Archive for the 'Demutualization' Category

Dar Stock Exchange shares double on first day of listing in hectic trading

Trading has been fast and furious in the shares of Dar es Salaam Stock Exchange PLC, which self-listed at 9am on 12 July. The first day of trading saw the shares listed at TZS 500 each and soaring as high as TZS 1,000 after hitting TZS 800 in the first 20 minutes. They closed at TZS 935. Turnover was 201 deals out of all the 248 deals for the day, according to the DSE daily report and TZS 794.8 million ($363,750) worth of shares were traded (out of TZS 817.9m traded for all counters).
DSE continued scorching up its own trading boards today (13 July), climbing further to TZS 1,100 and then ending at TZS 1,000 in 289 deals (out of 356 total) for a total value traded of TZS 1.1 billion (out of daily traded value of TZS 1.25bn).
Huge interest had already been seen in the initial public offer (IPO) of shares which ran from 16 May and closed on 3 June. Total bids were TZS 35.8 billion ($16.4 million), or 4.8 times the offered amount of TZS 7.5bn ($3.4m). This follows its demutualization in 2015. The Capital Markets and Securities Authority (CMSA) approved that DSE could augment its “green shoe” option from 10% (i.e. TZS 750m) to 35% or TZS 2.6m). That means the DSE raised TZS 10.1m in total.
IPO applications for up to 10,000 shares (TZS 5m) got their application in full, the full 3% allocation was given to staff, and those who applied for more than 10,000 shares received shares pro rata and a refund.
Government is planning pressure to encourage more listings. Speaking at yesterday’s launch, Finance and Planning Minister Philip Mpango said Government would start with encouragement for privatized companies to list, but it could consider a new law and regulations: “If the mutual talks fail, then the Government will push them to offload some of their shares at the DSE” (as reported in Daily News).
Listed companies that were previous privatizations such as Tanzania Breweries, Tanzania Cigarette Company, National Microfinance Bank, CRDB Bank, Simba Cement, Twiga Cement and TOL Gases are among Tanzania’s 15 largest taxpayers and rated as top-quality employers. Mpango said listing would encourage transparency and good corporate governance, making tax administration easier while enabling citizens to participate in economic activities.

Minister of Finance and Planning Philip Mpango (source rai.co.tz)

Minister of Finance and Planning Philip Mpango (source rai.co.tz)


DSE CEO Moremi Marwa said more than 400 state-owned enterprises (SOEs) had been privatised in the last 20 years, but only 7 listed on the bourse: “It is advisable that future privatizations are conducted through the capital market.”
Nasama Massinda, CEO of CMSA, said they were very pleased by Government’s move to force telecom companies to list 25% of shares at the DSE. “We believe this is the right thing as we want Tanzanians to own shares of these companies… the trend is that some of the firms are allocating shares to one or two ‘mwananchi’. We want them to sell their shares to the public. And the good thing is that these shares are not given for free since local investors would buy them.” She added that the Mining Act also requires that mining firms with special mining licences should sell part of their shares to citizens through DSE.

Investors who want to buy or sell shares can contact the DSE stockbrokers (licensed dealing members) or trade on the DSE’s mobile phone trading platform by dialling *150*36# and selecting “DSE Shares” from the list.

daressalaamse_new logoJan2016

Dar es Salaam Stock Exchange IPO nearly 5x oversubscribed

Total bids for the initial public offer (IPO) of shares in the Dar es Salaam Stock Exchange PLC were TZS35.8 billion ($16.4 million). This is 4.8 times the offered amount of TZS7.5bn ($3.4m) in the IPO which ran from 16 May until 3 June. Next steps include the DSE to refund excess bids after exercising its “green shoe” option, which allows up to 10% extra, and then to self-list on 12 July on its own Main Investment Market Segment under the ticker “DSE”.
According to the DSE announcement: “The planned self-listing is in line with the global trend and practice for exchanges, and is aimed at achieving good corporate governance practices, efficiency and effectiveness of the DSE and further strengthen its strategic and operational practices.” The DSE said in its prospectus it planned to use IPO proceeds to enhance its core-operating system, introduce new products and services and for “strategic and operational purposes”.

