High demand likely to drive oversubscription of NSE offer

Market intermediaries say the Nairobi Securities Exchange initial public offering (IPO) set to close today is likely to be oversubscribed given the small number of shares available and institutional investor demand.

Stockbrokers reported increased retail customer traffic from Friday, which they said mirrors previous IPOs characterised by a last-minute rush to buy shares.

“We have had good interest from the retail investors. We can also see support coming in from our institutional investors who have been firming their commitments to buy and given that there are only 66 million shares available, it would be a surprise if there was no full subscription at least,” said a manager at an investment bank.

Brokers have been shy in commenting on the IPO after the Capital Markets Authority (CMA) cautioned them to disclose interest as shareholders of the NSE. The bourse is seeking to raise Sh627 million from the IPO that will see the public take up 31 per cent shareholding in the bourse.

READ: Regulator orders stock firms to declare stake in Nairobi bourse IPO sale pitch

In an interview with the Business Daily last week, NSE chief executive officer Peter Mwangi said the exchange has been targeting local institutions in its road shows to sell the IPO. “We have targeted those who are already in the market and who know our business well,” said Mr Mwangi.

READ: NSE launches IPO with expansion on the cards

A minimum subscription of 68.8 per cent of the offer is required for it to be declared successful, according to the IPO offer document, translating to 45.4 million shares. However, in the event that this minimum amount is not attained, NSE has indicated it will seek approval from CMA to self-list on the Growth and Enterprise Market Segment of the bourse.

Stockbrokers are, however, unlikely to be among those adding to their stakes during the IPO given that they need to reduce their collective stake at the bourse to 40 per cent two years after the listing.

Market analysts say stockbrokers who buy the shares at the IPO risk having to sell them at a discount if the share price were to fall below the offer price by the time they need to reduce their stake further.

In their investor advisory notes, the stockbrokers have sounded an optimistic note on the prospects of the stock, giving it an upside of between 20 and 50 per cent on the share price. The advisories were, however, the subject of a caution by CMA on the lack of disclosures of the stockbrokers’ vested interests in the bourse, both as shareholders and trading participants.

The market intermediaries normally issue explicit disclaimers on the advisory notes they issue to clients concerning capital market issues in which they have an interests in.