Archive for the 'Demutualization' Category

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

The Initial Public Offering (IPO) of the Nairobi Securities Exchange Limited ( 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 ( 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 ( 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.

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


The Nairobi Securities Exchange ( 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 ( 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.

Nigerian Stock Exchange seeks advisors for demutualization


The Nigerian Stock Exchange (NSE) is looking for external advisers to drive its demutualization process, according to an interview on Bloomberg with Oscar Onyema, exchange CEO. The securities exchange is currently a private company limited by guarantee under an Act of Parliament, owned by its members who are stock brokers and ordinary members.

A report in report in a Nigeria’s Vanguard newspaper, Onyema had said earlier this month that a technical committee had put forward plans for demutualization but the NSE management has not yet reviewed it, before checking any legal issues and submitting to the Securities and Exchange Commission of Nigeria (SEC) for approval.

Many stock exchanges were formed as associations of their stockbroking members and other stakeholders. “Demutualization” is the process through which the exchange becomes a for-profit company and it usually separates ownership of the exchange from stockbrokers’ licences to trade. It helps the exchange raise capital and encourages it to be competitive and, in cases such as London and Johannesburg, the stock exchange itself becomes a listed entity on its own exchange. The likely adviser for a large and successful exchange such as NSE would be an investment bank.

The NSE website says it was founded in 1960 and is a registered company limited by guarantee, licensed under the Investments and Securities Act (ISA) and regulated by the SEC. It is an automated exchange and provides listing and trading services, as well as electronic clearing, settlement and delivery (CSD) services through Central Securities Clearing System (CSCS) Plc., an associate company to The NSE, which also offers custodian services. The NSE offers securities listing and trading, dissemination of market data, market indices and more.

According to the Vanguard report, in 2008 there was a previous bid to demutualise the NSE but this was put on hold in 2009 as the members could not agree. In November 2012, SEC Director General Arunma Oteh was reported as saying the SEC was also working towards demutualization of the NSE: “The committee on demutualization has finished its work and we are currently working on the frame work and guideline that will be put in place. Once we are through, the Commission will announce it. Demutualization will ensure owners of the Exchange get real value of their entity.”

For further background and legal issues around the process and highlighting suspicion between stockbrokers and the SEC, here is a report by Oluwatoba Oguntuase for Business Day online last August, which also highlights some issues in the company and other regulatory framework. Here is the report on the SEC website from 1 March 2012 when the SEC technical committee submitted its 2-volume report. The Chairman of the SEC Nigeria, Senator Udoma Udo Udoma, said: “To sustain this improved governance, it is important that we ensure that the Exchange is demutualised by a process that is fair and open, transparent and credible.”

Nigerian stockmarket prospects
According to the Bloomberg interview, the NSE hopes to boost its market capitalization to $1 trillion by 2016 from the current $84 billion estimated by Bloomberg. This makes it second-ranked after South Africa’s JSE Ltd. Onyema said the Nigerian exchange intends to list global depository receipts (GDRs) this year and the bourse has identified some20 companies which domestic investors would like to trade.

Blooomberg also reports Onyema was also reporting as warning that Nigeria’s general elections, due 2015, and further tapering of the US quantitative easing programme by the US Federal Reserve might make global institutional investors more cautious, after a year of high performance in which the NSE returned 44.6% to USD investors, close to the top among Africa’s high-performing stock exchanges (see report). He said: “The uncertainty around the election presents challenges for us. International portfolio managers will be more discerning” and “we continue to brainstorm how to manage that risk”. However, with a booming economy and great growth prospects “We believe Nigeria continues to remain a very strong investment destination when you look at frontier markets.”

