UAP pushes planned listing at Nairobi bourse to 2018

Financial services group UAP Holdings has pushed back its planned listing at the Nairobi Securities Exchange equity counter as it grapples with integration issues following its acquisition by UK insurer Old Mutual.

Old Mutual took a 60.7 per cent stake in UAP for $253 million in January 2015, just two months after it bought a 67 per cent stake in microfinance lender Faulu Kenya for Ksh3.6 billion ($40 million).

Navigating the integration of the three businesses has been painstaking with a new operational structure, concluded in October, the only significant milestone so far.

“The approvals for the acquisition were received towards the end of the first half meaning the actual integration started in July. We see the integration being completed next year [2016] and the commitment to list not being fulfilled until 2018 at the earliest,” said UAP Group chief executive officer Peter Mwangi.

UAP Group had promised investors, when it borrowed Ksh2 billion ($22.2 million) through a corporate bond in July last year, that its shares would be trading at the Nairobi Securities Exchange by the end of last month. The bond was listed on the NSE debt counter in August last year.

READ: UAP, Old Mutual agree on merger ahead of listing

The debt was meant to support the group’s expansion into Africa where it has a presence in six markets — Democratic Republic of Congo, Kenya, Rwanda, South Sudan, Tanzania and Uganda.

Integration will involve merging the two holding entities (UAP Holdings and Old Mutual Holdings) and aligning the business lines before bringing the banking (Faulu) and non-banking activities under separate divisions, possibly under different brands.

Although the two groups have overlaps in asset management, unit trusts, life and general insurance, the businesses are complementary — with, for instance, UAP being strong in corporate life underwriting and Old Mutual in retail.

The full menu of the combined group — medical insurance and commercial property space complete the range — are only available in Kenya, making integration in the other markets less arduous once the key market is sorted out. All these, including a decision on whether the brands will be exclusive or blend with the identities of the initial entities, are earmarked for completion next year.

One aspect making decisions less straightforward are minority shareholders in the subsidiaries who may require to be accommodated in the new entity through equity swaps, where they trade off their ownership in the old entity with shareholding in the combined business.

“This will require due diligence, valuations, shareholder and regulatory approvals,” said Mr Mwangi. Another issue is what will be the group brand, with Old Mutual competing on its global brand recognition and UAP on its experience in the region.

One view is that the acronym UAP should be in the eventual name because of its presence in the over-the-counter (OTC) market through the corporate bond and in anticipation of the listing. Recent precedents in the industry have seen composite names such as CfC Stanbic and ICEA Lion following the merger between ICEA and Lion Insurance companies.

“A name change is unlikely but we are waiting for a recommendation from an internal taskforce before deciding the name we will trade under,” said Mr Mwangi. The integration and the branding, however, are being done in an environment where “the underlying business is constrained.”

In the six months to June, UAP announced an after tax loss of Ksh449 million ($4.4 million) compared with a profit of Ksh54 million ($528,00) over the corresponding period the previous year. The loss was attributed to unrealised forex losses on dollar-denominated loans and financing expenses of the corporate bond and property development.

Though Mr Mwangi expected some improvement on the exceptional items, he said business conditions were not conducive for profit growth. During the festive season, the company and its financial services rival Britam gave notice that their profit for last year would be at least a quarter below that in 2014, bringing to 16 the number of firms that have issued profit warnings for last year.

“Interest rates are still high and there has been an increase in profit warnings across the economic sectors,” said Mr Mwangi, adding that UAP’s full-year results would be announced separately until the integration is completed.  

Apart from Britam, NSE-listed companies that have announced substantial drops in earnings are BOC Gases, ARM Cement, Standard Chartered Bank, Uchumi Supermarkets, Mumias Sugar, Express Kenya, East African Cables, Standard Group, Atlas Development, Sameer Africa, Car and General, Crown Paints, TPS (EA) and Panafrica Insurance Holdings.

UAP reported a profit after tax of Ksh1.67 billion ($16.7 million) in 2014 while Britam had a net profit of Ksh2.5 billion ($25 million). For the half year to June 2015, Britam reported a net profit of Ksh624 million ($6.24 million), less than a quarter of the Ksh2.7 billion ($27 million) made over the corresponding period in 2014.

Undercutting on premiums and poor returns on asset management in East Africa — as low as 0.12 per cent — compared with one per cent in the developed world — are some of the constraints confronting the financial services group.

“Pension fund trustees tend to have a narrow investment scope where they put the management fee ahead of security and high returns. We want to compete on prudent pricing and product quality,” said Mr Mwangi.

The group sees opportunities for growth in the combined business through annuities (life), cross selling of products, bancassurance through Faulu and other banks; and bundling of insurance, investment and banking products. It also plans to drive microinsurance through technology platforms such as I-invest. 

In DR Congo, where UAP only offers insurance brokerage services, Mr Mwangi said the liberalisation of the underwriting sector expected next year would be an opportunity for the acquisition of an insurance company.

The group also intends to convert Faulu from a deposit taking micro financier (DTM) into a full commercial banking operation offering cheque and card services.