Capital Markets

NSE valued at Sh2bn as it opens sale of own shares

ceo

Nairobi Securities Exchange CEO Peter Mwangi at a recent function. Photo/FILE

The Nairobi Securities Exchange (NSE) has valued itself at Sh1.9 billion ahead of Wednesday’s sale of shares to the public in the primary market.

Documents seen by the Business Daily show that the exchange aims to list 194 million shares priced at Sh9.5 a piece — valuing the bourse at slightly below Sh2 billion.

East Africa’s largest exchange is selling 63.5 million shares in an initial public offering (IPO) that has taken more than four years to push through a number of hurdles, including the faceoff between the stockbrokers and the government.

The share sale is expected to loosen the stockbrokers’ stranglehold on the exchange by initially cutting their ownership to 59 per cent. A further drop of the brokers’ stake to 40 per cent is expected in three years when subsequent share sales are complete.

“It is a positive development that opens up the bourse to more transparency and accountability unlike in the past where it has been viewed as a private members club,” said Geoffrey Odundo, the chief executive of Kingdom Securities and a director of NSE.

Mr Odundo expects investors to buy the shares based on the steady growth of the bourse in the past decade and the high turnovers that signal rising investor appetite and high market liquidity.

The NSE says the share auction will have to realise a sales rate of 68.8 per cent to be considered successful. The bourse plans to list in the alternative market or Growth Enterprise Market segments in case it does not attract enough buyers to make the offer successful.

READ: Regulator gives NSE nod to sell shares to public

Some market watchers, however, said that although the bourse holds positive growth prospects in line with the expected expansion of the economy, the offer had failed to excite investors in terms of scale.

“It is going to be more of a power play with institutional players wanting to own part of a key institution but as an investment opportunity it is not exciting,” said a market watcher who did not wish to be named, adding that the NSE is a low-risk company which means low returns.

Regulatory filings show that the NSE is seeking to raise Sh627 million from the offer and use the sales proceeds to settle its mortgage with KCB and upgrade its information technology platform.

The NSE last year acquired a building in Nairobi’s Westlands area for Sh360 million using a Sh300 million loan from KCB. It has paid an estimated Sh145 million and plans to use proceeds of the IPO to clear the debt that attracts an interest of 15 per cent per annum.

The bourse returned an after-tax profit of Sh262 million last year compared to Sh85 million in 2012.

The NSE mainly makes money through commissions earned from share and bond transactions, data vending and listing fees.

Its listing comes after nearly three years of stability and growth which has helped rebuild investor confidence that plummeted with the successive collapse of brokers in the preceding five years.

To regain investor confidence and save the NSE from collapsing the government had to intervene through a mix of strong policy and legal measures that have earned it a 5.1 per cent stake in the bourse.

Negotiations of the government and the Investor Compensation Board’s stake in the bourse nearly stalled the journey to self-listing after the Treasury demanded a 20 per cent holding. 

The brokers successfully fought off the bid, keeping the government stake at five per cent arguing that the State had not made any capital investment in the company.

Brokers who were part of the company’s founders, but collapsed in later years such as Nyaga Stockbrokers, Shah Munge and Francis Thuo also challenged attempts to leave them out of the sale process in court and obtained orders giving them a slice of the NSE cake.

READ: Defunct Francis Thuo wins battle for stake in NSE

The three alongside Discount Securities got equal shares of the market as other brokers despite having collapsed with huge sums of investor funds.
The Capital Markets Authority (CMA) had proposed that the failed brokers be barred from benefiting directly from their ownership of the NSE when the shares are sold to the public.

The regulator had proposed that any proceeds accruing from the sale of the collapsed brokers’ stakes be used to settle investor claims before any balance, if any, is given to them.

The NSE is now hoping that the separation of ownership from management that is expected with the listing of the bourse will strengthen corporate governance is entrenched in the sector, leading to growth.

The exchange is also banking on planned diversification into new businesses to grow its bottomline.

The NSE plans to open exchanges in Somalia, South Sudan, Democratic Republic of Congo and Burundi in a bid to neutralise its high exposure in the Kenyan market. Currently the bourse relies on the Kenyan market for all its revenues.

Listing documents also show that the bourse plans to market its activities in new international markets such as China and India to increase foreign investor participation.

The Nairobi exchange is ranked among the largest markets in Africa alongside South Africa, Egypt, Morocco and Nigerian bourses.

High trading volumes have also increased hope of high performance at the NSE, which earns a percentage commission with every transaction.

In the first six months of the year the market traded shares worth over Sh100 billion or 37 per cent higher than what it traded in a similar period last year. The NSE earned Sh373 million from transaction of shares last year.

The bourse has said that the self-listing is meant to facilitate mergers and acquisitions. It will be the second market in Africa to self-list after South Africa’s Johannesburg Stock Exchange.