Moremi Marwa of DSE and UK Secretary of State for International Development open trading on the London Stock Exchange. Credit: London Stock Exchange

2014: Moremi Marwa of DSE and UK Secretary of State for International Development open trading on the London Stock Exchange. Photo: London Stock Exchange


DSE management are doing an excellent job and there is great potential for the exchange to keep serving the supply of long-term risk capital to one of Africa’s fastest-growing economies. It is sticking closely to its offer timetable and has announced results on time on 16 June. Next is to credit accounts with shares at the central securities depository (CSD) on 24 June and process the refund cheques on 30 June before the self-listing and trading of fully-paid DSE shares on 12 July.
The receiving bank for the DSE offer, as with many Tanzanian IPOs, was local leader CRDB. The lead transaction manager is Orbit Securities Company Limited which said interest was very strong. During the IPO the shares could also be bought using Tanzania’s MAXMALIPO payment gateway or by dialling *150*36# on a Tanzanian mobile phone.
According to an earlier statement by CEO Moremi Marwa: “Over the past few years the DSE has achieved significant milestones, notably:
• Compounded annual growth rate of 110% since 2010 for market capitalization to TZS21trn by 30 March 2016
• Compounded annual growth rate of 56% since 2010 for liquidity to an aggregate average turnover of over TZS800bn per annum
• Introduction of the Enterprise Growth Market (EGM) segment and the increase of listings of both equity and bonds
• Introduction of mobile trading on the DSE trading, depository and settlement platform
• Increased financial independence sustainability and profitability.
As at 30 March 2016 the Exchange had 23 listed equities and 3 outstanding corporate bonds. There are also Government bonds, worth about TZS 4.6trn listed on the exchange, making the DSE the second largest exchange in the East African region.”
According to the prospectus, 3% of shares were reserved for DSE employees and 15% for a capital markets development fund.
Previously DSE was a mutual company limited by guarantee with no shareholders and no capital. The 20 institutions that acted as guarantors – including 8 of the 11 stockbroking firms currently trading – agreed to be issued with 1 share each with nominal value TZS400 by 29 June 2015. It was part of the process as the bourse restructured and changed from Dar es Salaam Stock Exchange Ltd to the Dar es Salaam Stock Exchange Public Ltd Company (Plc).
Among recent changes at the dynamic exchange are
• Migration to the new efficient automated trading system and central depository system (2013), supplied by South Africa’s STT (Securities and Trading Technology system)
• Reduction of settlement cycle from 5 days to 3 days for equities and 3 days to 1 day for bonds in line with international standards (2013)
• The Capital Markets & Securities Authority (CMSA) put in place the enabling regulatory framework and licensed the NOMADs to create a framework for a new Enterprise Growth Market segment of the DSE which was launched in 2013. Since the five companies have listed on the EGM
• Interlinking the exchange’s central depository system to the national payment system (2014)
• Deployment of ATS on the wide area network and start of remote trading by brokers (2014)
• Introduction of the regulatory framework and subsequent use of mobile phone technology in IPOs (equity and debt) and secondary trading (August 2015)
• Limits on foreign investment were recently lifted. There is also increasingly close cooperation in the exciting East African region, including installation of an interconnectivity hub for routing trading order between the exchanges.
New products which the CMSA and DSE are developing include real-estate investment trust (REIT), futures and derivatives, exchange-traded funds (ETFs), closed end collective investment schemes and municipal bonds.
Your author was honoured to be team leader of the CAPMEX/Wiener Börse AG team that wrote the demutualization strategy.

