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Concerned by dry season of IPOs on NSE, regulator reaches out to potential issuers

Saturday August 29 2015
issuers

Data from Kenya's Capital Markets Authority shows that only 11 companies have sold shares to the public in the past 15 years, with some players citing over-regulation, high costs of listing and negative publicity around the 61-year-old Nairobi exchange. FILE PHOTO | TEA GRAPHIC |

Concerned about the low frequency of initial public offerings on the Nairobi Securities Exchange, Kenya’s capital markets regulators are carrying out a study of the challenges facing potential issuers.

It is hoped that its findings will help inform new incentives to attract more companies to raise capital through the NSE.

Data from the Capital Markets Authority shows that only 11 companies have sold shares to the public in the past 15 years, with some players citing over-regulation, high costs of listing and negative publicity around the 61-year-old exchange.

According to Geoffrey Odundo, chief executive of the NSE, lack of tax-based incentives and the slow pace of the government’s privatisation process has partly contributed to the decline in the number of IPOs on the NSE.

Currently, the NSE has 66 listed companies.

Mr Odundo said the re-introduction of capital gains tax of five per cent in January this year, which was later reviewed to 0.3 per cent withholding tax on the gross transaction value effective January 2016, does not bode well for companies seeking to sell shares to the public.

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“Over the last 10 years, when companies came to the market to list, the macro-economic conditions were different. The capital markets offered a variety of tax-based incentives that companies benefited from. The main tax incentives were the lack of the capital gains tax and the tax deductibility of expenses incurred in public offering,” he said.

Uganda has only approved eight IPOs for its domestic companies between 2000 and 2015, according to a public notice by the Capital Markets Authority of Uganda.

Kenya’s listing platform for small and medium-sized enterprises, the Growth Enterprise Market Segment (GEMS), has also failed to live up to expectations.

Two years after its launch in 2013, the GEMS has only attracted four companies — Atlas Development & Support Services Ltd, Flame Tree Group Holdings Ltd, Home Afrika Ltd and Kurwitu Ventures Ltd — all with a combined market  capitalisation of $88 million.

“We are carrying out a study to understand the challenges that the potential issuers are facing so that we can facilitate and encourage more companies to list. This is a key focus area for us,” said Paul Muthaura, acting chief executive of CMA.

In the 11 IPOs, the companies issued 15.54 billion shares to the public, raising Ksh73.28 billion ($697.71 million).

These companies include Mumias Sugar Company, Kenya Electricity Generating Company (KenGen), ScanGroup, Eveready East Africa and AccessKenya (delisted in 2013).

The others are Kenya Reinsurance Corporation (Kenya Re), Safaricom, Co-operative Bank of Kenya, British American Investments Company (Britam), and the Nairobi Securities Exchange itself, which self-listed in 2014, and African Lakes (delisted in 2003).

“The rules and regulations are a burden and a cost to private companies seeking to list,” said Manu Chandaria, a Kenyan industrialist.

According to Mr Chandaria, private companies fear being exposed to regulations and public scrutiny.

“The issue is basically over-regulation, negative publicity and cost of listing, which are worrying.  We should be encouraging companies to come to the market rather than scaring them off,” said a stockbroker who did not want to be quoted.

No approvals

In Uganda, eight domestic and eight cross-listed company IPOs were approved between 2000 and 2013 to list on the Main Investment Market Segment (MIMS) of the Uganda Securities Exchange.

Since then, Uganda’s Capital Markets Authority has not approved any IPO or listing on the GEMS to date.

“It’s worth noting that in a relatively young capital market like Uganda’s, private placements are vital in raising long-term capital,” said  Keith Kalyegira, chief executive of the Uganda Capital Markets Authority, in its 2013/2014 annual  report.

“This is a positive step towards embracing equity financing and we hope these transactions translate into listings by introduction in the near future, and eventually into full blown public offerings,” he added.

In Rwanda, three companies have so far listed on the Rwanda Stock Exchange. These are brewer and soft beverages firm Bralirwa, Bank of Kigali and Crystal Telecoms, which is wholly owned by Crystal Ventures Ltd, one of Rwanda’s leading private sector companies.

The Crystal Telecoms IPO, which was launched in May, was oversubscribed by 123 per cent.

The firm was offering about 270.17 million shares at a price of $ 0.15 with a target of raising $41 million. Crystal Telecoms became the first full private sector company in Rwanda to utilise the capital markets as means to raise finance.

In Tanzania, Mkombozi Commercial Bank was the latest listing on the Dar es Salaam Stock Exchange in December last year and the bourse expects about six more companies to sell shares to the public in 2015, mainly banks and microfinance corporations.

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Kenya’s listing regulations requires that the issuer must have a minimum authorised issued and fully paid up share capital of Ksh50 million ($476,064) to be listed on the main investment market segment of the exchange.

The issuer must also possess net assets of not less than Ksh100 million ($952,127) immediately before the IPO.

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