Archive for the 'IPO' Category

Nairobi Securities Exchange plans to offer 38% of shares in June IPO

nairobisecuritiesexchange_NSE21

The Nairobi Securities Exchange (www.nse.co.ke) is pushing ahead fast with its demutualization plans and will sell up to a 38% stake in an initial public offering (IPO) in June. According to a report on Reuters, NSE chief executive Peter Mwangi said the NSE will offer up to 81 million shares, subject to regulatory approval.
The offer price will be set by the IPO advisors closer to the offer date. The bourse will use the funds for new products and enhance transparency.
Reuters quoted Mwangi saying: “We want to list through an IPO on the main market. We need to open this listing before 30 June. That conversion from a private to a public company will position us to be a very effective player.”
“We are playing in a sweet spot where the frontier funds think Africa is rising. East Africa is a hot spot on the African map and we are the gateway into that east African region.”

Soaring profits, new products
The NSE’s pretax profit more than doubled to KES 379m shillings last year from 2012. It has been lifted by a surge in trading turnover after the 4 Mar 2013 presidential election went peacefully. The dynamic Nairobi exchange is a mutual company owned by its stockbrokers, and demutualization is the process converting into a private for-profit company, as reported on this blog. The ordinary shares have a nominal (par) value of KES 4 shillings ($0.05) each.
Kenya’s Capital Markets Authority is reviewing the exchange’s advanced plans to offer currency and interest-rates futures and options. The NSE futures market will offer standardized contracts for currency futures that will be traded. Mwangi said: “We are seeing more and more international investors who might want to invest in Kenya and they might want to hedge the currency risk.” Local banks offer foreign-exchange forward contracts, which are negotiated directly with buyers, but they cannot be traded.
Mwangi added that part of the funds raised in the IPO will be used to bankroll new products such as derivatives, exchange-traded funds (ETFs) and Sharia-compliant indexes. The NSE has already led the way with a number of FTSE-branded index products and is working with the CMA and CDSC to introduce a real estate investment trust (REIT) market in Kenya and trading platform and a futures and commodities exchange.

Diversifying income
The 60-year-old Nairobi stock exchange has been diversifying through new sources of revenue including sales of publications, provision of services through the Broker Back Office (BBO) and data-vending. It bought a prime commercial property in Nairobi’s Westlands area to tap into rental income, according to a report in Standard Digital.
The region is enjoying many benefits from increasing regional integration under the East African Community (EAC). The Nairobi bourse is a key player in the East African Securities Exchange Association (EASEA), which aims to standardize regulations and operations within the region to make cross-border investing easier. Members are the Dar es Salaam Stock Exchange (DSE), the Rwanda Stock Exchange (RSE), the Uganda Securities Exchange (USE), and the Central Depository and Settlement Corporation (CDSC). It also has a memorandum of understanding with the Somalia Stock Exchange Investment Corporation (SSE) under which it will have primary responsibility for the technical development of the Somalia Stock Exchange including identifying the most suitable partners and expertise.
Regional integration has also boosted expansion among listed firms and investor confidence after the discovery large quantities of gas and oil across several east African countries. There are many cross listing between the exchanges.
Mwangi said they wanted to attract more listings on the NSE’s Growth Enterprise Market (GEMS) which is aimed at small firms wishing to list their shares. There is only one listing, property developer Home Afrika so far. The NSE hopes to attract more listings through easier listing terms such as allowing business owners to offer a minimum of 15% if the shares in the market. Mwangi told family business owners who may be reluctant to lose control: “With 85% you have effective control of your company but you enjoy all the advantages of being listed. We are in a sense offering the best of both worlds.”
The NSE is a key member of the African Securities Exchanges Association and an affiliate member of the World Federation of Exchanges (WFE) and intends to become a full member.

