Different platforms dog EA’s cross-listing efforts

Friday December 14 2012


East Africa’s stock exchanges are yet to harmonise cross-border trading platforms, making it difficult for interested investors in listed companies to buy and sell shares.

The stock markets in the region continue to record low cross-border trade since the process of buying and selling in different markets is still bureaucratic and tedious.

Analysts believe the process will remain cumbersome until the electronic trading platform is harmonised among the five member states.

For instance, only two Kenyan companies are listed on the Rwanda Stock Exchange – Kenya Commercial Bank (KCB) and Nation Media Group (NMG).

“Apart from harmonisation of rules, the major challenge is the settlement mechanisms where, for instance, if you bought shares from the Nairobi Securities Exchange you should be able to sell on the Rwandan market easily. But that is not the case at the moment,” said Robert Mathu, executive director of the Rwanda Capital Markets Authority (CMA).

Experts have voiced concerns over delays in settlement of transactions, which takes days varying from country to country, causing losses for both the buyer and the seller.

The RSE was established two years ago, making it one of the smallest and youngest in the region and therefore in need of incentives to attract more investments and companies to list.

KCB, for example, is not selling much on the RSE. Although the bank’s share price has almost doubled, from Ksh16 to Ksh30, in the past 11 months, it is yet to attract the desired interest in the local market.

“The lack of a harmonised electronic settlement system, coupled with fluctuating prices, puts the traders on the regional stock markets at risk and it is the reason we don’t have many Kenyan companies on the Rwanda Stock Exchange,” said Bob Karina of Kenya’s Faida Investment Bank.

However, Mr Mathu said there is a regionalisation project – called the infrastructure project – going on where stock exchanges are talking to each other to harmonise the electronic trading. The project is being co-ordinated by the East African Securities Exchanges Association (EASEA).

Mr Karina added that the differences in the regional stock markets are noticeable in immobilised securities, where certificates that were hitherto used by traders have been deposited in the central depository in electronic form in countries such as Kenya.

Lingering certificates

“In Kenya, the certificates have been discarded, so if you want to sell shares in Uganda, for instance, you have to convert the electronic form into certificates because Uganda still uses them,” said Mr Karina. “Prices change every day, leading to losses.”

The RSE has two domestic companies listed – Bralirwa, the country’s largest beer and soft drinks manufacturer, and Bank of Kigali. The stock exchange also trades five government bonds floated by the central bank of Rwanda and one corporate bond by Commercial Bank of Rwanda (BCR).

In the four years, the government bonds have raised Rwf30 billion while the BCR corporate bond raised Rwf1 billion. The four outstanding government bonds are worth Rwf10 billion.

The lack of products on the Rwandan market is still a major challenge, with government shelving plans to float the shares it owned in companies such as Sonarwa, one of the biggest insurance companies, after giving MTN Group priority to buy its minority stake in its Rwandan subsidiary, which the former took up. It however recently sold its 51 per cent stake in cement maker Cimerwa to a South African firm.

James Ndahiro, the CMA board chairman, however maintains that the government is still committed to selling its shares at the stock market.

“The firms and companies which the government had lined up to sell its stake of are still there but it is not a question of coming to list immediately,” said Mr Ndahiro. “They require preparations in terms of management and other requirements.”