Private investors are pouncing on Nairobi Securities Exchange (NSE)-listed firms and then removing them from the bourse, dealing a blow to President William Ruto administration’s plan to increase the number of listed firms at the Nairobi bourse.
Bamburi Cement, one of NSE’s iconic blue-chip firms, is the latest target of private investors and will be delisted if Tanzania-based conglomerate Amsons Group’s Sh23.59 billion bid sails through.
The deal will add to several other recent delistings, including KenolKobil, CMC Holdings, and Rea Vipingo, in a market where several other key counters like Mumias Sugar, Kenya Airways, ARM Cement, and Deacons are suspended from trading.
However, this was not realised, with the likes of Credit Bank, which had planned to list, getting private equity from Shorecap III LP instead.
Dubai-based InvesAfrica FZCO acquired a 35 percent stake in Eveready but pledged not to buy out the rest of shareholders.
Ferdinand Othieno, a senior consultant in technical corporate finance, says investors eyeing companies require due diligence on metrics such as growth projections, profitability, revenue generation, and cost of capital and find it easier to go for NSE firms since most of this information is easier to find.
“When you are on the NSE, all these have been done for you and so their [private investors] due diligence costs are lower compared with if the company they want to buy is privately owned. So, they will naturally come for these NSE jewels,” said Mr Othieno.
“And when they have acquired a sizeable stake, they weigh between exiting and carrying the regulatory burden of remaining listed. The delistings triggered by private investors also means private capital is becoming more available.”
Many public companies are also currently trading at a discount to their underlying net asset values, creating an opportunity for private investors to deploy their massive unspent capital to launch into the country.
“What we have seen on the exit side is something natural. But the big concern is not seeing any company joining the market. The exit is not really the challenge; it is the entry that is a really big challenge,” said Eric Musau, Head of Research at Standard Investment Bank (SIB).
The potential exit of Bamburi will make it at least nine delistings in under two decades amid a listing drought. Delistings in the past 16 years include Unilever Kenya (2008), Access Kenya (2013) Rea Vipingo (2015), CMC Holdings (2015), Marshall East Africa, Hutchings Biemer and A. Baumann (2017), KenolKobil and Atlas (2019) and National Bank of Kenya (2021). Property fund ILAM Fahari I-Reit was also delisted early this year.
French oil firm Rubis Energies, which had a 25 percent stake in KenoKobil acquired the balance for Sh35.7 billion and delisted it in 2019 while KCB acquired NBK and merged it with its own operations.
CMC was delisted after Al Futtaim Group, a United Arab Emirates conglomerate, acquired it fully for Sh7.5 billion while Rea Vipingo exited after the main shareholder, REA Trading, bought all the issued shares in the company.
A similar fate befell Unilever Tea Kenya, which left the bourse after its main shareholder, Brooke Bond, bought out minority shareholders for Sh356.5 million while Access Kenya also exited after Dimension Data Holdings acquired all the shares for Sh3.05 billion.
Marshall East Africa exited the bourse after Global Limited, a firm which then owned 13.9 percent rallied shareholders to take the company private by offering to buy out all the shareholders who did not wish to go private, pointing to the power of deep-pocketed investors.
Mr Musau said it is negative to have fewer stable companies on the NSE since it reduces the options for investors seeking to spread their risks in different stocks. Currently, the top five stocks by market capitalisation—Safaricom, Equity, East African Breweries, KCB, and Co-operative Bank of Kenya—account for Sh1.15 trillion, or 67 percent of the market’s total value.
Mr Musau and Mr Otheino agree that having no pipeline of new companies entering the NSE could point to a fundamental problem in the economy as opposed to what the Capital Markets Authority (CMA) is doing or not doing right.
“What we should be doing as an economy is to grow entrepreneurs to grow businesses so that they can list on the NSE and lower the concentration risk. It is like at a wedding where we have the bride, bridegroom, and flower girls. So, how can we grow these flower girls to the stature of the bride?” said Mr Othieno.
“Many mama mbogas have remained mama mbogas. Shops are not transforming into a big business. So, who do we want to list at the NSE if these small businesses are not growing into formidable businesses? It is a bigger problem than a capital markets issue.”
He added that unless the economy is able to support businesses to surpass levels of only relying on loans from banks and going for patient capital, the drought on the NSE looks set to persist.
According to Mr Othieno, many companies are not growing enough to go for IPOs at the NSE while those that are growing to the level of entering the bourse are ending up attracting capital in the form of private equity.
He says that some companies are opting for alternative sources of capital where they deal with fewer investors capable of giving them the financial muscles that they need without having to go through the tedious CMA regulatory process and still not be guaranteed to raise the money.
