Kenya: Britam writes off USD 15.4 million HF investment

Listed insurer Britam has written off another Sh1.57 billion from its investment in mortgage lender HF Group, raising the booked losses from the investment to Sh3.7 billion in the last three years.

Britam said in its 2018 annual report that its financial performance had been affected by both the HF impairment and the general decline in the market last year, which also hit other equity investments.

The impairment indicates that Britam’s management has little faith in the ability of the bank’s stock to rebound to its previous levels.

“During the year we performed an impairment assessment on our investment in HF Group as required by the International Financial Reporting Standards and recorded an impairment of Sh1.57 billion compared to Sh1.3 billion in 2017,” the firm said in the report.

“The value of the investment has been adversely impacted by the changes in market interest rates following the introduction of the interest rates capping regulation. The property business did not also perform well because of the depressed property market.”

Housing Finance has in recent times fallen on hard times due to a slowdown in the property market that has made it hard to sell houses and mortgages, with the decline setting in from 2017 when the prolonged General Election and the accompanying political noise disrupted business.

This has led to an increase in the stock of non-performing loans at the mortgage firm to Sh12.9 billion at the end of March 2018 from Sh8.5 billion a year earlier, and which has in turn hurt interest earnings.

In the 12 months to December 2018, HF reported a net loss of Sh598.2 million compared to a profit of Sh126.2 million in 2017.

HF, which currently has 6,000 active mortgages, has now turned to the affordable housing segment to try and double the number of housing loans to 12,000 in the next two years.

“Our plan is to now focus on affordable housing — in Nairobi these would be loans of between Sh4 million and Sh4.5 million — because that is where the demand is to be found,” HF Group chief executive Robert Kibaara told the Business Daily last week.

HF’s stock is currently trading at Sh4.03 a share. In 2018, the share shed 46.7 percent — dropping from Sh10.40 to Sh5.54 — thus saddling Britam with a huge capital loss on its 48.42 percent stake in the lender.

Britam acquired 57.2 million HF shares from Equity Bank in December 2014 for Sh2.8 billion — adding to the 49.5 million shares it already owned at the time. In 2015, the insurer took up an additional 64 million shares in the lender after a rights issue, paying Sh1.92 billion for the additional stock.

In May 2018, Britam was awarded another 16 million shares in an HF bonus share issue, where shareholders got one unit for every 10 held.

Based on the current price, the paper value of Britam’s 186 million HF shares is Sh750.5 million, which translates to a paper loss of loss of Sh3.97 billion on its 2014 and 2015 investments.

Last year, Britam reported a net loss of Sh2.2 billion, compared to a net profit of Sh527 million in 2017.