Personal Finance

Medium-sized firms should list on NSE’s Gems segment for growth

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Nairobi Securities Exchange employee monitors electronic trading. PHOTO | FILE

A few years back, the Nairobi Securities Exchange (NSE) created a new market segment that allows the listing of SMEs, that is, the Growth Enterprise Market Segment (Gems).

It has less stringent listing requirements than other market segments. Despite this there are very few companies that are listed on the Gems.

It was hoped that with the introduction of this new segment a lot of SMEs would turn to the NSE for listing. In my view there is still a general perception that listing is only for very big companies and that medium-sized firms cannot to meet the requirements for listing on the NSE.

Perhaps there is lack of awareness of the benefits of listing as well as the requirements.

The question any business should ask itself: Why list on the NSE? The first reason is that listing your company provides a source of capital which is cheaper than the other capital-raising methods such as debt.

Listing is one source of capital that many companies often ignore yet it enables a company to get access to very large amounts of capital. Such capital can be used in expansion and growth.

I would advise companies that are in the growth and expansion stage and which are also looking to raise capital for expansion to consider listing as a source of capital if they do meet the requirements.

Perhaps it is notable that cross-border listing allows a qualifying company to list on the stock exchange of a foreign country such that the company can access funds for growth and expansion in a foreign jurisdiction.

There are many companies that can take advantage of the stock market to grow. One of the main determinants of enterprise growth is access to financing. Before the Gems market was established, it was difficult for SMEs to list but this is now possible for those qualifying.

The performance of the stock market has not been very good, especially now that elections are nearby and investors are becoming more risk-averse.

However in my view, the position will not remain that way for a long time; it is inevitable that the stock market will recover. Therefore qualifying SMEs can begin looking at the possibility of listing as part of their long-term strategies.

The other benefit of listing is that it raises your company’s profile. Listing attracts a lot of public attention and therefore attracts publicity. A listed company has a better public image than a similar unlisted one.

This is bound to affect profitability in some way. A listed company is also deemed to have better governance than an unlisted one as there are several regulatory checks on corporate governance of listed entities.

While the boosting of publicity should not be the sole reason an SME should list, the benefit comes as a secondary benefit.

Listing is advisable for founders of businesses who wish to leave a legacy going into future generations. Going public allows you to meet this objective as it gives your company some sort of perpetual succession.

Listing is usually used as an exit strategy by investors when the company has attained growth level. This happens where a founder has built a company and grown it until the stage it reaches expansion level.

In such an instance, it is at times more prudent to list the company and cede control to get the best value for money rather than hold on to the company.

Many venture capitalists use this as a strategy whereby they invest in a startup and list it when they want to exit and get value for their money.

The requirements for listing at the Gems are not stringent and the same can be accessed from the NSE. In my view most medium-sized companies would qualify for a Gems listing.

Perhaps at this stage it is important to consider listing as a mid-term goal and begin positioning your company for the same.

Ms Mputhia is the founder of c Mputhia Advocates. [email protected], www.cmputhiadvocates.com