Capital Markets

Dusty storm sweeps through Sh2trn stock market

The market that is supposed to hold Sh2.278
The market that is supposed to hold Sh2.278 trillion, which is 30 per cent of the country’s Gross Domestic Product has no takers sending down stock prices and wiping out billions of shillings in paper wealth. FILE PHOTO | NMG 

There is a dusty wind blowing up a storm through the dessert that is the floor of the Nairobi Securities Exchange.

The market that is supposed to hold Sh2.278 trillion, which is 30 per cent of the country’s Gross Domestic Product has no takers sending down stock prices and wiping out billions of shillings in paper wealth.

Walking through its vacant isles, you see a ghost town with rickety store fronts, discoloured dead stock and owners sapped dry with only one distant corner of refuge where all the market players are huddled for safety of their last pieces of silver as they watch advance of the great drought on returns.

A review last week showed that when the market opened on Tuesday, after Eid ul Adha celebrations, 17 counters had zero transactions and 11 counters had transactions that were less than 1,000.

On Wednesday, the situation worsened as 21 counters went without trading while seven had less than 1,000 stocks exchanged.


Three counters have been shuttered for a while, KenolKobil which has since decided to take business private, and Athi River Mining and Deacons which have gone kaput.

The NSE benchmark index, NSE 20 share, which captures movement of select blue chip stocks, is down to 2,552.19 points — a level last seen in March 2009 a decade ago.

In 2014, the Capital Markets Authority had drawn up plans to boost corporate bond markets to 40 per cent of the Gross Domestic Product by 2023 but now risk having this at zero.

Since April 2017 when EABL issued a bond, no other Kenyan firm has sought long-term debt from the capital markets to date.

And in the next six months nine corporate bonds will mature in Kenya, six will mature in 2020, four in 2021 and two in 2022. Then there will not be a single corporate bond in Kenya, East Africa’s biggest economy and most liquid capital market unless something is done to mitigate the waning fortunes.

The NSE is at a crossroads that has led the market to stop and try to understand what is happening, but have they found the answers yet?

According to a Soundness report released two weeks ago, the Capital Markets Authority (CMA) seems to think the problem may lie in fewer illiquid counters.

“Kenya’s equity turnover levels remain low in comparison with global peers. This has mainly been attributed to limited options of counters to trade on with major trading reflected on the top five companies at the bourse by market capitalisation,” CMA said.

The NSE is a 65 year old market and even if it counted a company for each year it would still come short with 64 listed firms.

In fact KenolKobil is on its way out, so is Express Kenya Limited and Unga Group who have expressed desire to leave.

Declining financial performance

NSE exits include vehicle dealer Marshalls East Africa after Global Ltd, which owns 13.9 per cent of the auto dealer, decided to buy out retail shareholders.

Another firm, Access Kenya had its value eroded and was acquired and subsequently delisted while boardroom wars ate into the valuations of CMC Motors which was eventually taken over by Dubai-based Al-Futtaim and delisted.

African Lakes Corporation (Africa Online) and Unilever Kenya have also exited the Kenyan equities market.

The most recent exit has been British firm Atlas which vanished into thin air and was finally struck off the register while National Bank is expected to be kicked out once it is swallowed up by KCB.

The authority’s proposal to amend the NSE listing and trading rules, introducing a board where financially distressed firms can be rehabilitated over two to three years, risks kicking out firms with declining financial performance, corporate governance issues and the rapid decline of their share prices.

This sets Uchumi Supermarkets, Mumias Sugar Company, Kenya Power, TransCentury Express Kenya, Sameer Africa Plc, Athi River Mining, EA Cables Ltd, East Africa Portland Cement, Home Afrika Ltd, Olympia Capital Holdings Ltd and Eveready East Africa in the crosshairs.

To turn the tide, CMA says it is talking to Kenya Association of Manufacturers to get firms interested and has created an exciting product called iBuka to help incubate and accelerate firms to join the market. Fifteen companies including retailer Tuskys and HomeBoys have signed up.

“Joint market initiatives are being pursued by key stakeholders including the authority, NSE and CDSC through such initiatives as signing MoUs with institutions relevant institutions such as the Kenya Manufacturers Association with the goal of bringing more companies to market,” CMA said.

