A prolonged bear market run at the Nairobi Securities Exchange (NSE) has eaten deep into the paper wealth of four top investors, pushing them below the Sh1 billion mark, and leaving equities as the most battered asset class in the past two years.
WPP Scangroup chief executive Bharat Thakrar tops the list of investors whose paper wealth has fallen below the Sh1 billion mark.
The list also includes Leah Muguku, Simon Thuo and Franklin Ndii, who have all taken a hit from the erosion of their investment in Equity Group.
The 43 per cent drop in the benchmark NSE 20 Share Index from its peak at 5,491.3 on February 27 last year to the new trough of 3,129.7 Thursday has served as the the clearest indicator of the rout.
That fall is enough to wipe out an investor’s previous 86 per cent capital gain, with actual losses depending on the portfolio mix.
Besides the regular boom and bust cycles, the NSE’s bear run has been escalated by recent corporate scandals and the capping of interest rates that erased tens of billions of shillings from banking stocks since August alone.
Mr Thakrar is one of the biggest victims of the market downturn that has left his 51.8 million shares in Scangroup valued at Sh893.7 million based on the marketing communications firm’s closing price of Sh17.25 Thursday.
This marks a major decline from the Sh3.8 billion valuation of his holdings in August 2013 when the firm’s share price hit a record of Sh75 on news of the purchase of a major stake in the company by UK-based conglomerate WPP.
WPP completed the transaction four months later, raising its stake in Scangroup from 31.3 per cent to a controlling 50.1 per cent in a Sh8.2 billion cash and share swap deal involving some of its subsidiaries.
Scangroup’s share price drop partly reflects weaker earnings since the WPP deal was concluded, with net profit dropping from Sh831.3 million in 2013 to Sh625.4 million in 2014 and Sh478.6 million in the subsequent year.
The Equity investors are also victims of the market’s discounting of the lender’s future earnings based on the August 24 signing of the law capping interest rates, an event that pushed banking stocks off the cliff.
Ms Muguku’s 32.8 million shares are now worth Sh984.9 million based on Equity’s closing price of Sh30 Thursday while Mr Thuo’s 26 million shares are now valued at Sh780.4 million. Mr Ndii’s 20 million shares are valued at Sh600 million.
The portfolios of all the three investors were solidly above the Sh1 billion mark in January last year when the bank’s share price hit an all-time high of Sh54.5 as the three-year bull market approached its end.
At that price, Ms Muguku’s shares were valued at Sh1.7 billion while those of Mr Thuo and Mr Ndii stood at Sh1.4 billion and Sh1.09 billion respectively.
Analysts at Standard Investment Bank (SIB) say the full effect of the new law will be felt from next year, noting that its implementation from September 14 will only have a small impact on the current year’s earnings.
The law sets the floor for deposit rates at 70 per cent of the Central Bank Rate and a ceiling for lending rates at four percentage points above the benchmark rate.
This places the current interest rate on interest-bearing accounts at a minimum of seven per cent and the lending rate at a maximum of 14 per cent, with the CBR at 10 per cent.
Equity reported a 17.5 per cent net profit jump to Sh15 billion in the nine months to September, driven by higher interest income which SIB projects will fall 23.5 per cent next year.
SIB sees Equity having more flexibility to cut expenses and recording a relatively lower drop in net interest income compared to Co-op Bank, whose earnings from lending is expected to shrink the most by 24.3 per cent.
“For Equity Bank, we see scope for changing deposit mix by scaling back on retail savings accounts — as at end of full year 2015, retail savings accounted for 40 per cent of total deposits and 61 per cent of total interest earning deposits,” SIB said.
The investment bank added that the cut in retail savings will be driven by stricter enforcement of maximum number of withdrawals.
Despite the share price drop, Equity continues to trade at a higher premium than all other listed lenders save for Standard Chartered Bank, signalling that investors expect the bank to weather the storm better than its competitors.
While the four investors’ portfolios have dropped below the Sh1 billion mark, they are expected to retain their absolute billionaire status through ownership of other assets, including real estate.
Other top investors at the Nairobi bourse have kept their stock market billionaire titles but at a heavy cost, having weathered billions of shillings in paper losses in one or several listed firms.
They include James Mwangi (Equity CEO), Jimnah Mbaru (Dyer and Blair chairman), Pradeep Paunrana (ARM Cement CEO), Peter Munga (Equity chairman) and Benson Wairegi (Britam CEO).
Mr Munga and Mr Mbaru have, for instance, lost Sh9.8 billion and Sh6 billion respectively in Britam alone in the rout of the insurer’s stock price by 74.8 per cent to Sh10.05 from its record high of Sh40 in September 2014.
While the equities’ slide continues, fixed income investors are benefiting from rising interest rates on new government bonds while various segments of the opaque property market are also registering a slowdown.