The Capital Markets Authority (CMA) in its Master Plan (2014 – 2023) targeted at least three to four listings on the Growth Enterprise Market Segment (Gems) annually.
Gems was introduced in 2012 to provide listing opportunities to Small and Medium Entreprises (SMEs), noting their major role in contributing towards long-term economic growth and employment in Kenya.
However, despite the concerted efforts by the CMA, the Nairobi Securities Exchange (NSE) and the National Treasury, including tax benefits and the NSE’s recently launched incubation and acceleration program (Ibuka), this target has not been achieved.
Only five companies are listed under GEMS, which by far exceeds listing activity in the other market segments.
In this article, I look at various reasons to consider listing of shares on the securities exchange.
The main benefit is raising of capital. The shares are offered to the public, providing the issuer with a larger investor base. The company can then use the capital raised to undertake its projects.
It is worth noting two aspects of the capital raised from listing of shares. It is cheaper than other alternatives, such as bank loans and other debt.
Further, it is long-term as the investors become part owners of the company as opposed to lenders, in which case the company does not have the obligation to repay.
Listing of shares spreads the risk of ownership. As a company grows, the risk of ownership increases. Listing gives the initial owners a chance to share the risk of ownership with the investors.
For instance, founders of start-ups may use listing to partially exit the company and cash in on their investment. This limits their exposure in case the company collapses.
Governance plays a big role in the performance of a business. While the governance structures of private companies do not have regulatory oversight, the CMA’s Code of Corporate Governance Practices for Issuers of Securities to the Public sets out the principles and guidelines to be followed by listed companies.
The Code ensures that the Board and committees are properly constituted, policies and statements required for the proper functioning of the Board are maintained, among other governance measures.
Listing improves a company’s public image.
Companies listed on the NSE have a wider visibility. The approval for listing by regulators acts as an endorsement on the affairs of the company, creating more confidence in the company by the market.
To attract and retain top talent, listed companies can offer employee share ownership plans (Esops).
There are tax benefits to listing shares, including lower corporate tax rates for up to five years after listing, tax deductibility of listing costs, among others.
While there is a decline in performance of the market and a reducing equity turnover, there are still a number of reasons to be interested in listing your shares.
The writer is Partner, MMC ASAFO