The regulator’s success is open to see in the fact that no company has listed in the market since November last year when Bank of Kigali cross listed at the NSE.

Its hard to blame them when the history of new entrants has not been as rosy with the Bank of Kigali remaining relatively inactive.

The listing curse also hit Deacons which came live in 2016 at Sh15 a share and two years later it was put under receivership with shares trading at 45 cents.

Nairobi Business Ventures tried to get on the treadmill and slipped but did not fall out, its fortunes have since been on the red its share price whittled from Sh12 listing price per share to 90 cents.

The market’s saving grace has been the National Oil Company limited which was expected to cross list in London and Nairobi, a big counter that may pull back money as investors anticipate oil revenues to start trickling in.

Perhaps Bangi Inc. the New York Over The Counter (OTC) market if the legacy of Kibra MP, the late Ken Okoth can pave way for legalisation of the herb.

CMA also seems to think investors are short of cash and would want options where they can use less money to make big sales or even borrow stocks.

It has set up the derivatives market where you only need a fraction of the value of a stock to have skin in the game or securities lending and borrowing which the authority has developed new regulations.

The markets authority also thinks the problem may lie in education and says it wants to go out and preach, and monitor if this way they will convince those who put money in betting to invest in companies and grow the economy.

“The authority concluded an investor education impact and opportunities analysis study that will be instrumental in the development of a national Consumer financial education strategy as well as development of an impact assessment measurement index that the authority can use to gauge the impact of its investor education program going forward,” CMA said.


Others have pointed fingers at the government whose desperation to make money saw them raid the market with first an unworkable Robin Hood tax last year and the Capital Gains tax which caused the market to loose investors as uncertainty loomed.

With a slump in stock markets fortunes, investors have piled their money on five counters which now make up 70 per cent of the entire market.

The CMA Soundness report shows that Safaricom, Equity Bank, East Africa Breweries Limited, Kenya Commercial Bank and Cooperative Bank had the highest concentration of the market over the last year.

“During the quarter, the top five companies by market capitalisation accounted for 70.80 per cent, the highest in the last four quarters, confirming their dominance in the Kenyan securities market,” CMA said.

In the first quarter the five companies made up 67.5 per cent market capitalisation while in the last quarter of 2018 they comprised 65.8 per cent of the market. Between July and September 2018 the five firms made up 68 per cent of the market value.

The government on the other hand controlled 99.98 per cent of the bond market dwarfing corporate bonds.

“The authority has been actively promoting market diversification as a way of addressing this challenge. Market deepening function has been reorganised and strategic alliances leveraged to facilitate uptake of new products and especially bringing to the market large cap entities to reduce market concentration,” CMA said.

Market Capitalisation which stood at Sh2.3 trillion in the first quarter slid 3.3 per cent to Sh2.2 trillion according to the CMA report.

The benchmark Nairobi Securities Exchange index NSE 20 was down 7.4 per cent, all share index was down 5.1 per cent while the volume of shares traded declined 16.5 per cent from 1.6 billion in the first quarter to 1.3 billion in quarter two.

Only the bond turnover increased by 24.8 per cent from Sh161 billion to Sh201 billion but this market was dominated by the State where the National Treasury issued six treasury bonds which were oversubscribed.

The government sought to raise Sh140 billion but received subscriptions worth Sh242.07 billion. In the end, however, it accepted to issue bonds worth Sh157.82 billion, indicating a 65.20 per cent acceptance rate.

Corporate Bond turnover amounted to Sh34.76 million or 0.02 per cent of total bond turnover.

CMA said it is implementing a hybrid bond market model that will allow trading o both on and off the exchange.

The authority also hopes the recent establishment of the Kenya Mortgage Refinancing Company (KMRC) will enable bond market deepening after it leverages on capital markets to raise funds through bonds for on-lending to banks and other mortgage financing companies.

Within the small corporate bond market, local investors also dominate with very marginal money coming to this segment from abroad.

Local corporate bond investors were holding 99.33 per cent of amounts outstanding as at the second quarter while foreign bond investors held 0.67 per cent of total corporate bond holdings.