Small firms get access to stock exchange capital pool

Small and micro-enterprises will have access to a greater pool of funds for expansion following creation of a new market segment for them at the Nairobi Securities Exchange (NSE).

A gazette notice proposing the setting up of a Growth and Enterprise Market Segment (Gems) was published as part of Finance minister Njeru Githae’s regulatory changes in his Thursday budget speech.

Gems will allow SMEs to list at the stock exchange without having to meet the stringent requirements set for companies on the main board.

“The high threshold in the law has denied SMEs the opportunity to access to long-term and relatively cheap capital as well as raising their profiles through participation in the NSE,” said Mr Githae.

The minimum requirements for listing an SME include fully paid up capital of Sh10 million and a float of not less than 100,000 shares.

The SMEs must offer at least 15 per cent of their shares for trading on the exchange and would be delisted if the shareholders were to fall below 25.

Introduction of Gems will see the number of segments in the NSE rise to three with the others being the Alternative Investment Market (Aims) and the Main Income Market (Mims).

The alternative segment has, however, found it hard to attract fresh companies, with TransCentury being its last listing in July. Aims was also meant to be a stepping stone to the Main Income Market Segment (Mims), but only the Standard Group lived up to this expectation in 2007.

“Learning from the low level of recent listings and liquidity on the alternative investment market, the NSE together with other enabling institutions such as the CMA would need to carry out significant market education to ensure that this becomes a success,” said audit firm PricewaterhouseCoopers.

Gems will offer SMEs all the benefits of listing under an incentive structure announced by the government to deepen the capital markets.

All listing costs will be tax deductible, while corporation tax will be assessed at 20 per cent, instead of 30 per cent, for the first five years after going public if a company floats at least 40 per cent of its shares.

Investors will have free exit and entry, resolving a key sticking point that has denied SMEs funding from equity funds, venture capitalists, and angel investors.

To ensure good corporate governance practices, businesses seeking to list must have a board of at least five directors of whom a third are to be non-executive.

The management must also show it has appropriate governance and management expertise and experience.