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The East African : July 28th 2014
MONEY AND EQUITY MARKETS JULY 26 - AUGUST 1, 2014 DEMUTUALISATION Finally, East Africans’ chance to own slice of Nairobi bourse NSE eyes $7.2m afte≥ floating 66 million sha≥es at 10.9 US cents each yeste≥day By PETERSON THIONG’O The EastAfrican T he Nairobi Securities Exchange (NSE) is selling its shares to the public, opening a window for East African citizens to own a part of the region’s largest bourse. The NSE plans to raise Ksh627 million ($7.2 million) through an initial public offering (IPO) of 66 million shares at Ksh9.5 (10.9 US cents) each. The shares went on sale on Friday, July 25, and will close three weeks later, on August 12, to enable trading in the shares from September 9. The IPO will see the NSE list itself at the bourse and complete the conversion (demutualisation) of the company from one owned by a club — technically called “limited by guarantee” — to one owned by the public, or “limited by shares.” NSE becomes only the sec- ond exchange in Africa to list itself after the Johannesburg Securities Exchange (JSE). The shift in ownership structure also means the company will now be a profitdriven entity. Focus set to change “Up to and including the year 2013, NSE was not on maximising profits and dividend payouts but more on service delivery of its core mandate to its many stakeholders,” the NSE said in its IPO prospectus. “Following its offer, the above focus is set to change as NSE will include creating shareholder value amongst its core deliverables.” The bourse plans to use the funds to boost its cash position as well as upgrade infrastructure, therefore allowing it to support products such as derivatives. “The money will be used to retire part of our debt as PROSPECTS The Nairobi Securities Exchange (NSE) trading floor. Picture: File well as provide seed capital towards the settlement fund for futures,” reads the prospectus. The NSE had borrowed Ksh300 million ($3.4 million) at a rate of 15 per cent from KCB to partly finance the purchase of its new headquarters and part of the cash will be used to retire this facility. Last year, the company incurred Ksh40 million ($0.45 million) in financing costs. The bourse says the auc- tion will have to achieve a subscription rate of at least 68.8 per cent if it is to be considered successful. The exchange will list in the Alternative Market or Growth Enterprise Market segments if this level is not reached. The equities bull run at the NSE, coupled with improved bond yield, has increased market activity at the bourse and helped drive the NSE’s earnings. For example, “The money will be used to retire part of our debt as well as provide seed capital towards the settlement fund for futures.” NSE’s IPO prospectus in 2012, NSE’s net earnings stood at Ksh84 million ($0.96 million) while last year the company made Ksh262 million ($3 million). In the first quarter of 2014, it recorded net earnings of Ksh89 million ($1.02 million) compared with Ksh59 million ($0.67 million) last year. The future performance of the bond market is tied to market innovation. For example, the automation of the bond market increased turnover from Ksh110 billion ($1.26 billion) in 2009 t0 Ksh460 billion ($5.2 billion) in 2010 and has since risen to Ksh560 billlion ($6.4 billion). It is innovations and increased listings that the NSE hopes will continue to drive earnings. Not for sale “Over the next decade and beyond, investors will continue to become high frequency traders and more technologically savvy — this will require more products, further efficiency, ease of access, flexibility, speed and transparency,” said the NSE. “NSE prepares strategic plans to accommodate the changing environment.” Though regional exchang- es such as Rwanda’s are demutualised, the public does not own a stake in them. The Rwanda Stock Exchange The equities bull at the NSE, coupled with improved bond, has increased market activity at the bourse and helped drive the NSE’s earnings. For example, in 2012, NSE’s net earnings stood at Ksh84 million ($0.96 million) while last year the company made Ksh262 million ($3 million). In the first quarter of 2014, it recorded net earnings of Ksh89 million ($1.02 million) compared with Ksh59 million ($0.67 million) last year. (RSE) is not looking at selling its shares to the public in the near future. The nascent bourse says it has strong shareholders and is therefore not in a hurry to sell. Celestin Rwabukumba, the chief executive officer of RSE, said that although the exchange could have sold its shares to the public, it instead chose to develop the infrastructure first. “We are now working hard to complete the automation of our market, integrating our market with the regional markets as well as working on our five-year strategic plan,” said Mr Rwabukumba. The RSE is owned 20 per cent by the government and 60 per cent by the stock brokers, while the remaining 20 per cent belongs to institutional investors. Q &A WI T H MO R EMI MARWA Plans to take DSE public in two yea≥s The Dar es Salaam Stock Exchange chief executive officer speaks to The EastAfrican about its demutualisation road map What is the ownership structure of the stock exchange in your country? Dar es Salaam Stock Exchange is set up an a non-profit company. It is a private mutual entity limited by guarantee without share capital. Members of the DSE include listed companies, licensed dealing members (brokers and dealers), institutional investors, investment advisory firms and other institutions with an interest in the development of the exchange. What immediate and midterm developments is the exchange pursuing? Our short- and mediumterm plans include encouraging more listings through increase public awareness and education of potential issuers and investors, actively participating in advocacy on policy development for issues related to the development of the capital market, that is privatisation through listing into the exchange and implementation of legislative actions such as the Mining Act and EPOCA, both of 2010, introducing new products and additional instruments such as the micro-savings products (M-Akiba), financial derivatives, collective investment schemes and REITS. We will also implement proposed measures that will result in creation of additional liquidity in the exchange, for example by increasing the number of intermediaries that will engage existing and potential investors, and also introducing measures that will increase our efficiency in human and ICT infrastructure resources. Another target is to initiate actions towards implementation of the DSE demutualisation as recommended in the 2012 DSE Demutualisation Study. Do you plan to sell your shares to the public to fund these projects? DSE will from the next 57 financial year start implementation of the recommendation of the demutualisation study of 2012. This is after DSE has experienced three years of financial stability, sustainability and profitability. These are key attractive aspects of any capital raising and listing intent. What are the timelines? The process will involve changing DSE into a private company limited by shares; carrying out the valuation of DSE to determine the value of the company, its business and shares; changing the company from a private to a public one whose shares can be freely transferred; engaging various advisers in capital raising and listing, including preparation of selling and listing documents; upon approval by the capital markets regulator, offering of shares to the public followed by self-listing. The process is expected to take two years — 2015 to 2017. Are there other companies intending to list on the bourse? Swala Oil & Gas (T) will list in the first week of August following a successful capital raising that was oversubscribed while Uchumi Supermarket has also been approved by the regulator for cross-listing at the exchange and will be listed at the DSE in the next few weeks. Another two applications are going through our approval processes and may be listed this financial year.
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