The Nairobi Securities Exchange is set to launch a trading board for small and medium enterprises (SMEs) on Tuesday, which will open a new investment window and funding opportunities for start-up businesses.
The launch of the Growth Enterprise Market Segment (GEMS) will be the culmination of years of planning aimed at accommodating SMEs at the stock market in recognition that they employ about three-quarters of Kenyan workers.
The NSE chief executive, Mr Peter Mwangi, told the Business Daily last week that three firms had already applied for listing on the GEMS board.
Financial advisory firm Burbidge, which has already got NSE’s approval to consult for small firms applying for listing on the GEMS board, said that there has been high interest among small firms that wish to use NSE as an alternative source of capital to traditional bank loans.
“We have been getting a lot of queries from firms. Most are looking at raising capital,” said Vimal Parmar, head of research at Burbidge Capital.
The firm is an authorised nominated advisor (Nomad), a consultant for firms that want to list on the GEMS segment. Three other firms, Emerging Africa Capital, Standard and Mutual, and NIC Capital are also licensed Nomads.
Mr Parmar said that despite potential SMEs’ high interest in the platform, the first listing will likely take place in the second quarter of the year as issuers wait for the outcome of the General Election to implement their plans.
“There is a wait-and-see approach as we wait for elections,” said Mr Parmar.
Despite the pending elections, NSE has been on a bullish run. Mr Mwangi said that at least four other companies, including the stock exchange itself, intend to list on the main board this year.
The new market segment is expected to give small firms a chance to grow by offering them flexible listing requirements such as the number of issued shares (100,000) and a minimum paid up capital of Sh10 million.
Firms applying to list on the alternative investment market segment (AIMS) are required to have a minimum capital base of Sh20 million while those that list on the main market (MIMs) are required to have minimum paid up capital of Sh100 million.
SMEs that show high potential for growth do not need to show a proven profitability record but must still adhere to prudent management practices such as having a board made up of qualified people.
“Directors with no bankruptcy, fraud, criminal offence or financial misconduct proceedings for two years,” says one of the eligibility criteria for listing.
Firms applying to list on GEMS will also be required to have at least 35 per cent of their shareholding locally-owned and a 15 per cent free float.
Majority shareholders will also be forced into a two-year lock-in period.
Listing on GEMS will also give firms a window to unlock shareholder value while helping to reduce high financing costs associated with traditional financiers such as banks, whose lending charges and collateral requirements often limit the growth potential of SMEs.