have not rebounded because the underlying challenges continue to fester.

The combined paper loss of 76.3 per cent has been exacerbated by a dividend drought that has further spooked investors, dragging the share prices down to trade in shillings and cents that have become the hallmark of junk stocks.

The fortunes of these companies have dipped despite some of them operating as virtual monopolies, enjoying government backing and offering essential goods and services.

Current and former executives of EAPCC, NBK, KQ, Kenya Power, Mumias and Uchumi have been accused of theft and embezzlement of billions of shillings, according to audit reports, regulatory enforcement actions and court documents.

Analysts say the companies’ troubles are primarily the result of mismanagement, arguing that the issue affects both private and government-owned firms.

“It’s basically mismanagement that is hurting these companies. Others have done well despite government ownership,” said Robert Bunyi, an analyst at Mavuno Capital.

The management premium is seen at KCB #ticker:KCB and Safaricom #ticker:SCOM where the government has significant stakes but professionalism and meritocracy have prevailed, allowing the companies to grow earnings and market share in competitive markets.

For Safaricom, in particular, the top management has traditionally been picked by UK multinational Vodafone, which founded the telecoms operator in partnership with the Kenyan government before it went public.

Among the troubled six, KQ has burnt investors the most money – having accumulated Sh48.7 billion in paper losses over the five-year period. The loss excludes the impact of a recent debt-to-equity transaction that was favourable to the government and banks while squeezing long-term retail investors.

The national carrier, which last paid a dividend in 2012, will likely need another bailout after continued losses plunged it back to a negative equity position of Sh3.8 billion in the half year ended June.

KQ’s woes are linked to its previous overzealous expansion and theft by former managers.

Kenya Power is next with a paper loss of Sh19.9 billion, and significantly reduced earnings that have turned it from the consistent dividend payer it was to an erratic one.

The company’s procurement running into billions of shillings has been questioned and a number of its top managers are in court facing economic crimes charges.

Uchumi, which was recently kicked out of its head office after surrendering most of its branches, is third with a paper loss of Sh5.4 billion, the culmination of multi-year losses and fraud.

The former managers of the retailer were accused of wheeling and dealing, including entering commercial transactions with the company and third parties such as landlords to enrich themselves.

EAPCC investors are nursing a paper loss of Sh4.9 billion attributed to mismanagement and lack of a clear plan to recapitalise the business.

Official audit reports have consistently highlighted revenue leakages running into hundreds of millions of shillings at the company besides corrupt payouts to suppliers.

Mumias, which barely produces sugar these days, has seen investors incur paper losses of Sh4.1 billion besides lack of dividends. The sugar miller’s current and former managers have been accused of running it down through corrupt transactions.

Shareholders of NBK have also suffered paper losses of Sh3.3 billion and a dividend drought, with the lender ranking as one of the weakest in the industry in terms of minimum capital requirements.

Its former managers cooked up a scheme which led to the siphoning of more than Sh1 billion besides issuing loans to their cronies.