Source Dar es Salaam Stock Exchange

Source Dar es Salaam Stock Exchange

Dar es Salaam Stock Exchange readies for $3.4m IPO and self-listing

DSE launched the modern STT trading system in 2014

DSE launched the modern STT trading system in 2014


The Dar es Salaam Stock Exchange Plc will launch its initial public offer soon, after successfully completing the demutualization that transformed it into a shareholder owned for-profit company. According to a statement from the regulator, the Capital Markets and Securities Authority, the bourse can raise TZS 7.5 billion ($3.4 million) by issuing 15 million ordinary shares at TZS 500 each.
No more details have been released, including a date for the IPO.
A statement from the CMSA, reported in the Citizen news, says: “The IPO and subsequent self-listing of the DSE Plc is the culmination of the demutualisation process approved by the National Demutualisation Committee comprising members from key stakeholders of capital markets in Tanzania including the Ministry of Finance, Bank of Tanzania, Tanzania Stock Brokers Association, DSE Plc and the CMSA.”
There are 23 companies listed on the DSE, which has a Main Board and 4 companies listed on the Enterprise Growth Market, launched in 2013. Total market capitalization of the listed companies is TZS 22.4 trillion ($10.2 bn)
It is the third African exchange to go through the demutualization and self-listing process after the Johannesburg Stock Exchange and the Nairobi Securities Exchange. CMSA said successful completion of the IPO and listing will help boost the issued and paid-up share capital; the active shareholding; improved corporate governance structure of a public company limited by shares. It will also raise funds for the market to grow and expand including introducing new products and services.
daressalaamse_new logoJan2016
DISCLOSURE – your editor worked with CAPMEX agency from Vienna and other team members to create the demutualization strategy for DSE.

Dar es Salaam Stock Exchange aims for IPO and self listing Q1 2016

Dar es Salaam harbour (Credit: Tom Minney)

Dar es Salaam harbour (Credit: Tom Minney)

Tanzania’s Dar es Salaam Stock Exchange (DSE) aims for an initial public offer (IPO) of its shares within 6 months followed by listing itself on the exchange. It has published a call for lead transaction advisor, sponsoring stockbroker and other experts to express interest by 21 July.

CEO Moremi Marwa told Reuters on 1 July that the aim is to improve governance and raise funds for expansion: “We expect to pick a lead transaction adviser probably within a month and the whole process of launching the IPO should take around six months to be completed.” The quantity of shares to be sold will be decided later. Funds would be used for upgrading trading infrastructure, among others.

The African bourse has 21 listed companies and total market capitalization of TZS 23.9 trillion ($10.9 billion) at 30th June. This includes 14 domestic listed companies with market cap of TZS 9.9trn. It also has listed bonds (corporate and government) worth TZS 4trn. There is potential for more listings for companies to raise capital through equity or bonds, according to Reuters which notes that lending rates at banks can be 18%-30%. In 2014 Tanzania scrapped controls on foreign ownership of shares in an effort to stoke demand on the bourse. Bloomberg notes that in 2014 the index gained 64%, making the exchange Africa’s best performer.

According to Marwa’s quarterly statement liquidity in the second quarter was up to TZS 285bn from TZS 278bn in the first quarter, representing 9% liquidity ratio on an annualized basis: “During Q3, 2015, we expect at least three listings: Mwalimu Commercial Bank, PTA Bank (for corporate bonds) and YETU Microfinance.” He added that priorities include introducing mobile and Internet trading on the platform; encouraging more listings; public education and awareness; integrating and synchronizing the DSE’s central securities depository (CSD) with that of Bank of Tanzania for government bonds trading.

Dar es Salaam Stock Exchange Ltd was incorporated in 1996 as a mutual company limited by guarantee. According to the website it has recently changed into a public company limited by shares and is renamed Dar es Salaam Stock Exchange Public Limited Company.

According to the DSE website: “The objective of these changes is to enhance DSE’s operational, financial and governance structures and capabilities so as it can efficiently execute its mandates in line with DSE strategic objective: i.e. to be the focal point for long-term capital raising by private enterprises and public sector within the economy via provision of efficiency infrastructure, systems and listing platform for multi-financial products.

“The invitation is for Expression of Interest (EOI) by eligible firms to provide the following consultancy services:
1. Lead transaction advisor
2. Co-sponsoring stockbrokers
3. Legal advisor
4. Reporting accountant
5. Public relations firm
6. Lead receiving/collecting bank.

The Nairobi Securities Exchange has successfully sold 38% shares in a $7.1m IPO which was oversubscribed many times in August 2014, and it self-listed soon afterwards. South Africa’s JSE Ltd did the same in 2006.