Nairobi Securities Exchange scores megaprofits and heads for own IPO and listing


The Nairobi Securities Exchange (www.nse.co.ke) celebrated its 60th annual general meeting by taking key decisions to advance its demutualization into the final stages. It also made record profits for the financial year to 31 Dec 2013 and paid its first dividend to shareholders.
NSE Chairman Eddy Njoroge was one of the directors re-elected at the 60th annual general meeting of the exchange, held last week. He thanked the NSE shareholders for passing key resolutions and said the demutualization process is nearly finished with the next step the NSE doing an initial public offer (IPO) and then listing its shares for trading on itself. According to a press release, he noted that the Board had appointed Transaction Advisors who are currently working towards the Self-Listing of the Exchange through an IPO on the Main Investment Market Segment (MIMS) of the NSE, before the end of June 2014: “The Capital Markets Authority has received our final application, and we expect formal approval to be granted by the regulator shortly. This will open the door to the long-anticipated self-listing.
“The NSE’s impending demutualization will provide further impetus for the exchange to support the attainment of Vision 2030, further positioning our capital markets as the hub for East and Central Africa. The NSE IPO will enable a wide cross-section of Kenyans to both own a piece of the exchange and to share in the future financial success of this company with a very rich national heritage”.
The NSE had total income of KES 622.7 million ($7.2m), up 62% from the previous year’s KES 384.3m. Net profit soared 210% to KES 263m, up from KES84.8m and the highest in the bourse’s 60-year history. The total value of trading in equities was up 79% to KES 155.8 billion ($1.8bn) from KES86.8 billion and market capitalization was up 50% to KES 1.9 trillion ($22.6bn). The AGM resolved to pay a first dividend of KES 2 per share.
According to another press release, Chief Executive Peter Mwangi said: “Our strong financial performance in 2013 was a result of the very strong market performance and the efforts of management to diversify revenue streams from the traditional sources of transaction levy and annual listing”.

Demutualization – the resolutions
Demutualization is the process through which an exchange stops being a mutual company, often a company limited by guarantee, with the stockbrokers and other stakeholders as members. Instead it turns into a for-profit limited company with shareholders. This can help with management and with capital raising to invest in new technology. The first demutualization was Stockholm Stock Exchange in 1993 and since then most top world exchanges have followed. Some observers ask if for-profit exchanges really work in issuers’ and investors’ interest.
Special resolutions passed at the Nairobi SE AGM were:
1. Subject to approval by the CMA, the share capital is increased from KES 25m (25m x ordinary shares of KES 1 each) to KES 850m by creating 825m new shares which rank pari passu
2. After this, the new 850m shares should be consolidated into 212.5m ordinary shares of KES 4 each.
3. Subject to approval by Registrar of Companies and CMA, the company shall be turned from a private into a public company and new articles of association be adopted, signed and registered.
4. Subject to approval where applicable, part of the credit on the company’s revenue reserve be capitalized value KES 490m to pay in full and at par for 122.5m ordinary shares of KES 4 each. These would be issued as fully paid among the registered shareholders of the company
5. Up to 2.5m ordinary shares of KES 4 each would be offered for subscription to employees of the company.
6. Subject to approval by relevant authorities, up to 212.5m ordinary shares be approved for listing on MIMS. Up to 81.375m ordinary shares should be offered for subscription by the public, and the company will issue a prospectus.

