Kenya’s capital market regulators are pushing for policy and legislative reforms to break the dominance of big firms at the Nairobi Securities Exchange (NSE).
The bourse is largely controlled by five listed firms, with foreign investors controlling close to 60 percent of the activities.
Attempts to attract new listings through issuer engagements, introduction of new investment products and easing of listing requirements have failed to attract new companies to the exchange. It is feared that leaving activities on the stock market in the hands of a few companies and foreign investors exposes it to the risk of collapsing.
Central Bank of Kenya, in its annual supervision report dated September 2019 warned that leaving NSE in the hands of foreign investors and only five large firms exposes the stockmarket to risk of crashing in the event of domestic or foreign shocks.
According to CBK, the dominance of treasury bonds in the fixed income market has also made the market more vulnerable. Data from the Capital Markets Authority shows that foreign investor activity on the bourse increased during the three months to June 30 this year stood at 61.54 percent with a paltry five companies controlling 77.23 percent of the market.
The Capital Markets Authority (CMA) and the Nairobi Securities Exchange (NSE) are eyeing policy and legislative reforms, which could compel state-owned corporations to offload shares on the Nairobi bourse to the public.
According to CMA, the market concentration risk that the Kenyan capital markets continue to face remains a key policy discussion among regulators and parliament
“To minimise this risk, more strategic initiatives aimed at growing other sectors of the economy are needed to increase the range of sectors represented by listed firms at the bourse,” CMA said through its Capital Markets Soundness report for quarter two.
“The Authority, in the review of its Public Offers and Listing Regulations sought to provide favorable listing requirements to attract more companies to list.” According to CMA’s chief executive Wycliffe Shamiah, market concentration is a collective effort and a wider approach is required to break the big firm dominance.
“CMA is reviewing its legal frameworks to address gaps that we noted sometimes,” said Mr. Shamiah
According to the NSE chief executive Geoffrey Odundo, several initiatives are underway to address market concentration concerns. During the three months to June 2022 only 10 companies — Safaricom, Equity, KCB, EABL, Co-operative Bank, Absa Bank, Standard Chartered Bank Kenya, BAT Kenya, NCBA and Stanbic Bank) controlled 87.89 percent of the market value and 95.89 percent of the market in terms of turnover.