Woes of Zimbabwe Stock Exchange

($ refers to USD)

The value of shares traded on the recently demutualized Zimbabwe Stock Exchange fell by 22.2% in the first quarter of 2015, compared to the same quarter last year. A story from The Herald newspaper said that turnover to 31 March was $70 million, down from $90 million in the first quarter of 2014. However, the volume of shares traded was up to 586 million from last year’s 306 million for the period.
Trading in January was $16m (down from $63m in 2014), in February $35m ($26m) and in March $19m ($27m). The share bought by foreigners was down to $41m ($64m) over the quarter.

Zimbabwe Stock Exchange liquidity to 30 April (source ZSE website)

Zimbabwe Stock Exchange liquidity to 30 April (source ZSE website)

Meanwhile the exchange seems to be hit by a series of controversies and several companies have delisted, or removed their shares from trading.
The exchange in March was reported in the Herald newspaper that “go-live” date would be 19 June for its new automated trading system, Capizar ATS trading software from Infotech Middle East FZ, part of Infotech Group of Pakistan. This was in terms of a contract signed in March 2014, as reported here last September. However there has been little news of progress and the project missed previous deadlines, including for February.
There has also been criticism of the ZSE’s relocation to Ballantyne Park, a suburb 8.5km from the central business district effective 1 April before the automated trading system was ready. The new office has a smaller trading area. The Herald newspaper reported that parliamentarians and lobby groups had protested and Chairman of the Parliamentary Portfolio Committee on Budget and Finance David Chapfika said that relocating the exchange to Ballantyne Park will mean that small players will be excluded. ZSE interim chairperson Mrs Eve Gadzikwa said the move was necessary because of high rentals.

SECZ investigates ZSE CEO
In February the Herald newspaper reported that the Securities and Exchanges Commission of Zimbabwe (SECZ) was investigating ZSE CEO Alban Chirume after complaints over the suspension of Meikles (see below). He is said to have acted unprocedurally when he suspended Meikles and then unprofessionally when the decision was reversed. There were also complaints after he placed a notice in a newspaper urging investors to exercise caution when dealing with the shares.
If SECZ finds against him, he could be suspended or fired, according to the Herald report. Past CEO Emmanuel Munyukwi, who had been in post for many years, was suspended after an SECZ investigation and subsequently left the ZSE “on mutual agreement”.
According to the Herald: “Away from the Meikles issue, Mr Chirume has faced criticism over the purchase of a residential building in Ballantyne Park, the overshooting of the budget in the purchase of a vehicle and the numerous instances he has undermined the ZSE board and stockbrokers.”
An amendment in 2013 to Zimbabwe’s Securities Act gives the SECZ the power to dissolve the board of a registered securities exchange or dismiss one or more of its members, but only on certain grounds, and subject to appeal. If it dissolves a whole board it can appoint someone to run the exchange but only until a new board is elected in accordance with the articles of association, which should be within 3 months.

Delistings
Paint and chemical products manufacturer, Astra Industries, was the latest to leave at the close of business on 30 April after majority shareholders Kansai Plascon Africa (listed in Tokyo) and Hermistar investment vehicle for Astra management and staff increased their combined holding to 80.2%, breaching the rule of 30% free float, and applied to the ZSE to leave. Regional manufacturer ART Corporation may follow after buying out minorities.
Other recent delistings include TA Holdings and ABC Holdings in February. According to an article in Financial Gazette, 16 companies have delisted since 2007 when the hard currency (USD) economy was adopted – 8 of these chose to delist, and 8 were insolvent. Such is the turmoil in the Zimbabwe economy that many other companies are probably insolvent but it has not been announced yet as local manufacturers with high hard-currency costs and ancient machines cannot compete with imported goods. Meanwhile, another 4 companies are suspended: PG Industries, Cottco (formerly AICO Holdings), Phoenix and Celsy.
The article warns that more delistings are due this year, including Meikles (see below), Dawn Properties, African Sun. It says that companies do not see the benefit in being listed (see bottom of article). They cannot raise money successfully on the bourse due to the liquidity squeeze and shares being listed at a small fraction of their true value, unless money comes from foreign investors, who usually prefer to buy out minorities and delist. The peak had been over 80 listings.
The only new listing was in 2010 when Innscor Africa’s unbundled Padenga Securities and listed it through dividend in specie. The ZSE did particularly better than most parts of the economy during the years of hyperinflation as desperate investors turned to properties, equities or foreign currencies. It slowed dramatically after allowing trading in foreign currencies.
Creating a second-tier exchange for small companies is unlikely to have an overall positive effect on liquidity or the market.

