Treasury wins big in NSE share sale plan

The Nairobi Stock Exchange on Thursday moved closer to public ownership after the brokers, who currently control it, agreed on an ownership structure that will enable them to sell shares to investors in the planned initial public offering.

The long awaited removal of the bourse from the hands of the 20 brokers will see the government gain a 20 per cent shareholding in the bourse leaving the brokers with a collective 80 per cent stake.

A stakeholders’ meeting held in Nairobi agreed to Treasury getting a 10 per cent stake in the bourse and an additional 10 per cent to be held by the Investor Compensation Fund (ICF) – another State-owned agency that is managed by the market regulator the Capital Markets Authority.

Under the new ownership structure that should pave the way for sale of shares to the public, brokers will get 80 per cent of the Sh200 million bourse and divide it equally among themselves in readiness for the planned IPO.

Each broker is expected to have ceded at least half of their stake in the next two years, according to the regulations meant to take the market public.

The new ownership structure is largely in line with the structure that the CMA had tabled before the brokers as a pre-condition to the planned transfer of the market’s ownership into the hands of the investing public under a process commonly known as demutualisation.

NSE, which is ranked as the fifth biggest stock market in Africa by total value of listed shares, has existed as a mutual company owned by stockbrokers since its formation in 1954.

But this ownership structure has emerged as a major drawback for the smooth operation of the bourse as the brokers have found it hard to punish rogue counterparts resulting in the collapse of four intermediaries in as many years.

Smaller players

NSE has been grappling with the ownership structure for nearly three years with some of the big brokers insisting that the market-share should be used as the basis of share allocation but the smaller players have argued that credibility is the value that is being shared and can only be divided equally among all players.

The proposal settled on leaves out former directors of the NSE and employees who had jointly been proposed for a 10 per cent stake in a proposal commissioned by the bourse.

The agreed ownership structure may see the government get up to 32 per cent stake in the market to become the single largest shareholder after the brokers agreed that Treasury will be the sole custodian of the shares that will be allocated to the three market intermediaries who are currently under statutory management.

The three brokerages Nyaga Stock Brokers, Discount Securities and Ngenye Kariuki were placed under statutory management in as many years.

CMA said the brokers were facing financial distress and could not meet their market obligations.