Mid-size firms shy away from Nairobi and Dar es Salaam bourses

Policy makers in Kenya and Tanzania are looking for ways to attract small and medium sized enterprises to the capital markets to increase their access to cheaper capital according to the East African. 2 years after the launch of the GEMS, the Nairobi bourse has only attracted four companies to the platform whilst the Dar es Salaam stock market has only attracted two.

This follows a lukewarm performance at the alternative trading platforms for SMEs on the Nairobi Securities Exchange and the Dar es Salaam Stock Exchange, as most privately and family-owned businesses refuse to relinquish part of their business to the public. “Businesses are overstretched due to over-regulation without facilitation,” said Manu Chandaria, a Kenyan industrialist and businessman. “Top managers of private companies are stressed by the regulatory requirements and they don’t want to take up more regulations, which increase the cost of doing business.” According to Mr. Chandaria, private companies are also not comfortable facing shareholders once their companies are listed. “I get nothing from being listed. The conditions are too numerous, so most private companies are not ready to abide by them,” he said. 

Geoffrey Odundo, NSE’s new chief executive, said the bourse will hold a two-day GEMS (Growth Enterprise Market Segment) conference for nominated advisors and potential issuers within the first six months of 2015 in a bid to drum up support for the GEMS. “Profiling of listed GEMS companies will be done this year,” said Mr. Odundo. The NSE has also prioritised the introduction of new products in the market, including derivatives,

real estate investment trust (REITS) and exchange traded funds (ETFs). The SMEs currently listed on Kenya’s SME market include: Atlas Development & Support Services Ltd, Flame Tree Group Holdings Ltd, Home Afrika Ltd and Kurwitu Ventures Ltd, all with a combined market capitalisation of close to USD 88m. Tanzania’s Enterpri se Growth Market (EGM) has only two listings — Maendeleo Bank and Swala Oil & Gas (Tanzania) Plc — however, four firms are expected to list in 2015. 

In Kenya, the criteria used for listing on the GEMS are minimum fully paid up capital of USD 109,890 and at least 100,000 shares in issue. The company must be a public company registered under the Companies Act and must be solvent with adequate working capital. The company must also have been in operation for at least one year but no profit record is required. It must have five directors of whom a third should be non-executive. Other requirements are that a third of the board must have completed a director’s induction programme and the rest within six months of listing; 15% of the shares must be available for trading and held by at least 25 independent shareholders within three months of listing; and nominated advisors must be appointed through a written contract. 

In Tanzania, a company applying to issue and list its shares on the EGM must be incorporated as a public company under the Companies Act. Minimum capital, track record and profitability are not required. The company must appoint a nominated advisor for the duration of the listing on the EGM and must have a five-year business plan and an independent technical feasibility report prepared by the nominated advisor. Thecompany must also have a minimum of 300 shareholders, while public shareholding in EGM listed companies should be at least 20% of the issued shares. 

Whilst the success of SME markets around the world has been mixed, regulators in East African countries view the establishment of SME markets as being an integral aspect of the planned integration of their regional capital markets. Uganda is currently also reviewing the rules and regulations for its Growth Enterprise Market Segment. In our view, the success of the markets will be a net positive for small cap investors as it will provide them with wider and broader choices in order for them to participate in the economic growth of the region.

Source: Imara Securities Equity Research