Zimbabwe Stock Exchange set to pay off its suspended CEO

According to news reports, the Board of the Zimbabwe Stock Exchange is close to negotiating an exit package with CEO Emmanuel Munyukwi, who was suspended in May. Board chairperson Eve Gadzikwa was reported by The Independent’s businessdigest that the board was in the process of concluding negotiations and an announcement is due in the coming week. ZSE operations executive Martin Matanda is acting chief executive.
Munyukwi has been CEO since 2001 but has been a key manager of the ZSE before that and was a valued colleague when this correspondent was running the Namibian Stock Exchange before 2000. The businessdigest suggests that although Munyukwi had been suspended on charges of alleged incompetence, currently the Board was negotiating an exit package with him and a figure of US$1 million was mentioned. Tony Barfoot, the previous CEO of the ZSE, was reportedly removed as consultant in April 2012, according to a report in Newsday.
There is no news on who will be the new head of the ZSE. It is possible that a potential candidate will be sought among Zimbabweans with experience of working in an automated and advanced securities exchange.
The Securities and Exchange Commission of Zimbabwe is reportedly working with the ZSE, introducing a central securities depository and electronic trading, with plans to automate the ZSE by March 2013, according to the news reports. One report says that SECZ has contracted a private company to develop a framework for establishing an electronic securities trading platform. State-owned ZB Financial Holdings has 13% of the CSD, National Social Security Authority 13% and Infrastructure Development Bank of Zimbabwe 10%, according to a shareholding agreement. The Expression of Interest tender for the CSD was published in 2010.
SECZ is also working with the ZSE on demutualization, although the ZSE is a private company more structural transformation may be possible. The tender for the advisory work on “ZSE Privatization” had a closing date of either March or September 2012, but the bidder was supposed to find their own funding for the work.
The Securities Act was amended in August 2012 to make SECZ more effective, extend its powers and give more protection to investors. This requires all securities exchanges in Zimbabwe to be companies, not mutual associations or other corporate bodies. There is a single Investor Protection Fund and the SECZ takes over regulation of asset managers and managers of collective investment schemes from the Reserve Bank of Zimbabwe. The CEO of the SECZ is Tafadzwa Chinamo.
Listings Executive Lina Mushanguri also told businessdigest that the ZSE is drafting a framework to set up a board for small and medium enterprises as part of the ZSE, which she said they would call it the “SMEs Stock Exchange”. This will have adjusted rules and regulations. The newspaper reports that income for the ZSE “last year” was $1.6m and expenses were $1.0 million, giving a surplus of $612,947. The ZSE website has been inoperative for many months and the ZSE annual report is not available online.
By 2 November the ZSE market capitalization had climbed back to $4 billion, after being below this for more than a year. It reached a high of nearly $4.3 billion in May-June 2011. Foreign investors contributed 80% of turnover in October, according to a report in the Standard newspaper.

Nigeria’s SEC pushes for privatization listings, stockbroker consolidation and NSE demutualization

Nigeria’s Securities and Exchange Commission ( hopes to boost liquidity on the Nigerian Stock Exchange ( by getting previously privatized enterprises to list their shares. Arunma Oteh, Director General of the SEC, also said that demutualization of the NSE is on track, according to a report in the local Vanguard newspaper, and the commission is still working on the framework and guideline to before the exercise starts.
Oteh said the SEC is to meet the Bureau of Public Enterprises (BPE): “The Commission will be working with the BPE to ensure that already privatized entities before now are listed on the NSE based on the agreement they had with the Bureau. For instance Eleme Petrochemical, one of the companies previously privatized, is doing well and the portion of government shares could be listed on the exchange to allow the indigenes own stake and participate in the fortune of the entity.” She said recently privatized power sector companies could boost the volume and value of transactions by listing on the NSE.
She also praised efforts by the NSE to attract more companies to list: “This is the reason why the Commission approved the multiple listing requirements recommended by the NSE. This has not been in existence before now.”

Demutualization is a process for turning an exchange from a mutual association, usually owned by stockbrokers and other stakeholders, into a for-profit company. It can split ownership from licences to trade and in some cases, such as London and Johannesburg, the stock exchange itself becomes a listed entity. Ms Oteh said: “The committee on demutualization has finished its work and we are currently working on the frame work and guideline that will be put in place. Once we are through, the Commission will announce it. Demutualization will ensure owners of the Exchange get real value of their entity.”
She also said the SEC is working with the Association of Stock-broking Houses of Nigeria (ASHON) to consolidate stockbrokers and a committee on market development is still working to find ways to address minimum capital requirements, upgrading technology, and capacity-building, among others. She said a new guideline is expected from the National Pension Commission ( which will further boost activities in the market.

