Capital Markets

Treasury strikes NSE ownership deal with brokers


Deal paves way for self-listing of the Nairobi Securities Exchange in a process intended to separate ownership of the bourse from its management. FILE

The government will get a 10.2 per cent share of ownership of the Nairobi Securities Exchange (NSE) in a deal that potentially settles a protracted tussle between stockbrokers and the State.

The 22 stockbrokers who mutually own the bourse will get a 4.08 per cent stake each or a total shareholding of 89.8 per cent, according to details of the agreement.

The deal paves the way for self-listing of the NSE; the last stage in a lengthy re-structuring process that was intended to separate ownership of the bourse from its management.

“The chairman confirmed that in 2012, the Principal Secretary for the National Treasury, on behalf of the Government of Kenya, and the CMA Investor Compensation Fund were each allotted 1.25 million shares; translating to a 5.1 per cent stake for each of them. The remaining 22 shareholders, each have a stake of 4.08 per cent,” reads a portion of minutes of the NSE annual general meeting seen by the Business Daily.

Eddy Njoroge is the chairman of the bourse quoted in minutes of the AGM held on May 23.

The Capital Markets Authority, which had last year published a gazette notice indicating that the government would claim a 20 per cent share of the bourse’s ownership, did not respond to our queries by the time of going to press.

Sources familiar with the transaction, however, indicated that a separate gazette notice would be published to reverse the earlier one and legitimise the new ownership deal.

According to the re-structuring schedule the NSE’s self-listing was supposed to have happened by the end of this month, but was delayed due to the disagreement over ownership stakes.

The stockbrokers had also argued that the government’s claim of a five per cent stake was in violation of the bourse’s articles of association which capped any single institution’s shareholding at five per cent.

(Read: Brokers differ over valuation of their stakes at the NSE)

“The regulations were amended to accommodate this and we expect them to be gazetted soon,” said Donald Ouma, head of marketing and product development at the NSE.

Mr Ouma said the articles had also been revised to accommodate the new shareholding structure. As a result of the new allotments, the Treasury is set to receive a Sh1.25 million dividend cheque from the NSE.

This is the first time that the bourse is paying out a dividend, marking its transition to a company limited by shares.

As per the initial gazette notice, the NSE had 30 days to register as a company limited by shares upon receiving approval from the CMA.

The payment of the dividend, however, indicates that NSE has already transited to a company limited by shares.

As a company limited by guarantee, the NSE could not pay dividends to its mutual owners. Each of the brokers will pocket Sh1 million from the dividend payout. The bourse’s annual statements show a 13.5 per cent increase in revenue to Sh384.9 million last year from Sh338 million in 2011.

CMA had first indicated that it was not willing to cede on the requirement that government be allocated 20 per cent; with the regulator’s chairman hinting that the government should have demanded a larger stake.

The allocation to government is in recognition of the role it has played in regulating and protecting investors interest thereby promoting their participation at the bourse.

The government has also driven market vibrancy by selling its stake in public institutions through public offers that have kept the stock brokers in business. The Treasury is represented on the NSE board by investment secretary Esther Koimett. The NSE aims to list in the alternative segment of the market through introduction.

The plan is to put 60 per cent of the bourse in the hands of the public within three years, indicating that the listing by introduction is only meant to serve as price discovery mechanism before the exit of the current shareholders.

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