Family ownership is hindering the listing of new stocks at the Nairobi Securities Exchange with many founders not willing to cede control of their businesses and to embrace good governance required of public companies.
Capital Markets Authority acting chief executive Paul Muthaura told delegates at the Hills Trade conference in Nairobi last week that a number of eligible companies had found it difficult to list on the Growth and Enterprise Market Segment (GEMS) which has relaxed entry conditions.
“The corporate governance side is the biggest challenge for new GEMS listings,” he said. “Some of the companies have grown with fairly long running management models and the transition to a much more transparent governance structure has been challenging.”
GEMS targets small and medium size companies, many of which are family owned or started as investment groups.
Mr Muhaura said that the regulator would soon roll out a new corporate governance code, training and sensitisation of businesses in order to prepare them for possible public listing.
CMA will hold a governance, risk and compliance summit in Nairobi next month.
Listing requirements on GEMS are less stringent than on the Main Market Investment Segment, requiring Sh10 million in paid up share capital, at least 100,000 issued shares and adequate working capital for at least one year after listing.
Prior to listing, the firm needs to have audited accounts for one year of operations and is not required to have made a profit during this time.
Some analysts, however, see risks for investors going into companies that do not have capacity to deliver competitive returns.
Old Mutual Securities research analyst Eric Munywoki said that based on the criteria and requirements for listings on the segment, it is likely that some important aspects of these businesses might be overlooked, including by investors.
“It is a good segment, but it all depends on how listings are marketed to investors. They are mainly interested in the growth story of the company,” said Mr Munywoki in an earlier interview.
Following the listing of Home Afrika and its price increase to Sh25 in July 2013, Standard Investment Bank said that the firm had not disclosed whether it had adequate funding to complete its planned projects, having already been undertaking three projects valued at Sh10 billion.
The firm later announced it would issue Real Estate Investment Trusts to raise up to Sh2 billion in capital and to sell off some of its completed projects.
CMA has outlined in its 10-year master plan that it expects up to five GEMS listings per year in order to bring the total number of companies in the segment to 39 by 2023.
One year since the GEMS was established, however, only Home Afrika is on board.
Mayfox Mining, a Kenyan gold exploration company, has indicated it intends to list on the segment this year.
Jamii Bora Bank announced in February that it had pushed back by at least a year its plans to list on GEMs, citing the need to plough back earnings to the business. The bank had planned to list by the end of this year.
Chief executive Samuel Kimani said that reinvestment would be undermined if the bank were listed because of shareholder expectation of dividends.