The Kenyan Capital Markets Authority (CMA) is aiming to introduce electronic initial public offerings (e-IPOs) as part of an effort to attract public listings, including for chief executives of companies that have been delisted or suspended in a new purge carry out the image of securities governance.
The markets regulator says through the Draft Capital Markets (Public Offers & Listing of Securities) Regulations, 2022, it is reviewing rules governing IPOs and operations of publicly traded companies, which have been blamed in part for the country’s IPO drought.
The review aims to attract more firms and investors to the Nairobi Securities Exchange (NSE), which operates largely at the mercy of foreign investors and five big firms, posing a huge concentration risk.
According to the draft regulation; Companies, directors and officers of suspended or delisted companies will be held accountable for their company’s problems, and the suspension or delisting does not end ongoing legal proceedings against them.
Companies wishing to delist their shares must make an exit offer to minority shareholders and holders of other classes of listed securities to be delisted to ensure that investors who have bought and held securities based on the listing are not through coercion unlisted securities are restricted for holding.
“The exit offer must be fair and reasonable and include a cash alternative as the default alternative, and the issuer must appoint an independent transaction adviser to advise on the exit offer and the independent transaction adviser must be of the opinion that the offer is fair and reasonable,” the issuer said Draft regulation state.
Under the rules, financially troubled companies are placed on a watch list and ultimately pushed to a recovery panel before being suspended from trading and delisted.
“The issuer will be given the right to be heard by the regulator and the stock exchange on which it is listed before it is placed on the watch list,” the regulations read.
Data shows that Safaricom, Equity Bank, KCB, East African Breweries Ltd and Co-operative Bank controlled over 87 percent of the total market capitalization for the three months ended March 31 this year, with foreign investors accounting for over 54 percent of market activity during the year dominated Same period.
secret of resilience
“This reflects the risk posed by increased capital outflows, which require Kenyan industry to be more strategic in raising the profile of local investors. This has allowed countries like China and the US to remain resilient over the years,” according to the CMA.
The regulations also propose electronic IPOs when conducted in whole or in part via the internet or other electronic or automated means or media, when investors subscribe to the securities offering by submitting applications electronically, or when the applications and allotments are processed and completed electronically, in whole or in part partially;
In 2019, the central bank said the main risks to Kenya’s stock market were high concentration by the top five companies and foreign investors, low liquidity, low product acceptance, and political and economic risks.
CBK, in its Financial Stability Report (2019), also attributed the stock market’s poor performance to weak corporate governance in some listed companies, which have made losses that have then been delisted and/or placed under receivership.
In 2019, the top five companies by market capitalization accounted for 70.9 percent, compared with 65.8 percent in 2018, while foreign investors accounted for 68.6 percent of total stock turnover in 2019, compared with 63.3 percent in 2018.
East African stock exchanges are rushing to set up investment clinics to lure companies into the stock markets and end the IPO drought.
Last year, the Dar es Salaam Stock Exchange joined the NSE and the Rwanda Stock Exchange to implement capacity building and training programs for small and medium-sized businesses with aspirations to raise capital on the stock exchange.
In August last year, the DSE launched and began implementing the DSE Enterprise Acceleration Program (DEAP) called the “Endeleza Project”, which aims, among other things, to create a database of potential underwriting and exchange companies where they can receive training strategic planning, bookkeeping and accounting, administration, human resources and financial management
In October 2020, the RSE launched the Capital Market Investment Clinic to help SMEs prepare for raising capital on the stock exchange.
In Kenya, the NSE, in cooperation with the Kenya Association of Stockbrokers and Investments Banks, launched a similar incubation program called “Ibuka” in December 2018 to prepare and persuade potential issuers to raise capital through the stock exchange.