The capital markets regulator is wooing private equity (PE) firms in a bid to raise the number of companies listed on the stock market
The Capital Markets Authority (CMA) in a research paper on low uptake of products wants PE funds to consider exiting investments by selling shares of companies in their portfolio at the stock market.
The CMA says that private equity firms are on the rise and can help end the listing drought that has persisted since the 2014 Initial Public Offering (IPO) that led to demutualisation and self-listing of the Nairobi Securities Exchange (NSE).
Desperate to end the dry run, the CMA says that PEs should look to the NSE for easier exit plans. “It is no secret that the size of the private equity market space in Africa, and more so in Kenya, has grown significantly in the recent past,” says the CMA in the paper.
“To ensure the public equally benefits in the profits of well-performing businesses, the Authority will be engaging with private equity firms to consider exit mechanisms through the capital markets.
Multinational lenders such as World Bank and IFC have shown increased interest in funding SMEs, injecting billions of shillings in them.
“While we wish to view private equity investments as complementary to the capital markets activities, it is important to state that this can only be referenced with certainty when private equity firms consider exiting through initial public offerings.”
However, exiting through an IPO will come with transaction costs, notably due to legal restrictions and other market supervisory rules.
A 2013 study by the CMA on capital markets fees, levies and commissions recommended for relaxing of listing fees in the short term followed by a strategic shift focusing on growing the size of the market on which fees are to be levied.
The stock market is also facing stiff competition from other investment and quick return vehicles such as real estate, mobile money products and gambling, which CMA says, seem to promise better short-term returns as opposed to long-term characteristic of capital markets.