Foreign investors to own 100pc of local-listed firms
Capital Markets Authority Acting Chief Executive Officer Paul Muthaura. FILE
What you need to know:
The Capital Markets Authority (CMA) has proposed in its 10-year masterplan released Wednesday to remove the current 75 per cent cap on foreign ownership of Kenyan listed firms.
Relaxation of this rule could partly help Kenya to raise its status from a frontier to an emerging market.
The 75 per cent cap was put to reserve ownership of listed firms for local investors as a way of encouraging Kenyans to buy shares at the stock market.
Foreign investors could be allowed to hold 100 per cent shares of locally listed companies if drastic reforms proposed by the capital markets regulator are passed into law.
The Capital Markets Authority (CMA) has proposed in its 10-year masterplan released Wednesday to remove the current 75 per cent cap on foreign ownership of Kenyan listed firms.
Relaxation of this rule could partly help Kenya to raise its status from a frontier to an emerging market.
“There is a negative perception of such restrictions; and the practical impact of them make up two of the 18 criteria of the MSCI assessment of openness of markets to foreign investment,” says CMA in the draft master plan.
The 75 per cent cap was put to reserve ownership of listed firms for local investors as a way of encouraging Kenyans to buy shares at the stock market.
The regulator, while accepting that there are legitimate national policy objectives in limiting foreign ownership in Kenyan equities, recommends that the blanket 75 limit be removed, and a more selective tool be applied in case there is need to protect strategically important or sensitive companies and sectors.
The blueprint sets out a path to achieving the MSCI Emerging Market status for Kenya by 2016, upgrading from frontier market status, and for Nairobi to enter the Global Financial Centre Index (GFCI) ranking.
Market accessibility is one of the key criteria for reclassification of a market by the MCSI, which requires significant access to foreign investors to markets wishing to be classified as emerging.
CMA reckons that the current 75 per cent ceiling has an impact on liquidity of certain stocks, which is likely to be exacerbated as foreign investors continue to increase their investment in the Kenyan market.
Other proposed reforms to the stock market could see the NSE given more leeway to set market fees, and members of the public allowed to trade their shares directly, as part of efforts to widen the reach and liquidity of the capital markets.
In the draft master- plan released Wednesday for public exposure, CMA proposes that once the NSE has fully demutualised, it should be given the authority to set its own fees so that it can obtain and allocate the resources it needs to rapidly respond to market developments and opportunities.
This proposal would mark a turnaround of the CMA’s held position in its views on the Capital Markets Amendment Bill 2013, where the regulator said that the exchange should not be allowed to set its own fees as this could lead to abuse, a position that the NSE opposed.
The CMA however says that there needs to be oversight from a strong Competition Authority that would step in if there were complaints about unreasonable fees.
In addition, the CMA adds that this freedom can only be given where there is the potential for effective competition through liberty to licence other market players as well.
The proposal to allow for trading of shares without the direct participation of brokers would however need a change of NSE rules.
It is also proposed in the master plan that the requirement for pre-funding share purchases be relaxed, which can then allow short selling.
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