Equities IPO drought now hits five years

The Nairobi Securities Exchange’s (NSE) initial public offerings (IPOs) drought has hit five years, which coupled with several delisting has hurt the market’s equities offering to investors.

Since 2014, the NSE has only welcomed listings by the introduction of a few small firms, a real estate investment trust (REIT) and an exchange-traded fund (ETF).

The bourse’s self-listing was the last IPO that raised significant amounts of cash at Sh627 million. Retail investors had an opportunity to buy shares from the company for the first time with each share costing Sh9.50.

This is compared to 17 companies that were listed on the bourse between 2006 and 2014 — just eight years with an equivalent of about two firms quoted annually.

The period after 2014 saw the entry of small firms including Kurwitu Ventures valued at only Sh127.8 million and Nairobi Business Ventures worth only Sh118 million. The other listings were Stanlib REIT and Barclays ETF.

The drought of IPOs has also come at a time of significant declines in the performance of the market with the 20-Share Index falling from 5,113 points at the end of 2014 to 2654 points at the close of 2019 — an indicator of the extent to which the prices of blue-chip companies have declined during the period thereby suppressing investor interest in the bourse.

In terms of equity turnover, it fell from Sh215.7 billion at the end of 2014 to Sh175.7 billion in 2018. As at the end of November 2019, the turnover stood at about Sh141 billion, showing the total for the year is likely to fall well below that recorded in 2014.

The reduced turnover has in turn affected incomes of various market players including the NSE itself, stockbrokers and investments banks as well as the Capital Markets Authority, which rely on fees received from trading as part of their income.

Further the volumes of traded shares in 2014 — when the last significant IPO was carried out — stood at 8.1 billion but has slumped with the volume in 2018 standing at 6.3 billion and the nine-month volume for this year standing at 3.5 billion.

The Treasury has attempted to encourage more listings without much success.