Kenya Re has acquired an additional 4.44 per cent stake in Zep-Re for Sh1.3 billion raising the Nairobi Securities Exchange-listed firm’s interest in Zep-Re to 19.88 per cent from the previous 15.44 per cent.
“In the year 2015 we increased our shareholding in Zep-Re … by buying additional 2,829,400 shares of Zep-Re,” Kenya Re says in its latest annual report.
“This was informed by the expected attractive dividends, capital appreciation and sustained growth of the regional reinsurer over the years,” the company said, disclosing that the additional investment cost it Sh1.25 billion.
Kenya Re received a dividend of Sh68.4 million from Zep-Re last year, up 21 per cent from Sh56.5 million in 2014. This came after the associate company’s net profit increased 15.6 per cent to Sh1.9 billion from Sh1.6 billion in the same period.
At Sh335.7 million, Kenya Re’s share of Zep-Re’s net profit last year represents nearly 10 per cent of its total net earnings of Sh3.4 billion in the same period.
Kenya Re’s cumulative equity investment in Zep-Re, including the investee’s retained earnings, rose to Sh3.4 billion last year from Sh2 billion in 2014.
The new investment signals Kenya Re’s confidence about Zep-Re’s future prospects and comes amid increased interest in the company by other global institutional investors.
The International Finance Corporation (IFC), for instance, has disclosed its intention to invest up to $20 million (Sh2 billion) in Zep Re in a transaction that could give it a stake of at least 10 per cent. The IFC first revealed the proposed investment in May 2015 and last reviewed the deal last November, with the transaction still pending according to the organisation’s documents.
The international financier, part of the World Bank Group, says its investment will provide Zep-Re with growth capital and help it attain a stronger international rating in the competitive reinsurance business. IFC says Zep-Re also stands to benefit from its global knowledge, expertise and network of clients.
Kenya Re, which says it has significant influence over Zep-Re’s strategic direction, is opposed to the creation of new shares by the investee to accommodate new shareholders such as IFC.
The purchase of additional shares is seen as a move by Kenya Re to protect its position as the single largest investor in Zep-Re. The private reinsurer is owned by a mix of private firms, sovereign wealth funds and governments making up the Common Market for Eastern and Southern Africa (Comesa).
Comesa governments Besides Kenya Re, other shareholders in Zep-Re are PTA Bank (11.6 per cent), African Development Bank (14.67 per cent), German fund DEG (10.13 per cent) and the Government of Kenya (0.99 per cent).
Zep-Re, which commenced operations in 1993, was created by governments of Comesa to promote the development of trade and integration within the region through provision of insurance and reinsurance services.
With its head office in Nairobi, ZepRe offers reinsurance services to markets in eastern and southern Africa covering life and non-life risks.
The firm shares risks with primary underwriters in property, casualty, motor, marine, aviation, life and medical insurance business.