Kenya has moved to abolish restrictions on foreign shareholding in listed companies as competition for capital inflows heats up among Africa’s top capital markets.
With this move, Kenya joins several African countries where foreign investors are allowed 100 per cent ownership of a listed firm.
The move comes just a year after Tanzania lifted a 60 per cent restriction on foreign ownership of listed companies to total control — a move that saw inflows into the Dar es Salaam Stock Exchange increase by 40 per cent.
In Rwanda, Uganda and Egypt, investors can own as many shares in listed companies as they can buy. Similarly, South Africa has no restrictions on foreign acquisition of shares on the Johannesburg Stock Exchange, but certain industries, including banking, insurance and broadcasting have specific statutory restrictions on the percentage of holdings that a foreign shareholder can hold.
In Nigeria, foreign investors can own up to 100 per cent of the equity of a limited liability company. However, companies in the oil and gas sectors, a minimum of 51 per cent of the shareholding must be held by Nigerians.
The decision by Kenya is in line with its efforts to transform Nairobi into an international financial hub that will attract foreign firms and allow access to international capital for mega infrastructure projects in transport and energy sectors.
The amendment to the Capital Markets (Foreign Investors) Regulations through a June 11 gazette notice abolishes the 75 per cent threshold of foreign ownership in listed companies. However, the Cabinet Secretary for the National Treasury may prescribe the maximum foreign holding in an issuer or listed company that is considered of “strategic interest.”
“The removal of restrictions on foreign shareholding in our market is one of the key recommendations of our capital markets master-plan, which is meant to address the challenge of liquidity in the market. Because of the uncertainty relating to foreign shareholding, it meant that certain transactions could not occur,” Paul Muthaura, CMA’s acting chief executive, told The EastAfrican.
In a July 31 circular, the Nairobi Securities Exchange instructed stockbrokers to notify the market regulators prior to placing orders that could result in an increase in the foreign holding beyond 75 per cent of the total issued capital of a listed company.
“The CMA will then seek guidance from the National Treasury on a case-by-case basis and advise the trading participants accordingly,” said Geoffrey Odundo, NSE chief executive.
Official data from the Capital Markets Authority shows that NSE recorded a 64 per cent increase in net foreign outflows during the first six months of the year in the face of a weakening currency, high interest rates and soaring inflation.
Foreign investors were net sellers during the period, disposing of company shares worth Ksh447 million ($4.26 million) in June compared with Ksh273 million ($2.6 million) in January.
Overall, foreign share-sale increased to Ksh18.1 billion ($172.87 million) from Ksh4.67 billion ($44.6 million) compared with foreign purchases, which increased to Ksh17.65 billion ($168.57 million) from Ksh4.4 billion ($42.02 million) over the period.
The share of foreign investors on the Kenyan bourse has also been in decline, falling from from 29.8 per cent in 2004 to to 15.77 per cent at the end of June. East African institutional investors, on the other hand, grew to 73.17 per cent from 47.4 per cent while East African individual investors fell to 11.06 per cent from 22.8 per cent in the same period.
“Kenya is opening up to global best practices, which will help in the international rating of its stockmarket. Currently, foreign investors are looking to allocate funds to exchanges in emerging markets that have been accorded higher ratings by Morgan Stanley Capital International [MSCI] indexes,” said Amish Gupta, director-in-charge of investment banking at Standard Investment Bank (SIB).
It is argued that within the medium term, Kenya’s ranking will be elevated from frontier market to emerging market status, as classified by the globally recognised MSCI.
This rating will unlock additional capital flows and investment finance for the Kenyan market.
“Opening up the 75 per cent threshold will spur international capital flows into Kenya and enhance NSE’s position on the world map,” said Mr Gupta.
Kenya is seeking to actively promote its attractiveness as an investment destination for financial services and as a capital markets gateway to East and Central Africa that fully interconnected with other international financial centres.
Last year, when Tanzania lifted restrictions on foreigners owning more than 60 per cent of companies listed on the DSE, the move opened up the shareholding of some of the country’s biggest and profitable firms to non-Tanzanians, resulting in increased foreign inflows and earning DSE the best performing bourse in Africa vote from reporting firms Bloomberg, Global Business Outlook Survey and Thomson-Reuters.
DSE’s market capitalisation grew by 40 per cent to $12.04 billion with the total number of listed companies increasing to 22. Its local companies index climbed 27 per cent, the highest growth on the continent.
The Egyptian Stock Exchange came in second with its main index achieving a 31.6 per cent increase while the Uganda Securities Exchange emerged third with a jump of 26.5 per cent. The NSE, which emerged fourth, registered a drop, emerging at 19.2 per cent.
Previously, Tanzania only permitted investors from within the EAC to acquire up to 40 per cent of offered government securities while individual countries were not allowed to purchase more than two-thirds of the 40 per cent quota.