Capital Markets Authority seeks change of tack at NSE

By John Otini
Monday, October 26th, 2020
Nairobi Securities Exchange. Photo/PD/FILE
In summary
    • Study recommended that CMA should relook the costs associated with the implementation of corporate governance framework within the SME’s industry with a view to make them more affordable.
    • The 200 SMEs were chosen from the KPMG top 100, NSE IBUKA firms from CMA, companies under LSE watch, accelerator incubator, EAVCA and KAM.

The number of listed companies has dropped drastically following suspensions or delisting at the Nairobi Securities Exchange (NSE), latest Capital Markets Authority (CMA) quarterly bulletin shows.

Some of the familiar names that are no longer active include the National Bank of Kenya, Kenya Airways, Deacons East Africa and Athi River Cement amid apathy by investors to list.

Not even the launch of the Growth Enterprise Market Segment (GEMS) in 2013 managed to attract SMEs despite the potential for operating capital and better profile and liquidity.

It managed to attract only five firms, compared to an annual projection of at least three companies.

These include Atlas, Flame Tree, Home Afrika, Kurwitu, and Nairobi Business Ventures. In 2017, the Exchange Traded Fund was introduced but whose counters have had little activity with the like of Kurwitu posting losses year-on-year.

SME survey

Property developer Home Africa’s remains a source of pain for its founders and investors at the bourse.

A survey of 200 Small and Medium Entreprises (SMEs) commissioned by the CMA found that SMEs that qualify as potential issuers do not know the benefits of listing and the importance of corporate governance.

The findings indicate 77 per cent of surveyed firms had over Sh10 million in annual turnover and over 63 per cent have been making profits in the last three years, a condition that makes them viable for listing.

Unwillingness to lose control of the company and shouldering the pressure of share price fluctuations is one of the reasons SMEs, especially family businesses, don’t want to list.

The proportion of firms that indicated that they are not interested in issuing shares to the public stood at 58.6 per cent.

Those who indicated that in the long term they are interested stood at 37.4 per cent.

Only 4 per cent said they have interest in issuing shares to the public in less than a year.

Out of those who showed no interest in issuing shares to the public, 38 per cent were not aware about listing requirements while 23 per cent were afraid of losing control of the company and 11.5 per cent felt that listing is expensive.

CMA has now been exploring the option of having companies in sectors such as mining for listing at the bourse as a condition to renew licences.

Forced strategy

“‘The ‘forced’ strategy may work against the very objectives of listing. We will continue with our persuasive means as we look at other ways of helping firms raise capital on a securities exchange,’’ acting CMA chairman Wyckliffe Shamiah said

Most of the companies listed on the NSE suffered losses due to Covid-19 restrictions as the bourse reeled from lack of technology stocks such as e-commerce and fintech except Safaricom.

New companies with an international outlook also favour to list in deep markets such as London, New York, Singapore and Shanghai to attract investors and boost their profile. Lack of strong local investor participation on the NSE is also a challenge.

The NSE dropped four places in the Absa Africa attractiveness index to stand at position seven on the continent on high taxation and low capacity of local investors.

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