Established facts from our in-depth discussion with Britam Senior management team are that the link is solely based on shared directorship positions held across the three firms.
Dawood Rawat was appointed to the board of Britam Kenya Ltd in 2013 and holds a 23.34% stake in the insurer through the holding company British American Kenya Holdings while Moussa Rawat was also a non-executive director at Britam Kenya and also at BAI Mauritius Ltd with both individuals resigning from their positions this month (April 2015). Benson Wairegi, Managing Director of Britam Kenya Ltd, was an independent director at Bramer Bank Corporation Limited; however he resigned from this directorship on 29th April 2015.
It was emphasized that there is no relation between Britam Kenya and BAI Mauritius Ltd in regards to linked transactions or current accounts held. In addition, Britam’s investments are limited to the region by the Insurance Regulatory Authority (IRA) and all offshore investments must be warranted by the commissioner of the regulatory authority.
BAI Mauritius Ltd is currently under a conservator; and key interests are maintained in Dawood’s stake as the Mauritius government took up the shareholding entitling it to 2 seats on the board of Britam. Britam Management is uncertain if the conservator will monetize the shares and should it happen it will be through a strategic investor facilitated via private transfer.
Acorn & Cytonn Vs Britam
Management affirmed that they could not disclose additional information on the legal contention between the insurer, Acorn Group and Cytonn Investments. The legal battle surfaced in the last quarter of 2014, following the exit of four senior managers from Britam to form an independent firm Cytonn Investments. Acorn Group an associate of Britam that was to drive the insurers property investment function jumped ship to Cytonn Investments cutting ties with Britam.
Through the shifts of the senior managers and the breaking of ties by Acorn, KES 3.9Bn was discovered to have gone missing from the insurer’s books and was allegedly transferred to special purpose vehicles held by Acorn Group. Management expressed that they hope that the contention shall be settled within the next two years and the unfortunate loss of the associate will not hamper their strategic goal to venture into the property segment.
Restatement of Financials
Britam published their restated FY2014 books, on the 24th of April 2015, which led to a significant decline of PAT by 12.05% to KES 2.49Bn. The restatement was in light of the review of the accounting treatment on additional 24.73% that was purchased Housing Finance Corporation Kenya. The carrying value of the shares in profit from the associate were restated down by KES 516Mn bringing the share of profits to KES259Mn as the insurers so it fit to be prudent in their accounting for the additional stake that boosted their shareholding to 46.04%. Also affected by the restatement was the return on shareholders’ equity (ROE) that retreated by 1.35% to 11.68% as earnings per share dipped to KES 1.39 from KES 1.47. Indicating contracted yields to investors.
With emphasis on the non-existent link between the Britam Kenya and BAI Mauritius Ltd as well as Bramer Bank Corporation Ltd, management is confident that the firm will be unaffected by the board shakeup. The insurer will continue with its planned expansions to other countries as well as into the property sector through its associate Housing Finance Corporation Kenya with a long term outlook to possibly consolidate with the commercial lender as optimism is conveyed in regards to the breaking even of its loss making subsidiaries in Rwanda, Tanzania and Malawi by FY2015 and FY2016 respectively.
Fundamentally, the firm’s position in the Insurance sector is strong with an 18% market share in the life insurance business and 5% share in General insurance, as well as a sturdy strategic expansion outlook. Despite the assurance of no link between the insurer and BAI Mauritius, investors are not too convinced on the statement of affairs of the firm , we expect activity to continue to heighten on the counter which may slow down as more concrete information on the legal contentions are brought out in the public eye.