Meikles row
A leading hotel group, Meikles Limited, is suing the ZSE for $50m in damages and is also warning that it may not remain listed. According to a Reuters report in March, Meikles filed papers on 26 February at the High Court, after its shares were suspended from trading for a week in February and then allowed again from 23 February. Meikles said its share price had fallen and its reputation suffered and it is seeking compensation for “potentially irreparable” consequences of its suspension. The ZSE also issued a warning that people should use caution when trading the shares.
Meikles also operates retail including supermarket chain TM Supermarkets (South Africa’s Pick’n’Pay has 49%), Tanganda Tea, the Victoria Falls Hotel and has a stake in Cape Grace Hotel in Cape Town.

New governance?

Meanwhile ZSE governance could change dramatically after the demutualization was completed recently, as reported last week. Some market participants were said to be surprised when stockbrokers ended up with a 68% majority of the company, after Government took 32%. There had been some suggestions of ownership wrangles.
This could mean that stockbrokers can hold a General Meeting and replace directors or otherwise take action on how the company is managed.

Why the stockmarket does not help business
(quoted from Financial Gazette)
Horticultural concern, Interfresh, which delisted on the last day of trading in 2013, highlighted the problems with being listed.
Chief executive officer, Lishon Chipango, said: “At the moment for us there is not too much (gains from listing). If you look at the contextual framework of the stock market, one of the benefits of being listed is to raise capital, but if you raise capital when the shares are so depressed, you are not going to raise that much. So the issue of benefiting if listed maybe down the road. (I) would not be surprised if others followed (us by delisting).
“The other aspect is there is no money in Zimbabwe. All the capital being raised is external. For us, it is not attractive,” Chipango said.
He then mourned over the discounted rate at which the company’s shares were trading.
“The rights issue to raise the US three million dollars (in 2012) caused a dilution of 75 percent because we used stock market valuations. Now if at that time we had raised money using Net Asset Value instead of stock market valuation, the dilution would have been 15 percent. You see why we are running away from the stock market? We are running away from the stock market valuation,” said Chipango.

zimbabwese50502_tradingboard

Zimbabwe SE aims to issue 50% shares following demutualization

The Zimbabwe Stock Exchange completed its demutualization last month (March) and is now a fully fledged private company. It plans to issue up to 50% of its shares to new shareholders, according to reports.
Company registration was completed earlier in the month and Finance Minister Patrick Chinamasa issued share certificates at a ceremony on 26 March. According to a report by Xinhua news, the Minister said demutualization transformed the bourse from a statutory body into a viable public company: “The main crux of demutualization is separating ownership of the exchange from management in line with internationally accepted code of corporate governance. The process will see the exchange being transformed from its current not for profit status to a profit making organization.” Demutualization progress is not mentioned on the ZSE website.

Previous trading floor at the Zimbabwe SE (photo from www.4vf.net)

Previous trading floor at the Zimbabwe SE (photo from www.4vf.net)


