Kenya has suspended a plan to cross-list its $2 billion Eurobond on the Nairobi Securities Exchange until foreign investors are allowed to trade in shares and bonds directly without intervention by local stockbrokers.
The EastAfrican has learnt that despite introducing a trading platform for foreign-currency-denominated bonds, the Nairobi bourse has not implemented key reforms necessary for the cross-listing of the sovereign bond, which is currently trading on the Irish Stock Exchange (ISE).
Government sources said cross-listing the sovereign bond has been put on hold until capital markets regulators implement changes that will give international investors direct access to the NSE’s automated trading system.
Currently, buyers have to contact stockbrokers to give their buy/sell orders, a process that is time-consuming, inefficient, less than transparent, costly and prone to errors associated with manual entries by stockbrokers.
Under the Direct Market Access (DMA) facility, investors will place their buy/sell orders directly with the NSE’s trading system using the stockbrokers’ infrastructure.
The ISE said cross-listing of the bond is a matter to do with the Kenyan government (issuer) and the NSE.
“The issuer would need to meet the rules of the NSE, which is separate from our own listing process, so it is a matter for the NSE,” said Byrne Ailish, head of public affairs and communications at ISE.
CMA chief executive Paul Muthaura and NSE boss Geoffrey Odundo declined to comment on the matter.
“Talk to NSE, they are the ones implementing these reforms,” said Mr Muthaura.
“I’ll get back to you,” said Mr Odundo.
The proposed innovation, however, spells trouble for stockbrokers, whose commissions are likely to shrink as fund managers sitting abroad place orders to buy or sell shares and bonds directly on the exchange’s trading system.
Brokerage commissions on equity stands at 1.76 per cent for transactions valued up to Ksh100,000 ($1,000) and 1.5 per cent for transactions above Ksh100,000.
The aggregate commissions stock transactions valued below Ksh100,000 ($696.88) is 2.1 per cent, compared with Rwanda’s 1.71 per cent, Tanzania’s 2 per cent and Uganda’s 2.1 per cent.
Kenya had planned to cross-list its Eurobond to allow more Kenyans to have access to the debt instrument.
DMA will give institutional clients and foreign investors direct control over their orders, resulting in faster execution of transactions.
Kenya is struggling to sharpen its competitive edge as a regional investment hub in order to boost inflows of foreign capital.
Sources at the Capital Markets Authority said a policy framework to oversee the DMA of foreign investors to Kenya’s securities markets has been developed and is awaiting approval by the board.
“The plan is to start allowing foreign institutional investors such as JP Morgan to start trading on the local stockmarket through an infrastructure provided by a local broker with a global network,” said a source.
Treasury Cabinet Secretary Henry Rotich had not responded to our calls and text messages by press time.
Kenya issued a sovereign bond of $2 billion in June 2014 to enhance its capacity for a faster rollout of public investments in infrastructure.