The Nairobi Securities Exchange (NSE) is selling its shares to the public, opening a window for East African citizens to own a part of the region’s largest bourse.

The NSE plans to raise Ksh627 million ($7.2 million) through an initial public offering (IPO) of 66 million shares at Ksh9.5 (10.9 US cents) each.

The shares went on sale on Friday, July 25, and will close three weeks later, on August 12, to enable trading in the shares from September 9.

The IPO will see the NSE list itself at the bourse and complete the conversion (demutualisation) of the company from one owned by a club — technically called “limited by guarantee” — to one owned by the public, or “limited by shares.”

NSE becomes only the second exchange in Africa to list itself after the Johannesburg Securities Exchange (JSE). The shift in ownership structure also means the company will now be a profit-driven entity.

Focus set to change

“Up to and including the year 2013, NSE was not on maximising profits and dividend payouts but more on service delivery of its core mandate to its many stakeholders,” the NSE said in its IPO prospectus.

“Following its offer, the above focus is set to change as NSE will include creating shareholder value amongst its core deliverables.”

The bourse plans to use the funds to boost its cash position as well as upgrade infrastructure, therefore allowing it to support products such as derivatives.

“The money will be used to retire part of our debt as well as provide seed capital towards the settlement fund for futures,” reads the prospectus.
The NSE had borrowed Ksh300 million ($3.4 million) at a rate of 15 per cent from KCB to partly finance the purchase of its new headquarters and part of the cash will be used to retire this facility.

Last year, the company incurred Ksh40 million ($0.45 million) in financing costs.

The bourse says the auction will have to achieve a subscription rate of at least 68.8 per cent if it is to be considered successful. The exchange will list in the Alternative Market or Growth Enterprise Market segments if this level is not reached.

The equities bull run at the NSE, coupled with improved bond yield, has increased market activity at the bourse and helped drive the NSE’s earnings.

For example, in 2012, NSE’s net earnings stood at Ksh84 million ($0.96 million) while last year the company made Ksh262 million ($3 million). In the first quarter of 2014, it recorded net earnings of Ksh89 million ($1.02 million) compared with Ksh59 million ($0.67 million) last year.

The future performance of the bond market is tied to market innovation. For example, the automation of the bond market increased turnover from Ksh110 billion ($1.26 billion) in 2009 t0 Ksh460 billion ($5.2 billion) in 2010 and has since risen to Ksh560 billlion ($6.4 billion). It is innovations and increased listings that the NSE hopes will continue to drive earnings.

Not for sale

“Over the next decade and beyond, investors will continue to become high frequency traders and more technologically savvy — this will require more products, further efficiency, ease of access, flexibility, speed and transparency,” said the NSE. “NSE prepares strategic plans to accommodate the changing environment.”

Though regional exchanges such as Rwanda’s are demutualised, the public does not own a stake in them. The Rwanda Stock Exchange (RSE) is not looking at selling its shares to the public in the near future. The nascent bourse says it has strong shareholders and is therefore not in a hurry to sell.

Celestin Rwabukumba, the chief executive officer of RSE, said that although the exchange could have sold its shares to the public, it instead chose to develop the infrastructure first.

“We are now working hard to complete the automation of our market, integrating our market with the regional markets as well as working on our five-year strategic plan,” said Mr Rwabukumba.

The RSE is owned 20 per cent by the government and 60 per cent by the stock brokers, while the remaining 20 per cent belongs to institutional investors.