Personal Finance

Who is a nominated adviser?

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A lady walks into the Nairobi Securities Exchange trading floor at its former premises at Nation Centre. Photo/FILE

Home Afrika was listed as the first small and medium enterprise (SME) in the Growth and Enterprise Market Segment (GEMS) of the Nairobi Securities Exchange almost one year after the unit was established.

NSE has various segments that allow companies to list provided they meet minimum requirements.

Traditionally, listing for SMEs has been a challenging affair because of the prohibitive costs and requirements. The GEMS makes it easier for SMEs to list.

A company keen on a GEMS listing can only do so under the word of a nominated adviser (Nomad).

The role of a Nomad is big. The Nomad must understand the business of a company and also prepare its board for listing.

This includes advising on the fitness or otherwise of board members. The Nomad also acts as an interface between NSE and the company listed on the GEMS.

Only few professionals qualify as Nomads. They include lawyers, economists and financial advisors. The person applying for the Nomad licence must be a company and must have at least three years’ experience in doing similar work.

The company must have in its employ at least two authorised representatives. It is difficult to use the experience of your law firm to apply for the licence because traditionally law firms are either sole proprietorships or partnerships.

This knocks out most law firms from getting the licence.

Besides, there is the Law Society of Kenya which prohibits lawyers from practising as companies. Accountants face the same challenge.
Therefore, the few licensed Nomads are financial services companies.

Nomads also require cross sector expertise. A financial services firm cannot be able to properly advice an SME without the help of a lawyer.

A Nomad also requires an HR expert to advice the board and carry out a technical viability of the listing.

Rules allow a licensed Nomad to partner with other firms and form a consortium of advisors. The challenge with this arrangement is that listing costs become prohibitive taking into account the need to pay every member of the consortium.

In many countries there are different tier firms that provide services to different segments of the market. In this case firms that specialise in large listings don’t do the listing for GEMS because their cost would be prohibitive.

Industry players should consider partnering to serve as Nomads. For example, a mid-size financial company can partner with a mid-size law firm and seek the Nomad licence.

Their charges would not be too high for SMEs willing to list on the GEMS and they will also offer high quality work.

Another alternative would be for mid-size financial service firms to hire lawyers and other professionals to provide service to companies listed on the GEMS exchange.

Mputhia is a Partner with Muthoga Gaturu. [email protected]