Kenya allows electronic IPOs to boost efficiency and confidence

Sunday March 24 2024

The Nairobi Securities Exchange (NSE) trading screen. PHOTO | DIANA NGILA | NMG


Kenya’s Capital Markets Authority has opened a window for new firms to list on the Nairobi Securities Exchange through an electronic process to reduce time and cost of initial public offerings (IPOs).

This is part of reforms that the markets regulator and other stakeholders are implementing to inject fresh interest in the bourse, which attracted a quick succession of listings during President Mwai Kibaki’s administration.

CMA through legal notice tightened the rules for electronic IPOs to ensure fair and equitable allocation of shares to investors and prevent recurrence of trading malpractices.

NSE Vice-Chairman Paul Mwai said the use of electronic processes in IPOs will hasten transactions, reduce costs and eliminate challenges related to refunds.

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“Electronic IPOs are more efficient. You know the IPO process is quite cumbersome — that is the reconciliation process and the refunds process and all those kinds of things. If this process can be automated, it becomes quite quicker and cleaner. It is very welcome.


It also gives you an opportunity, in some cases, what they do is you can actually do a first come, first served basis and help to eliminate the issues of refunds,” Mr Mwai said.

“But the problem is that not all Kenyan investors are tech-savvy, but they can be assisted in terms of the brokers and the agents can help them to put the electronic applications.”

Electronic IPOs give firms the opportunity to trade through the Internet or in other electronic or automated means or media, wholly or partially, where investors subscribe to the offer of securities by submitting applications electronically or the applications and allotments are processed and completed electronically.

Last year, Uganda became the first country in the East African region to conduct an electronic IPO through the offer of Airtel Uganda shares to the public.

This made it easier for foreign investors, including residents of other East African countries, to participate in the transaction.

In 2008, Kenya’s CMA allowed partial use of electronic means in the Safaricom IPO — only in the application process.

Through a gazette notice, CMA said firms seeking to offer shares in an electronic format will be required to ensure that the information memorandum is disclosed in the same form and content approved by the regulator.

Read: Regulator dangles electronic IPOs at Nairobi bourse

The results of the electronic offer will also be published in the same manner as the information memorandum.

“An issuer of securities shall establish and disclose in the information memorandum a fair and equitable allocation policy for the allocation of the securities in a public offer,” CMA said.

“An issuer of securities shall establish mechanisms for sensitisation of investors to invest in the issue of the issuer’s securities.” Issuers will also be required to notify the CMA and, where there is a listing, the NSE at least 24 hours before the publication of the result of the offer.

Beyond IPOs, automated processes have recently been applied in major transactions as companies and investors take advantage of technology to increase convenience and cut costs.

Investors, for instance, last year had the option of tendering their shares electronically to ICEA Lion Asset Management Ltd when it acquired 36.58 million shares of property fund Ilam Fahari I-Reit.

The property fund was recently delisted from the NSE’s Main Investment Market following the transaction.

Investors in East African Breweries Plc also had a similar option when they were selling 118.3 million shares in the brewer to Diageo Plc last year.