Kenya’s Capital Markets Authority (CMA) is seeking to introduce electronic initial public offerings (e-IPOs) as part of efforts to attract listings, even as it goes for company chiefs of firms delisted or suspended from the stockmarket in a new drive to clean up the image of securities governance.
The market regulator, through the “Draft Capital Markets (Public Offers & Listing of Securities) Regulations, 2022,” says it is reviewing the rules governing IPOs and operations of listed firms which have partly been blamed for the country’s IPO drought.
The review aims at attracting more firms and investors to the Nairobi Securities Exchange (NSE) that is largely operating at the mercy of foreign investors and five big firms, posing huge concentration risk.
According to the draft regulations; companies, directors and officer of suspended or delisted companies shall be held accountable for the troubles of their firms and the suspension or delisting shall not terminate any ongoing proceedings against them.
Companies seeking to delist their stock must provide an exit offer to the minority shareholders and holders of any other classes of listed securities to be delisted to ensure that investors who purchased and held securities on the basis of the listing are not prejudiced by being compelled to hold unlisted securities.
“The exit offer must be fair and reasonable and include a cash alternative as the default alternative and the issuer must appoint an independent transaction advisor to advise on the exit offer and the independent transaction advisor must opine that the offer is fair and reasonable,” the draft regulations state.
According to the regulations financially troubled firms will be put on a watchlist and eventually pushed onto a recovery board before being suspended from trading and delisted.
“The issuer shall be given the right to be heard by the Authority and the Securities Exchange on which it is listed prior to being placed on the watch list,” according to the regulations.
Data shows that Safaricom, Equity Bank, KCB, East African Breweries Ltd and Co-operative Bank controlled over 87 percent of the entire market capitalisation during the three months period to March 31 this year with foreign investors commanding over 54 percent of market activity during the same period.
Secret to resilience
“This reflects the risk posed by increased capital outflows calling for the Kenyan industry to be more strategic in increasing the profile of domestic investors. This is what has enabled countries such as China and the US remain resilient over the years,” according to CMA.
The regulations also propose electronic IPOs where that will be conducted on 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, wholly or partially;
In 2019, the Central Bank said the main risks facing the Kenyan stockmarket included high concentration by top five companies and foreign investors, low liquidity, low products uptake, political and economic risks.
CBK through its Financial Stability Report (2019) also attributed the markets poor performance of the stockmarket to weak corporate governance in some listed companies that have been making losses, which were then delisted and/or placed under receivership.
In 2019, the top five firms by market capitalisation accounted for 70.9 percent compared with 65.8 percent in 2018 while foreign investors accounted for 68.6 percent of total equity turnover in 2019 up from 63.3 percent in 2018.
East African stock exchanges are racing towards establishing investment clinics to attract companies to the stockmarkets and end the IPO drought.
Last year, Dar es Salaam Stock Exchange joined the NSE and Rwanda Stock Exchange in implementing capacity building and training programmes for small and medium-sized enterprises with ambitions of raising capital from the stockmarket.
In August last year, the DSE launched and started implementing the DSE Enterprise Acceleration Program me (DEAP) dubbed ‘Endeleza Project’ aimed at, among other things, creating a database of potential issuance and listing entities where they will receive training on strategic planning, bookkeeping and accounting, administration, human resource as well as financial management
In October 2020, the RSE launched the Capital Market Investment Clinic to support the SMEs in their preparation for raising capital from the stockmarket.
In Kenya, the NSE in collaboration with the Kenya Association of Stockbrokers and Investments Banks launched a similar incubation programme dubbed ‘Ibuka’ in December 2018, seeking to prepare and convince potential issuers to raise capital through the exchange.