IPOs in 2016 could boost turnover on USE
Posted Saturday, January 23 2016 at 19:21
- Rising interest rates and capital flight attributed to offshore investors influenced by the US Federal Reserve’s plans to increase policy rates also contributed to depressed trading turnover.
Fewer windfall trades and scarcity of new corporate finance transactions led to a 60 per cent drop in overall trading turnover recorded at the Uganda Securities Exchange last year, with the bourse posting Ush187.42 billion ($53.3 million) in equity transaction activity compared with Ush466 billion ($132.5 million) recorded in 2014.
Latest research data compiled by Crested Capital Ltd, a stockbrokerage and investment advisory firm, also shows the bourse’s local company index rose by 29.32 per cent to 421.07 points at the end of 2015 on the back of notable price gains registered on the British American Tobacco Uganda, Bank of Baroda, DFCU Ltd and Umeme Ltd counters.
In contrast, the All Share Index dropped by 7.46 per cent to 1,763.5 points on account of weak performance recorded among cross listed stocks hosted at the Nairobi Securities Exchange (NSE).
Rising interest rates and capital flight attributed to offshore investors influenced by the US Federal Reserve’s plans to increase policy rates also contributed to depressed trading turnover, analysts noted.
However, Umeme Ltd’s secondary offer, which was floated in 2014 on the USE, and NSE sharply boosted trading turnover at the former bourse, with a transaction value of Ush232 billion ($65.9 million) generated from trading of new Umeme shares.
The issuing of additional Umeme shares on the two bourses raised $96 million in 2014 compared with $69 million mobilised from the power distributor’s initial public offering in 2012, reducing Actis’s shareholding in the company from 62 per cent to 16 per cent.
Scarcity of new corporate finance transactions evidenced at the local bourse last year similarly affected overall turnover, with no IPOs, rights issues or bonus issues witnessed on the stockmarket.
New corporate finance transactions often attract new investors, steer interest on selected counters and generate considerable trading volumes and turnover after fresh shares are floated on the market, financial analysts.
Diminished turnover levels recorded at the bourse could signal weaker earnings for several stockbrokers, the USE and the Capital Markets Authority (CMA) for 2015 under a commission-based model that determines income flows in terms of scale.
This model directly yields higher incomes against bigger turnover under booming market conditions and lower incomes at reduced turnover levels.
Gross market commission amounts to 2.1 per cent of the value of each trade, with 1.7 per cent earned by stockbrokers while the USE and CMA earn 0.14 per cent each.
The Investor Compensation Fund earns a commission of 0.02 per cent from each stock traded while the Central Depository System transaction levy stands at 0.08 per cent, and Guarantee Fund earns a commission of 0.02 per cent from each stock traded.
Though some stockbrokers are contemplating product diversification in response to depleted income flows, the market focus has somewhat shifted towards transaction prospects for this year.
“Stockbrokers need to diversify their income base in order to protect their bottom line under hostile market conditions. For example, we have been marketing our government securities retail investment account for the past three years after securing approval from the central bank, and client funds mobilised so far have accumulated to nearly Ush1 billion ($284,341).”
“Though no new corporate finance transactions were registered last year, prospects of a rights issue being planned on one of the counters could boost the market,” said Joseph Kibuuka, equity financing manager at Crested Capital Ltd.