EFG Hermes says 3 IPOs coming to Egyptian Exchange this year

pic: Tom Minney

pic: Tom Minney


Three new initial public offer (IPO) share flotations with a total value of over $300 million are planned for the Egyptian Exchange (EGX) this year, says Egypt’s largest investment bank. According to a story on Reuters, these would be the first listings on the Cairo bourse since the revolution, the last IPO was in 2010.
The Egyptian Exchange has been booming in recent months, after suffering in the political turmoil since Mubarak’s fall in 2011.
Reuters reports that Karim Awad, co-CEO of EFG Hermes, told financial newspaper Al-Mal that Egypt’s Arabian Cement Company would be one of the listings but did not name the other two. Awad told Reuters by email: “The IPOs will hopefully happen this year. The exact timing in the year will be agreed with the companies who are undertaking the IPOs and considering the state of the financial markets.”
Egyptian stock market investors have chosen to ignore increasing violence and repression and are focusing instead on the ongoing national economic and political stabilization, particularly since the 14 Jan referendum approving a new constitution and cleared the way for presidential and parliamentary elections. The main EGX 30 Price Return index of the Egyptian stock exchange is up over 45% since the army ousted Islamist President Mohamed Mursi in July 2013, after mass protests against his rule.
As reported here, Egypt’s financial regulator the Egyptian Financial Supervisory Authority (EFSA) will implement new regulations for companies listed on the bourse from tomorrow (1 Feb), which could help boost liquidity and attract listings and further investment.
On 28 Jan, Finance Minister Ahmed Galal said details of its second stimulus package since Mursi’s ousting would be announced within days. The aim is to boost growth and investment, which had slowed dramatically. Government had done a first stimulus package of EGP30 billion ($4.3bn) last year and promised a second of the same size this month. Gulf countries have pledged more than $12bn in aid since Mursi was overthrown and Galal has said that EGP20bn would go on public investment and the rest would create a new public-sector minimum wage.
Before the 2011 revolution, Egypt was attracting around $8bn a year of foreign direct investment (FDI) but that shrank to $4bn in the year to June 2012 and $3bn to June 2013. Investment Minister Osama Saleh said this week they expect to beat the target of $4bn in FDI by June 2014.
Here is last week’s Economist article on Egypt.

Tunis Stock Exchange IPO is largest listing

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The listing of Société d’Articles Hygiéniques (SAH), on the Tunis Stock Exchange yesterday (9 Jan) after a private placement and an oversubscribed initial public offer (IPO) is the largest listing on the Tunis bourse (Bourse de Tunis), with the company valued at TND 270.5 million ($163.5m). It is a successful exit for leading African private equity firm Emerging Capital Partners which scored a cash multiple of 2.4x on exiting the investment.

The private placement for 90% of the shares attracted 85 local and international investors, signalling a return by international investors to the Tunisian capital market. The public offer in the Tunisian IPO was over-subscribed 22.1 times, according to a press release. Adel Grar, Chairman of the Tunisian Brokerage House Association, said: “The IPO of SAH is a milestone.. it demonstrates the ability for a local or foreign investor to exit through the Tunis Stock Exchange.”

SAH (www.lilasbebe.com.tn) is Tunisia’s leading manufacturer of feminine and baby hygiene products and operates under the “Lilas” brand. ECP has invested since 2008 and, according to the announcement, “has supported SAH as it increased its customer base to 17 countries across North and sub-Saharan Africa, created subsidiaries in Algeria and Libya, and developed a paper mill factory in Tunisia.” Products include baby diapers, feminine-care pads, disposable diapers, bathroom and facial tissues, kitchen towels, hand towels and tissue wipes.

“Over the last 2 years, SAH has grown at 17% per year, despite a difficult economic climate – testament to its focus on product innovation, diversification and locally produced, high quality offerings. SAH’s sales are expected to exceed TND 200m ($120m) in 2013 and the company currently employs over 2,000 people.” According to a 2011 profile in The Africa Report, also on the ECP website , SAH was founded in 1995 by wife and husband team Jalila Mezni and Mounir el Jaiez.

The sale was of 14,176,590 shares, representing 48.99% of the capital at listing and the fixed offer price of TND 9.35 per share.

Nayel Georges Vidal, Director in the Tunis office at ECP, said in the press release: “Under the guidance of Ms Jalila Mezni, the company has worked hard to more than double its performance over the last 5 years. With ECP’s support, SAH has expanded its production capacity, brought new products to market, expanded beyond Tunisia, and built a strong customer brand – all made possible by its employees’ dedication to improving its systems, governance and product range. We firmly believe that SAH will continue to create further value for its shareholders – which include many foreign investors showing renewed interest in the Tunisian stock market.”

Private equity firm ECP was founded in 2000 and has raised more than US$2bn for growth capital investing in Africa. It was one of the first firms dedicated to Africa and has investments in more than 50 African companies through 7 funds. It boasts “more people on the ground than any other firm” with more than 70% of its investment professionals, who hail from 12 African countries, in 7 local offices.

Its private equity investments include financial services, telecommunications, retail and consumer, natural resources, agriculture and infrastructure in over 40 African countries. In 2013 Africa AM magazine was awarded ECP as “PE Fund of the Year”. Private Equity Africa awarded it for mid-cap “PE Deal of the Year” as reported here, for investment in casual dining chain, Nairobi Java House.

