Markets & Finance

Investors in NSE get Sh650m bonus shares boost

The Nairobi Securities Exchange (NSE) is set to capitalise cash reserves worth Sh650 million through a bonus issue that will see shareholders get a share for every three held.

The NSE bonus issue comes at a time the exchange has announced a 4.5 per cent dip in net profit for the 2015 financial year to Sh305.6 million, attributed to lower trading turnover on both the equities and fixed income platforms last year.

The NSE held retained earnings of Sh718.8 million at the close of the year, up from Sh487.1 million at the end of 2014.

The bonus offer, which is pending shareholder and regulatory approval, will see existing shareholders get an additional 64.87 million shares, a 33 per cent increase on the 194.62 million already in issue.

They will, however, continue to retain their proportionate ownership in the company. This will in effect increase the liquidity of the company’s shares in market trading and possibly reduce the share price, which closed at Sh23.75 a share Thursday. 

“The director’s recommend, subject to regulatory approvals and that of the shareholders, to increase the authorised share capital from Sh850 million divided into 212.5 million ordinary shares of Sh4 each to Sh1.5 billion divided into 375 million ordinary shares of Sh4 each by the creation of 162.5 million ordinary shares,” said the NSE in a statement.

Foreign and East African institutional investors will be the biggest beneficiaries of the bonus issue, being holders of 86.5 per cent of the shares as per the December 2015 shareholder register.

The capitalisation comes at a time the exchange has been making capital investments in upgrading its systems such as the automated trading system for the introduction of derivatives and exchange traded funds trading.

Last year, the NSE says it invested seed capital of Sh20 million, Sh100 million and Sh10 million in NSE Clear Limited, the NSE Derivatives Settlement Guarantee Fund and the NSE Derivatives Investor Protection Fund respectively.

In terms of financial performance, the NSE said its 4.5 per cent decline in net profit was as a result of a fall in trading turnover due to the capital gains tax introduced in January — although the tax was later scrapped by Parliament.

READ: Kenya does about-turn, abolishes capital gains tax

Equity trading turnover fell by three per cent from Sh431 billion in 2014 to Sh415 billion last year, while bonds turnover was down by 39.7 per cent from Sh1.01 trillion in 2014 to Sh610 billion in 2015.

Total income for the exchange fell to Sh808.3 million last year from Sh821.9 million as a result besides a rise in expenses of 15.1 per cent from Sh389.5 million to Sh448.3 million.

Higher interest rates, especially in the second half of the year, negatively affected trades on the secondary fixed-income market as investors were attracted to higher yielding primary securities issues.

The high interest rates also affected trading in the equities market, at a time the market was in the middle of a bear run that saw returns on the main NSE 20 share index fall to a negative 21.9 per cent for the year. The rates also made it expensive for investors to access credit for investment.