The shareholding is now 32% Government and 68% stockbrokers, split equally among the holders of proprietary rights. According to an earlier report in The Herald, ZSE has 48 stockbroker members.
A planned future step is to raise new capital so that the exchange would ultimately be owned 16% by Government, 34% by stockbrokers and 50% by new shareholders.
Demutualization is the process through which an exchange converts from a non-profit mutual association, often a company limited by guarantee, into a for-profit company which follows the usual structure of shareholder ownership. It is meant to result in separation of trading rights, ownership and management. The shareholders are expected to convene a meeting to appoint a board of directors. In terms of usual corporate governance, the ZSE CEO would report to the Board of Directors in terms of performance and meeting objectives. The exchange can also list on its own trading boards and become a public company.
According to The Herald, corporatization is also needed for the ZSE to register as a stock exchange with the Securities and Exchange Commission, as required by the Securities and Exchanges Act.
The demutualization process began last year and in July 2014 a Memorandum of Understanding (MoU) was signed by the Ministry of Finance and Economic Development, the Securities and Exchange Commission, the Zimbabwe Stock Exchange and the Stockbrokers, according to a notice issued last year by SECZim.
Market capitalization was $4.07 billion with 59 companies listed and 37 trades during the course of yesterday (28 April).

History since 1896
The first stock exchange in Zimbabwe opened in Bulawayo in 1896 but only lasted 6 years and other exchanges were set up in Gweru and Mutare, according to the ZSE website. Dealing started again in a new exchange in Bulawayo in 1946 and a second floor was opened in Harare (then Salisbury) in 1951. The ZSE was formed as mutual society by a group of stockbrokers who put capital in return for shares of the exchange (proprietary rights). The exchange was funded through the issue of these proprietary rights. SECZim added last year “and over time non-member institutions also funded the exchange, including the Government which also contributed indirectly by way of corporate tax exemptions”.
The present exchange was created in terms of the ZSE Act which was passed in January 1974, although trading was not interrupted and the change was legal only. A Securities Act of 2004 replaced the ZSE Act and became operational in September 2008. The Securities Commission of Zimbabwe became operational in October 2008 and is regulator, governed by commissioners appointed by the Minister of Finance.
According to the SEC: “The major benefit of demutualization is that it leads to the separation of the ownership, trading rights and management of ZSE, which eliminates the conflict of interest between exchange and broker members. If successfully implemented, demutualization should indeed lead to sustainable governance of the exchange premised on transparent, independent and efficient decision making for the benefit of all stakeholders, particularly investors.”

Meet the new CEO of Uganda Securities Exchange

Paul Bwiso, the former general general manager of stockbroker Dyer and Blair Investment Bank of Uganda, has big plans as new CEO of the Uganda Securities Exchange. His challenges include a challenger exchange, plans to win more listings, more automation, hopes to demutualize the exchange.

Low liquidity in the Ugandan capital market has not deterred a rival exchange, ALTX Uganda, which is currently testing and plans start trading from 1 May. ALTX was founded by Joseph Kitamirike, a previous CEO of the USE. Last month ALTX announced backing from GMEX Group which is offering an “exchange in a box” hosted trading solution and has backing from Deutsche Börse AG and Forum Trading Solutions Limited through its investment vehicle.

Paul Bwiso, the new USE chief executive officer. Photo by Mark Keith Muhumuza

Paul Bwiso, the new USE chief executive officer. Photo by Mark Keith Muhumuza

According to a recent interview in Uganda’s Daily Monitor newspaper, Bwiso, who has been on the exchange’s governing council, says: “My plan is to correct the way we have been doing things… We know the problem with the way things have been done. We shall review some of regulations in order to open up the market.”

He is confident on ALTX: “They were only putting us on the edge but I believe we are in a stronger position.”

He admits the market has struggled to attract listings while Ugandan companies are also seeking to raise money: “We’ll have to sell the potential of the main market segment, growth enterprise market segment and corporate bonds. In about 18 months, if we can fix the system here, then I see about 7 listings,” he said.

Market capitalization on the USE was UGX 28.6 trillion ($9.8 billion) including dual-listed stocks, according to today’s (12 March) market report. A recent news report put the value of 8 local stocks at $1.27bn, dominated by Stanbic Bank Uganda with $600m of market capitalization (measured by number of shares multiplied by closing share price). Power distributor Umeme attracted a lot of interest when it came to the market in November 2012 and since then the share price is up from UGX340 to UGX500 today.

So far only 40,000 Ugandans have registered as shareholders, according to the 2014/15 national budget speech, out of a population of 37.6 million. Liquidity both to invest and to exit have been some of the major worries.

It took the USE governing council more than a year to find the right successor to Kitamirike, according to the report.