Regulators discuss East African bookbuilding and stockbroker licences

The regional forum, the East African Securities Regulatory Authorities (EASRA), is seeking to create a harmonized licensing framework for the region for brokers and dealers, and has also approved draft regulations on book-building for adoption by its members. The draft book-building regulations are to be shared with stakeholders in the member States and their views will be brought to the next EASRA meeting.
Book-building is a process of determining the price at which an initial public offering will be offered. The book is filled with the prices that investors indicate they are willing to pay per share, and when the book is closed, the issue price is determined by an underwriter by analyzing these values.
According to news reports, Joseph Katto, chairman EASRA and CEO of Capital Markets Authority – Uganda, said that book-building can be an effective mechanism for price discovery and demand assessment if regulations are clear and enshrine transparency, The draft regulations would ensure a level playing field for various investor categories.
EASRA also approved a proposal to establish a harmonized licensing requirement framework for stock-brokers and dealers. The proposed framework will guide the drafting of harmonized regulations for licensing within the region.
The decisions were taken during the 37th Consultative meeting held in Kampala, Uganda on 5 April.
EASRA members are also seeking ways to facilitate joint inspection programmes and investigations where two or more member states agree. This would boost cross-border surveillance for market participants who operate across the region..
The meeting was chaired by Katto and was attended by Mrs Nasama Massinda (CEO, Capital Markets and Securities Authority Tanzania), Paul Muthaura (CMA-Kenya), Robert Mathu (CEO CMA-Rwanda), Joseph Bahizi (Representative of Central Bank of Burundi), members of the EASRA technical committees and other Committee members.
EASRA was set up in terms of a memorandum of understanding between the CMAs of Kenya and Uganda, and CMSA Tanzania. They adopted a common blue print on the integration of the East African Capital Markets in 1997. CMA Rwanda later joined and Central Bank of Burundi in 2011.

Umeme power company IPO share offer: UPDATE AND CORRECTION

CORRECTION AND UPDATE – APOLOGIES FOR ERRORS IN PREVIOUS VERSION
The Initial Public Offer by power company Umeme (www.umeme.co.ug) in Uganda closed on 7 November. Results will be known before the listing scheduled for 30 November, but the company had sought to raise UGX171 billion ($65.8 million) by offering 622m shares in an offer that opened on 15 October. Meanwhile, Ugandan parliamentarians have called for a statement by the Finance Minister Maria Kiwanuka, according to a press report on the Observer website, with inquiries into tax and accounting for assets. Some MPs are calling for the listing to be delayed for fuller study of an energy sector report.

As the offer was closing, a report in The Independent cited corporate advisor William Nyakatura of African Alliance Brokers, said there has been a big turn up of applications from around the region. Umeme Managing Director Charles Chapman said that the portion of the IPO reserved for international share investors was sold up by the end of October, and where the company collected US$31million: “In the retail category, we received strong participation from the rural areas and Kampala and other urban areas.” Chapman also said that the offer has received significant participation from the regional market, especially Kenya, where the offer is made to institutional investors. Stanbic Bank and African Alliance were sponsors.

Ugandan investors had been offered the Eyongeza incentive scheme offering a bonus share for every 10 shares they bought, and all customers of the distribution firm were invited to buy. A day before closing it was announced that the International Finance Corporation, a part of the World Bank group, would also buy shares in the IPO. The IFC first mentioned funding Umeme in 2009 on its website. Umeme staff have been given 10,000 shares each as a morale booster, according to local reports, with increases if they keep their shares for 3 years.

Umeme was 100% owned by private equity firm Actis since 2009 and is a regulated electricity distribution company in Uganda, supplying over 460,000 customers by the end of 2011, up from nearly 355,000 in 2009, according to our earlier story. They are mainly located in the semi-urban strip from Entebbe through Kampala to Jinja. In March 2005, Umeme was awarded a 20-year concession to manage and operate the assets of Uganda Electricity Distribution Company (UEDCL) as part of broader privatization of power in Uganda, including unbundling transmission, distribution and generation, and awarding concessions to operate existing generation plant. This article on The Observer website (www.observer.ug) gives background on some of the individuals and companies involved in the power sector in Uganda.