Electronic trading and central securities depository coming for Zimbabwe?

A company has been engaged to supervise the transition of the Zimbabwe Stock Exchange to electronic trading. A document on the change has been presented to Cabinet and issues around setting up a Central Securities Depository including the shareholding structure. According to a report in the Government’s Herald newspaper, Finance Minister Tendai Biti told a breakfast meeting organized by the Securities and Exchange Commission of Zimbabwe and the ZSE that the CSD could be in place by year-end.
The aim is to improve stakeholder relations and explore possibility for other capital or financial markets to be set up. Minister Biti said the CSD was a critical part of a modern capital market system as it reduced the payment cycle, enhanced transparency and helped monitor the shareholding thresholds of foreign investors participating on ZSE.
He said that the CSD would help prevent irregularities. Apparently the minister said that currently only about 20 investors accounted for most of the trading in the 79 listed counters. He claimed that the CSD will improve liquidity, promote market integrity and transparency while minimising market manipulation, fraud and financial crime.
According to a report in a South African newspaper called “Sunday Times Zimbabwe”, the Minister would also like to modernize the ZSE Act and the Securities Act and possibly introduce a “super regulator”, similar to the UK’s Financial Services Authority (in June 2010 the UK Government announced plans to abolish the FSA and split its functions). This report claims that 20 of the “shadowy players” were virtually controlled by the same individuals, and Renaissance Financial Holdings Limited was accused of wrongdoing because of insufficient measures to detect insider dealings.
According to the Herald, the Minister said: “The main issue being dealt with is the shareholding structure of this systematically important institution (CSD), which should reflect national ownership by both the public and private sector players.” He said that the National Social Security Authority, the Reserve Bank of Zimbabwe or the ZSE would own at least 51% of the CSD company. Another significant shareholder will be Chengetedzai, a local private firm which is overseeing the establishment of the electronic trading system (the website appears to be just a title page.
The government seeks to demutualise the bourse, which it believes will enhance accountability and speed modernisation. Currently the bourse is still an association of stakeholders while demutualization would mean turning the exchange into a company driven by the profit motive or other goal. Minister Biti said demutualisation was critical to prevent cartels of members from dictating the affairs of the bourse, which created credibility crises and could put off investors. There has long been tension between the ZSE and the SEC over jurisdiction and self-regulation.
ZSE trading is done in daily “call-over” sessions when brokers gather around a table and bid against each other. However, trading is more active than on many more automated neighbouring exchanges.
According to the report, the Minister said: “When you go to the Zimbabwe Stock Exchange and see the way they trade it gives the impression that we are still stuck in 1950. It is as if someone pressed a pause button on the TV and everything stopped. We have to modernise and part of it is coming up with a CSD,” he said.
SECZ chairperson Mrs Willia Bonyongwe said the country wanted to set up more securities and capital markets and challenged innovative Zimbabweans to come forward with proposals. She suggested markets could assist in trading equities, bonds, quasi or hybrid financial instruments, asset securitisation and unitisation, hedging or risk commodity markets and private equity instruments, or even trade in agriculture and mining products. The ZSE is the only active capital market.
In early August the ZSE website ( was hacked twice in early August and used phishing and has currently disappeared.

What’s Up on Zimbabwe Stock Exchange?

