NSE chief executive Geoffrey Odundo (left) with his CMA counterpart Wycliffe Shamiah during the SecondStax Portal launch on November 4, 2022. PHOTO | DIANA NGILA | NMG
Small firms listing on the Nairobi Securities Exchange (NSE) Growth and Enterprise Markets segment will finally be able to raise funds through the capital markets under updated listing rules by the sector regulator that will see the creation of two new segments tailored specifically for SMEs.
The CMA said in its quarter three market soundness report that the changes proposed through the draft Capital Markets (Securities) (Public Offers Listing and Disclosures) Regulations, coupled with the recently gazetted Investment Based Crowdfunding regulations, will open a new avenue for capital raising for SMEs that have traditionally struggled to access debt from banks.
The draft regulations, which were put up for public participation in May have introduced two new market segments known as SME Fixed Income Securities Market Segment (SME FISMS) and the Small and Medium Enterprises Market Segment (SMEMS).
The SME FIMS segment will allow small firms to issue debt securities with an initial offer size below Sh250 million or an amount set by CMA, while the SMEMS will allow for the listing of non-debt securities issued by SMEs.
“Unlike the Main Investment Market Segment (MIMS) and the Alternative Investment Market Segments (AIMS), companies listed on the GEMS market cannot raise capital despite the listing,” said CMA soundness report. “The draft public offers regulations, currently at the tail end of drafting will for the first time allow SMEs to raise equity and debt capital, enabling thousands of SMEs trading today to raise capital via the capital markets which traditionally have only been accessed by medium and large enterprises.”
The regulator added that corporate governance requirements for SMEs will be tooled to ensure that they are commensurate with their sizes.
Inability of GEMS-listed firms to raise capital through the NSE has partly contributed to the low uptake of the product since it was introduced in 2013.
The GEMS firms enter the market through introduction, meaning they have also suffered from limited liquidity — and therefore poor price discovery — due to low shareholder numbers.
The MIMS segment carries the bulk of listed firms at the bourse, accounting for 49 out of the 63 stocks in the market.
The AIMS segment, which slots in between the main segment and GEMS in terms of minimum capital requirements, has nine counters while GEMS has five counters listed — which will drop to four if shareholders of NBV approve a motion to shift to the main investment segment.
Home Afrika was the first GEMS listing in July 2013, and it was expected at the time that the relative ease of listing on the segment would attract a higher number of companies to the market, which would thereafter provide a stream of main market listings down the road.
However, the expected stream of listings has largely failed to materialise, with the segment only attracting six listings in a decade.
One of the GEMS firms, Atlas African Industries, was delisted from the bourse in April 2019 after falling into financial difficulties and shutting down operations.
