Billionaire businessman Jimnah Mbaru earned more than Sh900 million from his last week’s sale of 50 million Britam shares to Zurich-based insurance giant Swiss Re, insiders have revealed.
The parties did not disclose the price at which Mr Mbaru sold the shares but a source involved in the transaction said the businessman reaped a large profit in the transaction.
"Mr Mbaru sold the shares at more than Sh17 each," the source who requested anonymity told the Business Daily, adding that giving the exact price would reveal his identity since only a select few are privy to the information.
Even at Sh17 apiece, the deal means that Mr Mbaru sold the shares at double Britam's closing price of Sh8.50 on Thursday last week.
Swiss Re first became a shareholder in the insurer last year when it acquired 348.5 million shares from businessman Peter Munga in a deal that was also above the market price but not as lucrative as Mr Mbaru's, the source said.
The two transactions have yet again renewed debate about lack of transparency among Nairobi Securities Exchange(NSE)-listed firms and the role of the Capital Markets Authority (CMA) and existing laws in perpetuating the opacity.
In contrast to other securities markets regulators in South Africa, the United States and Europe, Kenya’s CMA does not require listed companies and their insiders to disclose the price at which they buy or sell shares.
The status quo has resulted in information asymmetry, to the disadvantage of small investors who are unable to assess the price at which major investors are willing to buy shares in listed firms.
Ahead of the deal with Swiss Re, for instance, Mr Mbaru last year acquired 30 million shares in the open market at a price below which he sold to the multinational.
While the trades are not illegal, they demonstrate the lack of transparency in the market and the advantages big players like Mr Mbaru enjoy over the average investor. The businessman is a founder, significant shareholder and director of the insurer.
It has now been left to individual investors to cherry-pick what they want to disclose to the market, with better reporting coming from institutions that take good corporate governance seriously.
"We have a situation where some public companies are behaving like private firms," an investment officer at an asset manager with stakes in NSE firms told Business Daily.
"CMA and NSE talk a lot about encouraging new listings and attracting more investors but the current practices don't inspire confidence."
He added that negotiated or off-market transactions are often necessary if a large volume of stock is unavailable in the open market. Nonetheless, the parties should reveal at what price they transacted.
The International Finance Corporation (IFC), British sovereign wealth fund CDC Group and French multinational Rubis Energie are among institutional investors that have reported the price at which they acquired stakes in various NSE firms.
Rubis, for instance, disclosed in October last year that it had acquired Sh367.7 million shares from Wells Petroleum Limited, which was a significant shareholder in oil marketer KenolKobil at a price of Sh15.3 per share or a total of Sh5.6 billion.
It further explained that Wells would receive an extra Sh7.7 per share for a total of Sh23 per share, a price that was also offered to other shareholders in the KenolKobil buyout.
Better disclosures by listed companies and their top investors is an established principle of capital markets.
The CMA is yet to embrace such practices. Share trades by insiders are seen as particularly important since the individuals typically have more information about their companies and are thus better placed to assess long term future prospects.
Their dealings, therefore, form part of the information about listed firms and full disclosure can go a long way to assist in the process of setting stock prices.
Britam said it was not aware of the details of Mr Mbaru’s deal with Swiss Re.
The CMA referred the Business Daily to the statement issued by the parties, saying it was satisfied with the disclosure.
“The details of the private transfer in question were disclosed in the newspapers on April 18, 2019,” CMA said, noting that the deal complied with Kenya’s securities laws which are silent on the issue of price disclosure.
In contrast to Kenya's NSE, other securities markets require insiders to disclose the number of shares acquired or sold, the price, date of the transactions and the gain or loss.
This is mandatory even if the shares traded are not large in relation to the total issued stock.
In Kenya, scores of trades by insiders are never disclosed to the investing public.
They, however, show up in monthly shareholders returns that are accessible to employees of a few institutions, including the CMA, NSE, stock brokers and fund managers.