According to the Actis website: “Since Actis took over the ownership of Umeme following a privatisation process in 2005, the company went through a transformation phase, ramping up capital expenditure, improving the quality of management, formalising procedures, introducing a culture of safety throughout the organisation, and educating the population (mainly children) on the benefits and risks of electricity. By the end of 2010, Umeme had replaced over 120,000 rotten poles as part of its refurbishment programme. Safety is the top priority. The network restoration plans are on target and are due for completion by the end of 2012. Public, employee and contractor safety have improved, but public fatalities continue to occur, primarily because people come into contact with live conductors associated with pockets of the network yet to be refurbished. Umeme, guided by Actis, continues to make a significant effort to eradicate fatalities associated with its network. Much of this progress relies on an extensive school education programme, a 24-hour safety helpline, and the prompt response of the field teams on the ground – in the past it could take up to half a day to make the area around a fallen or unstable pole safe – now the average is 30 minutes. Uganda’s continued growth is pushing up demand for electricity: today approximately 7% of the population has access to electricity. And the proportion of population that has access is growing by 9% per year. Currently, the company connects more than 40,000 new customers every year.”

Uganda’s power distributor Umeme says it plans Nairobi and Uganda IPOs this year

Uganda’s only power distributor, Umeme, said it plans to raise capital to invest in Uganda’s electricity sector through an initial public offering (IPO) on the Ugandan and Nairobi securities exchanges later in 2012. Umeme is a distribution company and is 100% owned by private equity firm Actis, according to this report on Reuters.
The news came on 6 July at the switching of 5 turbines to add 50MW to the power grid as part of the $860 million Bujagali 250MW hydropower project, one of Africa’s largest power schemes. Umeme has a 20-year electricity distribution concession. Managing director Charles Chapman says the company has opted for the IPO as electricity is now available – Uganda had been suffering power cuts before Bujagali capacity was added – and there was agreement on regulatory targets.
The company would not say how much it hopes to raise and has not finalized plans for the IPO, but Reuters suggests it could be 20% of the shares. The report quotes Chapman: “The initial public offering (IPO) will support Umeme’s capital raising initiatives to finance the continued development of the electricity distribution network, including projects such as prepayment metering and energy loss reduction. We believe that Umeme will be stronger, more transparent and accountable with the input of our customers and employees as shareholders.”
He adds that customers are up to about 460,000 in 2011 from 354,839 in 2009. After power sector unbundling, power in Uganda is generated by the Uganda Electricity Generation Company and transmitted to Umeme by the Uganda Electricity Transmission Company.
According to this blog story, Umeme has already put in its application to the Capital Markets Authority in Uganda and has appointed Stanbic Bank (Uganda) as Transaction Advisor and African Alliance (Uganda) as Sponsoring Broker. Writer Angelo Izama comments: “The company is a safe investment given its monopoly and demand from customers. Many who worry about the risks it faces will look to political risk something to which we will return. Suffice to say that a great degree of the risk will likely be offset when the company lists given the divesting of its ownership to locals.”

JSE seeks more African equity listings in 2012, targets telecoms, mining and financials

