The Capital Markets Authority (CMA) has limited individual shareholding in the listed Nairobi Securities Exchange Ltd (NSE) to five per cent in a move that may force sell-offs by some investors.
Investors whose shareholding is currently above the set limits have a six-month period to comply with the regulation.
A shareholder can seek exception from CMA to hold more than the prescribed levels. The authority will determine if the applicant meets the requirement which entails integrity, financial standing and absence of criminal record before granting an exception.
Shareholding by a private company has also been capped at five per cent while public companies will not be allowed to own more than 10 per cent of the exchange.
As at the end of last December the largest shareholder in the company held a 16.09 per cent which would be in contravention of the new regulations. The second largest shareholder had a stake of 5.6 per cent, which is just above the cap if they are individual investors or private company.
“An individual or private company shall not, at any time, directly or indirectly, either individually or together with persons acting in concert hold more than five per cent of the equity share capital of the exchange,” reads part of the regulations gazetted by Treasury secretary Henry Rotich.
CMA does not regulate ownership of any of the other 63 listed companies, underlining the unique nature of NSE’s business.
NSE is charged with introduction of new capital raising and tradable instruments in the market including drafting of guidelines on their issuance. The company is working to introduce derivatives trading in the country, having created real estate investment trusts last year.
As at the end of March, local individuals owned 12.3 per cent of the bourse with institutions holding 45.6 per cent. Foreign investors owned 42.05 per cent of the exchange up from 40 per cent in December indicating growing appetite for the shares.
Some of the individual local buyers include NSE’s outgoing chairman Eddy Njoroge, former NSE director Jonathan Ciano, TransCentury director Peter Kanyago, billionaire investor Baloobhai Patel and outspoken retail investor Alois Chami.
Stockbrokers who were the owners of the bourse before its demutualisation and subsequent listing will not own more than a cumulative 40 per cent.
As per NSE’s latest annual report, 12 brokers were still holding on to their originally allotted shareholding of 2.7 per cent, putting them among the top 20 largest shareholders of the company.
It is not clear the corrective measures available to CMA if the brokers do not bring down their shareholding to the set limit. The new regulations slash the grace period given to stockbrokers at the time of listing to reduce their shareholding to below 40 per cent by the close of a year. Stockbrokers had a grace period of three years from the time of listing in 2014 to cut their stake.
The requirement for the brokers to reduce their ownership opens an opportunity for investors with appetite for the share to buy into the exchange. The regulator has also banned individuals from using dummies to consolidate control of the exchange.
The Government currently holds a 3.37 per cent stake in the NSE, alongside the Investor Compensation Fund (IPF), which has a similar stake. NSE shares, the only ones under investment services segment, are currently trading at Sh28 per unit.