Nigeria’s SEC asks for comments on exchange demutualization

CEO Oscar Onyema shows top managers of NASDAQ OMX the NSE trading floor. (Credit: businessdayonline)

CEO Oscar Onyema shows top managers of NASDAQ OMX the NSE trading floor. (Credit: businessdayonline)

Nigeria’s Securities and Exchange Commission has published rules on demutualization of securities exchanges on 20 February and this week is the end of the 2-week deadline for comments from stakeholders in the capital markets.
The Nigerian Stock Exchange (NSE) has decided to demutualize, by agreement of the Council and members. However, it had not been able to go ahead because there were no SEC rules on demutualization. According to this press report in This Day newspaper, the announcement comes 3 years after an SEC committee had submitted its report.
Demutualization is a process in which a member-owned exchange, sometimes a company limited by guarantee, is turned into a normal company with shareholders and investors. Usually it is a for-profit company and it can even list on its own exchange, with good examples set by the Johannesburg and Nairobi securities exchanges.
The proposed draft rules and regulations suggest “no single entity/person or related entities/persons should be permitted to own, directly or indirectly, more than 5% of the equity and/or voting rights in the demutualized securities exchange. The aggregate equity interests of members of any specific stakeholder group (for example, brokers and broker/dealers) in the demutualized securities exchange should not exceed 40%.”
Trading participants who are shareholders need to reduce their cumulative holding in the exchange to not more than 10% within 5 years of demutualization.
“Strategic investors” can get equity if they provide evidence of technical expertise through managing other exchanges. “The aggregate number of shares to be offered to the Strategic Investors shall not be more than 30% of issued and fully paid up capital of the securities exchange. However, if the exchange is in dire need of funds, it could issue a higher number of shares subject to approval of the Commission.”
The Board of Directors of the demutualized exchange should be up to 13 members with at least a third are independent, non-executive directors and all board and executive management appointments must be approved by the SEC. The exchange must comply in all other respects with the SEC Code of Corporate Governance for public companies.

Nairobi Securities Exchange CEO Peter Mwangi moves to Old Mutual Kenya

The well-respected CEO of the Nairobi Securities Exchange (www.nse.co.ke), Peter Mwangi, is to take up a new job as Group CEO at financial services company Old Mutual Kenya with effect from 1 October. Mr Mwangi has served at the NSE since 24 November 2008 and his contract was renewed in 2011 but according to regulations a CEO of an exchange can only serve 2 terms.

Mr Mwangi and his top team have made huge progress in boosting the activity and standing of the NSE. Kenya’s Standard reports that major strategic projects implemented while he was CEO include:

  • Trading treasury bonds on the automated trading system,
  • Reducing the trading and settlement cycle to four days
  • Demutualizing the exchange and selling its shares to the public.

Local press reports that in a statement sent to newsrooms Mr Mwangi says he expects the bourse to build on the foundations it set to be one of the most efficient and well capitalized exchanges on the continent.

Old Mutual continues in expansionary form in Africa, and an analyst reports: “Old Mutual has been accelerating its growth agenda within the African continent, expanding its footprint both organically and inorganically and Mr. Mwangi’ s appointment comes at an exciting time for the Group as whole as he will be in charge of spearheading Old Mutual agenda in this region. In 2013, the Group announced that it plans to invest $500M in East and West Africa, and we have already seen this as the Group has established operations in Nigeria and Ghana. In Kenya, the Group acquired Faulu Kenya which is in the process of been integrated in Old Mutual’s operating model.”

Tavaziva Madzinga, Old Mutual Africa Chief Operations Officer, was quoted on CapitalFM: “With the Group’s focus on growing in East Africa, and Kenya in particular, Mwangi will guide the delivery of Old Mutual’s commitment to provide affordable insurance and banking solutions to millions of Kenyans.”

Peter Muthoka, Chairman of the Board of Directors of Old Mutual was reported as saying: “The importance of our customer cannot be emphasised enough. We are dedicated to our vision of becoming our customers’ most trusted financial partner and we look forward to working closely with Mr Mwangi in serving Kenyans to empower them financially to achieve their goals.”