The JSE Ltd (www.jse.co.za), South Africa’s securities exchange, is hoping to attract more listings from the rest of Africa in 2012 and to expand its range of products and services. This year should also see the JSE installing its equity trading system in Johannesburg, to avoid dependence on a transatlantic cable connecting it to the London Stock Exchange.
Nicky Newton-King, who took up her post as CEO last week after succeeding Russell Loubser and the first woman to hold the post, told Business Day newspaper the plan was to offer more access to African companies and products such as exchange-traded funds products that enable people to access new investments: “With the rules of inward listing being relaxed, we would also like to attract more inward listings.” Besides IPOs, Newton-King said she expected to see more types of products, such as depository receipts and derivatives linked to companies being offered.
The JSE is in “good conversation” with several companies elsewhere in Africa over more potential listings. Last November she told Reuters: “We’ve got good conversations going … particularly on the continent.” She said the bourse is targeting mining, telecommunications and financial services: “Our approach is to look at issuers that need capital — need investors where their home markets might be too small. So we’ve got a lot of different segments we are looking at, but we are looking at particular issuers rather than trying to speak to everyone.”
The JSE already has 14 African companies listed, with 4 different debt instruments and 1 African ETF. Last year Reuters highlighted that some growing African firms preferred other international exchanges, particularly the London Stock Exchange and its AIM market, over the JSE for raising capital and listings, as highlighted in stories on this website. The JSE seeks closer cooperation with other African exchanges as it competes with other world bourses: “Clearly we need to be trying to find a way to cooperate with African exchanges, with African issuers to bring more African product to the table here in SA, where we have a lot of international investors everyday.”
The JSE attracted a total of 16 listings last year, with a combined market capitalisation of more than R35 billion (US$4.3bn), according to data from the JSE’s director of issuer services, John Burke. There were also a number of initial public offerings from the property sector. About 15 companies de-listed last year and 21 were on the suspended list. The number of new IPOs worldwide is lower since the start of the global financial crisis. Newton-King said there is a pipeline for potential listings in 2012: “Definitely there’s a pipeline, there’s always a pipeline. We never talk about the number since how many companies actually list and when they list is very much dependent on the economic circumstances of the country and whether the companies themselves are ready to list.
“We are looking forward to being able to attract a wider range of companies and investment opportunities on the JSE.”
The plan is still to use the same computer provider, Sri Lanka’s Millennium IT which is a subsidiary of the LSE. In terms of a February 2011 press release, the JSE is to migrate to a new system Millennium Exchange™, which the LSE has also adopted, in the first half of 2012. Millennium IT systems are used on many African stock exchanges.
Newton-King told Business Day she hoped this will minimise the outages experienced last year, which were linked to technical issues on the transatlantic cable. The JSE halted trading on its equity markets at least twice last year, which led to the exchange attracting criticism from trading houses, which often spoke anonymously to the media.
She said: “We are critically dependent on information technology (IT) and invest heavily in IT to ensure it is robust and able to handle increased volumes as the JSE grows. Our equity systems are run in London and there’s been some trading outages in the lines between us and London…. We are bringing the systems back to avoid that. We will continue to look at whether our technology is robust enough to withstand volumes.”
She did not give much information on rumours that the JSE is talking with SA Treasury on starting a trading market for carbon credits but said the JSE was looking at the possibility and how it would work with others.
Of the type of environment that she envisions at the JSE, Ms Newton-King says: “In 2012 I would like the JSE to be recognised as a place of excellence, a place where SA’s top talent would come and work, where our clients recognise that we provide products and services that are valuable to them.”
Her former post as deputy CEO no longer exists and duties that fell to her are being given to other people so that they can also grow.

East African investors opening accounts at Nairobi Stock Exchange

Although the number of investors from other East African countries opening trading accounts at Kenya’s Nairobi Stock Exchange (www.nse.co.ke) is still very small, it is growing more consistently in the last 2 years than other categories of investors. According to data to 30 Sept released by Kenya’s Capital Market Authority (www.cma.or.ke), East African individual investors opened 97 securities accounts at Kenya’s Central Depository and Settlement Corporation (www.cdsckenya.com). This compares to 92 accounts opened in the full year 2010 and 79 in 2009.
By comparison Kenyan individual investors only opened 27,669 accounts in the 9 months to September 2011, compared to 120,756 accounts opened in 2010 and 52,836 in 2009. Kenyan equity trading has remained subdued as investors say high interest rates make them choose government debt securities over equities.
One potential reason for the East African interest, according to an article in the East African , is that Ugandans are opening trading accounts at the NSE in anticipation of the IPO of electricity distributor Umeme (www.umeme.co.ug) scheduled for 2012. Umeme is expected to cross-list at the NSE and the Ugandan Securities Exchange (www.use.or.ug). Some investors open multiple accounts ahead of a potentially “hot” initial public offering (IPO) of shares, where they hope to sell their initial allocation quickly and make a quick profit, as this is likely to maximise their share of allocation if the IPO is oversubscribed.
Trading experience shows that cross-listed East African shares such as Centum, Kenya Airways, Jubilee Insurance, trade more on the NSE compared with the Dar es Salaam Stock Exchange (www.dse.co.tz) and USE. The increased liquidity in Nairobi means that East Africans are better off having a trading account at the NSE. The paper comments that Rwandans, Tanzanians and Ugandans are probably realising this fact and also taking positions ahead of the listing of some of their firms on the NSE by opening more CDS accounts in Nairobi: “Investors will go the extra mile to open and operate, as proxies, CDS accounts in the names of their relatives or friends who know nothing on trading in shares. Expect an influx of Rwandese, Tanzanians and Ugandans at the NSE in 2012.”

