Low liquidity on the Growth and Enterprise Market Segment (Gems) of the NSE has resulted in limited price movement and the counters missing out on a price rally, analysts said.
Often listing through introduction, the counters have tended to feature a larger number of institutional investors or high net-worth individuals riding on private placements preceding listings.
The investors tend to hold their shares over the longer term and are less likely to participate in speculative trading. Limited free float for these companies has protected them from big price declines but also inhibited price gains.
“One of the key consensus for firms to agree to list on the Gems has been retention of control, especially for family firms. With only 15 per cent of the issued shares required to be in free float, these owners have more to lose when the share prices fall; so they have added incentive to keep the businesses performing,” said ABC Capital corporate finance manager Johnson Nderi.
“Home Afrika’s shareholding is however rather fragmented, thus it does not have this protection offered by limited free float.”
The segment has shed four per cent so far this year—equivalent to a capitalisation erosion of Sh333 million—with the biggest decline seen on Home Afrika that is down 12.2 per cent to Sh3.60 a share.
Home Afrika, with 405.25 million issued shares, has the widest shareholder base among the four firms with 6,352 owners as per December 2014 filings.
Of these, local individual shareholders hold 60.49 per cent of the company, with institutions holding a further 31.24 per cent.
Foreign shareholding in the company stands at 8.27 per cent of the total. The real-estate developer was forced to turn to a private placement to raise Sh500 million in January following failure of its Sh900 million bond issue.
“This might have been driven by concern as to whether the company would be able to comfortably repay interest and principal over the period,” said Standard Investment Bank after the private placement.
The NSE expects the relative ease of listing on the Gems will attract a higher number of companies to the market, with the segment conveying main market listings down the road.