The useful businessdigest of the Zimbabwe Independent ( newspaper has published two revealing interviews by Paul Nyakazeya with the CEO of the ZSE, Emmanuel Munyukwi, and the CEO of the Securities and Exchange Commission, Alban Chirume, as well as other market experts on the trends and undercurrents on the Zimbabwe Stock Exchange ( in 2010 and 2011. Here are some extracts:

The Stock Exchange CEO
ZSE CEO Emmanuel Munyukwi says in his interview that 2010 could have been “a much better year” compared to 2009 had it not been for the indigenisation regulations gazetted in March. Munyukwi said the market was bullish in the first quarter, trading was mixed after the empowerment regulations were announced, but it recovered in the last quarter: “In April we raked in about US$5 million while months before that we were raking in more than US$20 million a month. Since the regulations were gazetted, we have seen a negative impact on trade.”
Munyukwi said he had endured a stressful time during Zimbabwe’s lost decade keeping interest alive in a stock market disconnected from the rest of the world. This year “the market performed better, some counters that most investors would not buy on the first go performed really well.” He forecast that market capitalisation could end 2010 above US$4 billion not much change on the year which opened at US$3.97 bn.

The market in brief (figures Zimbabwe Independent):
From 4 January to 30 November a total of 6.2 billion shares were traded worth US$3.6 billion. Foreign buying was US$1.1 million against foreign selling of US$0.17 million. Beverages giant Delta Corporation had the biggest market capitalisation at US$731 million, followed by Econet Wireless Zimbabwe (US$435 mn) and Innscor Private US$292 mln).

ZSE Winners.. (year to 17 December)
National Tyre Service: up 140%
DZL & Zimplow: up 120%
Colcom: up 118%
Hwange: up 114%

..and Losers (year to 17 December)
PG Industries: down 69%
African Sun: down 78.3%
RedStar: down 80%
TN Holdings: down 83.6%
Zeco: down 85%

The Economist
Economist David Mupamhadzi told businessdigest that the performance of the ZSE will continue to be driven by the performance of the economy. The anticipated strong performance of most key sectors of the economy in 2011 would boost the market.
“However, political developments will also play a big role in influencing the performance of the ZSE.” He said reports of an election in 2011 could encourage some investors to “wait and see” and added: “Furthermore, depending on the prevailing political conditions, especially linked to the constitution, referendum and the much talked-about elections, the ZSE could take a serious hammering if there is no peace and stability in the country.”

The Regulator
SEC CEO Alban Chirume (AC) from his interview on the benefits of demutualizing the ZSE:
“We are interested in the reform of the exchange by way of complying with the Act and SI (Statutory Instrument) 100 of 2010. Corporatisation of the exchange which will result in the separation of trading rights, ownership and management (independent board and executive management) will meet the requirements of our regulations. We are keen to see that process moving faster. The stock exchange can advise where it is and when they expect the process (of demutualisation) to be completed… The current status could be working to the detriment of the market. Liquidity inflow is also a function of the confidence that investors have in a market. We need to build that confidence ourselves.”

Work to start on demutualizing Dar es Salaam Stock Exchange

Demutualization of Tanzania’s Dar es Salaam Stock Exchange ( is to be driven by a National Demutualization Committee (NDC), under the guidance of the Capital Markets and Securities Authority ( exchange is to start looking for a consultancy firm to develop the demutualization strategy, according to a report in the Tanzania Daily News (
Demutualization would probably involve turning the exchange from being a members’ association into a profit-seeking company, which could itself be listed, and would have a range of shareholders. This could increase accountability and responsibility as well as the ability to raise capital for investment. In some cases, demutualization means the exchange no longer has a monopoly.
The paper reports DSE Chief Executive Officer Gabriel Kitua as saying the process is expected to take 12 months, after the consultant hands over the draft of demutualization strategy: “The procurement of the consultancy firm is at initial stage, once approved, we consider demutualised process will take about 12 months.” He said the timing is good and could lead to further integration as other stock exchanges in the East African Community are also transforming themselves. “At a proper time, these private sector institutions may decide to come together and form one regional exchange.”
The NDC committee has already been given the terms of reference. Its members are from the CMSA, DSE, Treasury, Bank of Tanzania, and Attorney General’s office. The CMSA CEO, Dr Fraten Mboya, said under the old structure it was the members (usually the stockbrokers) of the DSE that had rights of ownership, decision-making and trading. According to the Daily News, he said: “(The change will) establish a more flexible governance structure that fosters decisive action in response to changes in the business environment.. For example, it will push the DSE to make efforts necessary for generation of adequate products in the market.”