Mobius remains bullish on Nairobi Securities Exchange, says FT

Mark Mobius, the veteran emerging markets investor and head of Templeton Emerging Markets (www.franklintempleton.com), is bullish about the Nairobi Securities Exchange (www.nse.co.ke), although it is the worst-performing stock market in sub-Saharan Africa this year, according to an article on 27 October in the UK’s Financial Times.
According to the article, by Katrina Manson: “A long-term investor, Mr Mobius makes his money from yo-yoing frontier markets. Kenya’s has see-sawed between losses of 41.4% after post-election violence in 2008 to best sub-Saharan performer excluding South Africa last year, with a rise of 28.3%. Domestic investors tend to have both less money and less time to play with.” She also cites Aly-Khan Satchu, chief executive of Rich Management (www.rich.co.ke), a Kenyan financial services firm as saying the 2011 collapse is a “rout”. Domestic confidence is low, including among many of the 800,000 people who invested into Safaricom’s 532% subscribed IPO (KSh5 in the 2008 IPO, KSh3.05 at present).
Kenya has seen currency weakness, foreign capital flight, high inflation (it was 17% in September) and drought. The NSE has seen big cuts in volumes and much less participation by foreigners, who used to dominate trading, partly because of a global flight from risky assets. Share price indices have slid, losing the strong gains of 2010. Local investors see better gains from bonds, real estate and family firms.
The IPO of British American Investment Company Kenya only achieved 60% of its target (as reported on this website) and Kenya Airways seems to be holding back a share offer in which it wanted to raise $250 million for expansion. According to the article, Satchu said: “You can’t be issuing IPOs that flunk at the first hurdle. There has not been a successful IPO since Safaricom and that has impaired the stock market. They need a flagship discounted offer and will languish until they do it. Right now, the government couldn’t raise tuppence.”
The also article quotes Stella Kilonzo, head of the Capital Markets Authority (www.cma.or.ke), as blaming the stressed economy. She says there have been 3 years of reforms to boost disclosure and set more stringent requirements and these will eventually pay off. This year the NSE was renamed a “securities” rather than “stock” exchange in anticipation of a new bond index, futures and derivatives trading, exchange-traded funds and a new small and medium sized business index among others. If these come into operation, diversification could help the market.
There is still a cloud over the bourse from a scandal after stockbroking firms collapsed owing their clients money, some after allegedly trading their clients’ money illegally. No-one has yet gone to prison although court cases continue, and not everyone has been compensated, partly because the compensation fund does not have enough resources. Ms Kilonzo says regulation is now tighter.
Reportedly, a court case against the CMA by a collapsed brokerage firm that has been under statutory management since 2007 last month halted a plan to demutualize the NSE, including selling part of it and listing its shares on the Nairobi bourse. According to some analysts, demutualisation could help clean up the market by separating stockbrokers from the exchange’s owners.
Sentiment may be changing, after the Central Bank of Kenya (www.centralbank.go.ke) moved aggressively to push up interest rates by 4 percentage points this month, which may stabilize the currency and bring back investors. Good rains and strong investment in infrastructure could fund growth in 2012, although worries remain about elections.
Manson quotes Mobius: “People are fearful of coming in, so whoever goes there makes a bundle. We may go and buy more at a cheaper price.” The Frontier Markets Fund is invested in Kenya Airways and Safaricom.