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NSE bets on tech sector to end listing drought

By John Otini
Friday, October 23rd, 2020
NSE 20-Share Index recorded a 4.63 per cent decrease to close the quarter at 1,852.29. Photo/PD/FILE
In summary
    • A survey of 200 SMEs commissioned by the Capital Markets Authority found that SMEs that qualify as potential issuers do not know the benefits of listing and why corporate governance is important.
    • The study also recommended that the authority should relook at the costs associated with the implementation of corporate governance framework within the SME industry with a view to make them more affordable.
    • 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 4.0 per cent said they have interest in issuing shares to the public in less than a year.

Nairobi Securities Exchange (NSE) has seen the number of listed companies fall after seven were either suspended or delisted in the recent past, latest Capital Markets Authority quarterly bulletin reveals.

National Bank of Kenya, Kenya Airways, Deacons East Africa, Athi River Cement and Kenol Kobil are some of the companies that are no-longer active on the exchange for various reasons.

Lack of interest in listing by private companies is a challenge that NSE and Capital Markets Authority (CMA) have had to contend with for long and the new NSE chairman, Kiprono Kittony, is already scratching his head over this.

In 2013, NSE launched the Growth Enterprise Market Segment (GEMS) to attract small and medium-sized enterprises (SMEs) and enable them to raise operating capital, while benefiting from increased profile and liquidity.

The initiative, however, has only managed to attract five firms since then, compared to an annual projection of at least three companies.

These are Atlas, Flame Tree, Home Afrika, Kurwitu, and Nairobi Business Ventures.

In 2017, the bourse introduced the Exchange Traded Fund whose counters have had little activity.

However, they have been unable to surf the high waves at the bourse with some of them such as Atlas drowning while Kurwitu has posted losses year-after-year.

Property developer, Home Africa’s share price remains a source of pain for its founders and investors .

Kittony has been looking for ways to attract new listings and one of his targets is technology stocks. He has already met ICT Cabinet Secretary Joe Mucheru over the matter.

“The two explored key initiatives to support the listing of firms in the tech sector,” NSE said without disclosing much.

Kenya has witnessed a rapid growth of tech companies in the last 10 years, some of which are valued at billions but they are not listed and those interested tend to look outside Kenya.

A survey of 200 SMEs commissioned by the Capital Markets Authority found that firms that qualify as potential issuers do not know the benefits of listing and why corporate governance is important.

The study recommended that the authority should relook at the costs associated with the implementation of corporate governance framework within SMEs with a view to make it 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 findings indicated that 77 per cent of the firms surveyed had over Sh10 million annual turnover and over 63 per cent have been making profits in the last three years, a condition that makes them viable for listing.

The survey also established that 38 per cent of the respondents were not aware of corporate governance requirements and 28 per cent indicated that it was expensive to implement corporate governance practices in their enterprises.

“Also, it would be necessary to tailor-make a corporate governance framework for SMEs aiming to unlock the challenges highlighted by the respondents,” the study recommended.

The code of corporate governance focuses on the interaction among three key decision-making institutions: shareholders, a board, and management.

It was developed by CMA to ensure safety of investors’ funds.Unwillingness to lose control of a company and having to shoulder pressure of share price fluctuations are some of the reasons SMEs especially family businesses don’t want to list.

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