Foreign investors now own a 40.4 per cent stake in the Nairobi Securities Exchange (NSE) after buying 78.6 million shares from founding stockbrokers who have been taking profits following the bourse’s self-listing in September 2014.
Regulatory filings show that 10 market intermediaries, including Ngenye Kariuki, African Alliance, AIB Capital and Francis Drummond, have traded all or part of their shares in the NSE, significantly changing the ownership structure of the company that is Kenya’s only stock exchange.
Foreign investors also bought significant shares during the bourse’s initial public offering (IPO) in 2014, which saw the sale of 66 million new shares at an offer price of Sh9.5.
Foreign institutions, most of which use nominee accounts to buy shares anonymously, have made the largest purchases, giving them a combined stake of 39.49 per cent.
They are followed by foreign individual investors who have accumulated a 0.93 per cent interest in the bourse making total foreign ownership of the bourse 40.4 per cent worth Sh1.8 billion.
The share sales are in line with the goal of separating the ownership of the NSE from market intermediaries, who count among its founders alongside the government.
Stockbrokers are expected to have cut their combined ownership in the bourse to a maximum of 40 per cent by 2017.
This means that the intermediaries, who held a combined 59.4 per cent at the NSE’s listing, could sell additional stakes in the short term to comply with the set regulations and also to voluntarily take profits.
“Demutualisation of the NSE Regulations 2012 … requires the trading participant shareholders to reduce their cumulative shareholding in the NSE to not more than 40 per cent within three years,” says the prospectus prepared ahead of listing.
Selling the remaining balance of shares could further boost the stake held by foreigners who have the deep pockets required to absorb large volumes of stocks.
The government is, however, committed to ensuring a significant local ownership of the NSE, which offers a platform for trading securities including stocks and bonds.
“All the existing shares held by the shareholders except for those held by the Cabinet Secretary, Treasury of Kenya and the Investor Compensation Fund Board can be considered more free float,” says the prospectus.
The Treasury currently holds a 3.37 per cent stake in the NSE, alongside the Investor Compensation Fund (IPF), which has a similar stake, guaranteeing a minimum local ownership of 6.74 per cent.
Kenyan investors have also acquired a 12.5 per cent stake in the bourse, countering the sell-offs by stockbrokers.
The list of local buyers includes NSE chairman Eddy Njoroge, former NSE director Jonathan Ciano, TransCentury director Peter Kanyago, billionaire investor Baloobhai Patel and outspoken retail investor Alois Chami.
Some 12 stockbrokers, including Dyer & Blair and Discount Securities, have also not traded their NSE shares, boosting local ownership. Increased demand for NSE’s shares signals investor confidence in the bourse’s future prospects.
At Sh24, the NSE stock has more than doubled the IPO price of Sh9.5, with the share rallying amid a bear market that has seen the main indices drop by double digits in the past one year.
The bourse earns a fee on each transaction, including buys and sales, effectively making it a toll station for traders. For instance, the NSE charges a levy of 0.12 per cent on each sale or purchase of shares.
The bourse, a virtual monopoly, also has other charges such as listing fees and has moved to diversify its business, including establishing data selling services.
These income streams lifted the bourse’s net profit 39.6 per cent to Sh178.6 million in the six months ended June last year.
Market turnover in equities (buys and sales) in the period rose to Sh213.1 billion compared to Sh201.4 billion the year before.
The income was also boosted by a tax benefit that the bourse derived due to its public listing through the IPO.
Capital markets legislation provides that a company listing at least 30 per cent of its issued share capital can pay tax at the rate of 25 per cent for a period of three years after listing, instead of the usual 30 per cent.
The bourse announced it had injected additional capital of Sh20 million into the subsidiary NSE Clear, Sh100 million into the Settlement Guarantee Fund (SGF) and Sh10 million into the IPF.
The SGF was set up to cover settlement of derivatives in case of default by a clearing member, while the IPF will cover potential claims of clients against trading members.