Foreign firms set to raise funds through East Africa bourses

Companies listed outside Kenya could soon be allowed to raise money through the Nairobi Securities Exchange (NSE) under new measures meant to make East Africa a one-stop investment centre.

A meeting of East African Securities and Regulatory Authorities (EASRA) held in Burundi last week resolved to enable member exchanges introduce new products.

“Regional capital market regulators… have resolved to support efforts by market players across the region to introduce new products such as depository receipts, derivatives and real estate investment trusts,” said the market regulators of Kenya, Uganda, Tanzania, Rwanda and Burundi in a joint statement.

Depository receipts (DR) are shares issued by overseas companies in local exchanges but traded in foreign currencies either over the counter or on the bourse.

The foreign firms sell the DRs in the market to raise money without having to list on the local exchange. Local investors benefit through spreading their portfolio to ownership of foreign companies.

Kenya is ahead of its neighbours with regard to Real Estate Investment Trusts (Reits) whose regulations were released last month.

Reits, just like unit trusts in the case of shares, helps developers sell shares in the properties on the promise of returns after a period, thereby releasing money for building other properties.

READ: New REITs managers get regulator’s nod

Rwanda already boasts a commodities exchange where a futures market — where goods are pledged for sale at a defined price at a later date — in grains has started.

The introduction of the products would require regulators to introduce strict supervision and harmonise regulations across the region.

In Kenya, risk-based supervision — where the entities carrying the highest risk are closely watched — is already in place. “This (supervision and harmonisation) is expected to widen the product offering for investors, boost vibrancy and draw international investors while ensuring that investors are well protected,” said the regulators.

Public education would also be required to raise interest in the new products and motivate issuers of debt and equities, especially in Burundi which is working to establish a securities exchange. The nascent Rwanda market operates over the counter.

Uganda Capital Markets Authority chief executive Keith Kalyegira said stock exchanges in the region should grow their market cap to at least 30 per cent of the region’s gross domestic product.

NSE’s market cap of about Sh2 trillion ($23 billion) is already at just over 60 per cent of Kenya’s GDP, but the other countries’ stock markets are at less than 30 per cent of their GDP’s.

The region has a GDP of about $110 billion and 30 per cent of this would be $37 billion.

EASRA members agreed to develop minimum disclosure benchmarks and to harmonise penalties for market abuse and licensing of fund managers. They would also develop a mechanism of sharing daily trading statistics among members.

Under the regional capital market integration, a Smart Order Routing system would be procured to provide for seamless trading and settlement across the EAC region.