According to his profile on Businessweek: Before joining the NSE Mr Mwangi had been CEO and Managing Director of Centum Investment Company, (formerly, ICDC Investment Company until it changed its name in 2008) from December 2004 to October 15, 2008. He had joined been company secretary from 2000 to 2004 and has also been Investment Manager. His working career began as a Technical Officer in the Kenya Air Force, where he was involved in the maintenance of avionic communication systems and the development of the Air Force’s information and communication technology (ICT) strategy.

His degree is BSc in Electronic Engineering from University of Nairobi. He is also a Member of Certified Public Accountant of Kenya (ICPAK) and the Institute of Certified Public Secretaries of Kenya (ICPSK) and is a Chartered Financial Analyst.

He serves as a Director of UAP Insurance Sudan Ltd., Kisii Bottlers Limited, Mount Kenya Bottlers Limited, Rift Valley Bottlers Limited, Eveready Batteries Limited, KWAL Holdings Limited and Central Depository & Settlement Corporation Limited. He serves as a Director of Nairobi Stock Exchange Ltd., and Wildlife Works Inc. He is also a member of the Institute of Directors (IOD).

Peter Mwangi

Peter Mwangi

Nairobi Securities Exchange IPO closes 12 Aug

Significant dates
24 July – IPO opens
12 Aug – IPO closes
4 Sept – Share allotment announcement
9 Sept – Self-listing ceremony
nairobisecuritiesexchange_NSE21

The Initial Public Offering (IPO) of the Nairobi Securities Exchange Limited (www.nse.co.ke) is open until 12 August. The NSE is seeking to raise KES 627 million ($7.14m) by selling up to 66,000,000 new shares (some 31% of the equity) at a price of KES 9.50 per share. The offer is open to domestic and international investors.
The IPO will culminate on 9 September with the self listing of the NSE on the Main Investment Market Segment (MIMS), making it Africa’s second security exchange after the Johannesburg Stock Exchange (www.jse.co.za) to demutualize and list itself.
Mr. Henry Rotich, Cabinet Secretary for the National Treasury, said during the IPO launch ceremony on 23 July (see press releases here): “One of the key objectives of the Capital Markets Master Plan is to build on recent market reforms to address regulatory and institutional constraints in order to strengthen market infrastructure, intermediation, oversight and governance standards. The demutualization and self-listing of the NSE form part of the government’s policies to enhance governance standards and facilitate access to our markets by a wider community of investors. “
Mr. Edward Njoroge, NSE Chairman, said: “The success of our country and the region will be mirrored both in our market and our company, the NSE. We urge all Kenyans, and other investors both far and wide, to embrace this offer with the confidence that Kenya’s growth and future success will, in many ways, be accelerated through the development of our capital markets.”
The minimum number of shares available for purchase is 500 at a cost of KES 4,750.00 (approximately $54). Thereafter purchases are in multiples of 100 shares.
The NSE is celebrating its 60th anniversary and the demutualization and share offer have taken 5 years until the Capital Markets Authority approved all in June.

Is the NSE IPO a bargain? Analysis by Ryan Hoover

Ryan Hoover of the excellent Investing in Africa blog (www.investinginafrica.net) has published his analysis of the NSE IPO here, it is well worth reading. He looks at the NSE income and expenses in the prospectus, and shows that transaction levies (fixed at 0.24% of total trade value, i.e. 0.12% on each side) are the main source of income, earning the NSE KES 405m in 2013. He breaks down the baseline earnings to come with an after-tax figure of KES 0.80 per share, giving the offer a price/ earnings (P/E) ratio of 11.8x.
Since Kenyan bonds currently yield around 11% he looks at future earnings, noting that trading volumes are up 37% in the first half of 2014. Using a forecast growth in earnings per share of 20% he believes the shares could be worth KES 19.90 in 2019 at a P/E ratio of 10x (the JSE is on P/E of 16x) and adding in dividends at KES 0.25 per year (the current level adjusted for the IPO) he sees the potential annual return at 17.4%.
Check out his excellent blog, also for the discussion following the article, which points out that the offer is likely to be over-subscribed.