Treasury rejects brokers’ bid to dilute its stake in Nairobi bourse

The planned change of ownership at the Nairobi Securities Exchange (NSE) has hit yet another obstacle after the capital markets regulator differed with stockbrokers over the new shareholding structure.

Delay in demutualising the market risks continuing to negatively impact on confidence in the exchange that is keen to attract new firms such as small and medium enterprises (SMEs) to list on its growth segment.

The NSE’s image has been battered by the series of stockbroker collapses in the past five years beside the uninspiring performance of a number of IPOs such as Safaricom.

The planned change of ownership at the Nairobi Securities Exchange (NSE) has hit yet another obstacle after the capital markets regulator differed with stockbrokers over the new shareholding structure.

The differences emerged after the regulator rejected the brokers’ demand that the government cedes part of its 20 per cent stake to two market players not initially included in the new ownership sharing plan.

According to the Capital Markets Authority (CMA), the Treasury, which owns the government’s 20 per cent stake, could not cede part of its portion.

It asked the brokers to share with new-comers the 80 per cent stake reserved for them under the initial plan.

“They cannot get what they want. The Treasury has said that it intends to keep its stake and we are going with that directive,” CMA chairman Kung’u Gatabaki said in an interview.

The 20 stockbrokers had agreed to share the 80 per cent stake equally to the exclusion of two fallen counterparts — Francis Thuo and Shah Munge — but were forced back to the drawing board by a court order requiring inclusion of the two who were left out of the new ownership plan because they did not have active trading licences at the time of share allocation.

Francis Thuo collapsed under the weight of debt in 2007 while Shah Munge lost its right to trade at the bourse in 2003 in the wake of a scandal involving loss of public funds.

Francis Thuo, which had initially been denied ownership on the grounds that its seat had been sold to Renaissance Capital, moved to court to contest the position and obtained an order directing the NSE to include it in the new ownership plan.

The government, through the Treasury, was allocated a 10 per cent stake and an additional 10 per cent for the Investor Compensation Fund – to be administered by the CMA.

The stand-off between the brokers and CMA is expected to further delay the process of removing the stock market from the grip of the brokers

through demutualisation.

The planned change of ownership is meant to transform the market from being a members club (or a mutually owned entity) to becoming a company limited by shares.

The move is expected to open up ownership to other investors and eventually take the company public through sale of shares to willing buyers.

Mr Gatabaki advised the brokers to direct their energy to creating new business opportunities rather than pursuing the Treasury’s stake.

“What they are refusing to surrender for the two brokers is worth only Sh20 million because each broker is to get shareholding worth Sh10 million. If they concentrate their energies on the business, including merging their operations, they would make more money,” he said.