By JAMES ANYANZWA

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Listed companies in East Africa have not been keen to cross-list on the regional markets, because of exchange rate risks and low volumes of trading in shares.

While cross-listing shares improves a firm’s visibility and enlarges its investor base, low or no trading on their counters have left companies hesitant to issue shares in new markets.

The lack of activity in cross-listed firms’ shares has been blamed largely on the failure by the issuing companies themselves to increase their free float (shares available for trading), the incompatibility of trading and settlement systems in the region, a lack of investor awareness, exchange rate risks and differing trading regulations among the East African Community partner states.

Pierre Celestin Rwabukumba, chief executive of the Rwanda Securities Exchange, told The EastAfrican that there is a need for investor education on cross-listed companies “because one of the major problems with cross-listed stocks is lack of investor awareness.”

Regional integration

Mr Rwabukumba said cross-listing of company shares is important for regional integration but the decision to pursue this lies purely with the individual companies.

“Cross-listing of shares is something we shall push for as an exchange, but these decisions concern the companies themselves, since they come with additional costs as well as advantages,” Mr Rwabukumba added.

Geoffrey Odundo, chief executive of the Nairobi Securities Exchange, says cross-listed stocks are facing challenges because the companies have failed to increase the volume of free float shares in the new markets they have cross-listed on.

“One of the initiatives to make the market for cross-listed stocks more liquid is to encourage companies take free float to the market. That is the direction we are taking,” said Mr Odundo.

“There is no free float in the secondary market of cross-listed stocks. That is the current situation,” he added.

Analysts, however, say that companies no longer see value in cross-listing their shares and that they would rather concentrate on building their brands and improving the liquidity of their stocks in the respective markets.

“Many companies do not see the benefit of cross-listing and are instead concentrating on improving their brand presence and the liquidity of their stocks in their respective capital markets,” said Daniel Kuyoh, an analyst at Alpha Africa Asset Managers.

Illiquidity

According to James Wangunyu, chief executive of Kenya’s Standard Investment Bank, the illiquidity of cross-listed stocks is a major concern to issuers, largely due to the incompatibility of trading systems in the region, lengthy settlement processes and investor fears of incurring losses linked to exchange risks.

“There are so many regulations in each of the markets that need to be harmonised. Another issue is that of exchange-rate risks, since investors have to be paid in the local currencies of the countries in which the shares have been cross-listed,” said Wangunyu.

In 2016, Kenya’s investment firm Centum shelved plans to cross-list its shares on the RSE and the Dar es Salaam Stock Exchange, citing lack of liquidity in its cross-listed shares in Uganda as a result of a difficult and lengthy settlement process.

“We have put those cross-listing plans on hold at the moment. When you look at the trading of our shares in Uganda, it is still very low while the purpose of cross-listing was to ensure that more East African citizens participate and trade in the shares,” the company’s chief executive James Mworia said.

While several Kenyan companies have cross-listed their stocks on the Ugandan, Tanzanian and Rwandan markets, the NSE has not benefited from reciprocal listings.

Last year, Rwanda’s Bank of Kigali became the second firm in the region to cross-list its shares on the NSE, after Uganda’s utility firm Umeme, which cross-listed in 2012.

Bourse linkage project

The EastAfrican understands that some exchanges in the region are uncomfortable with allowing their companies to cross-list on the NSE for fear of losing liquidity.

It is argued that integrating the central depository systems of the region’s bourses would hasten trade in cross-listed shares and boost liquidity.

The EAC member states are working on a project to harmonise the electronic settlement systems of four stock exchanges — the NSE, the DSE, the USE and the RSE — to ensure that EAC citizens buy and sell shares listed on those exchanges from their own respective countries.

The project involves linking the clearing and settlements systems of the EAC stockmarkets through an information technology platform called Smart Order Routing System.

The initiative is funded by the World Bank as part of efforts to support the establishment of a single financial market among the five EAC member states.

The system will link the trading platforms of the four bourses enable them to operate as a single market.

The system will allow investors to buy and sell shares of companies located in different EAC countries without necessarily moving from country to country.

Companies whose stocks are currently cross-listed in East Africa include East African Breweries Ltd, Equity Bank, Centum Investments, Kenya Airways, Jubilee Holdings Ltd, Umeme Ltd, KCB, Nation Media Group, Bank of Kigali and Uchumi Supermarkets.