Capital Markets

NSE targets listings on tax amnesty


The Nairobi Securities Exchange: Many companies expected to convert to full listing. FILE PHOTO | NMG

Nairobi Securities Exchange (NSE) chief executive Geoffrey Odundo is tipping most of the 13 firms undergoing pre-listing training to join the Growth and Enterprise Market Segment (Gems), riding on the proposed two-year tax amnesty.

Mr Odundo said the companies now hosted on the Ibuka incubation and acceleration programme stand a good chance to join the bourse, with the amnesty enhancing the prospects.

“A number of them are now talking about converting into full listing once they finish this phase of corporatisation and strengthening of structures. We see a number of them converting this year,” said Mr Odundo.

Treasury CS Henry Rotich last month proposed to introduce an amnesty on the tax penalties and interest on any outstanding tax for two years prior to the listing, for firms that list under the Gems programme.

Mr Odundo says the amnesty offers a tangible benefit and will be crucial to attracting small- and medium-sized entities, mostly family-owned, to come to the bourse.

“This is an additional incentive to the existing ones. Tax amnesty is a tangible one because any entity that will carry its own assessment and discover it has arrears and penalties will now not shy away from listing,” he said.

The Gems segment, launched in July 2013 with relaxed listing rules has struggled to attract new listings since June 2016.

Mr Rotich reckoned that uptake has not been good in view of potential back taxes that the enterprises may be facing.

The amnesty call was fronted by the Capital Markets Authority (CMA), which had proposed a conditional full tax pardon, including the principal sum, for firms that remain listed for at least five years.

“We appreciate continued support from Treasury to keep responding to our policy submissions to help position Kenya as a capital markets hub,” CMA chief executive Paul Muthaura said.

To list on the Gems market, an entity is supposed to have a minimum authorised and fully paid up ordinary share capital of Sh10 million and not less than 100,000 shares in issue.

These are relaxed conditions compared with Sh50 million minimum issued and fully paid up ordinary share capital that is required for firms listing on main investment market segment.

Firms will lose the amnesty if they quit the NSE.

Since the creation of Gems, just five companies have listed on the segment in six years.

Only Flame Tree Group #ticker:FTGH —a fast-moving consumer goods company — remains profitable among them, indicating the risks involved in such listings.

Shoe vendor Nairobi Business Ventures #ticker:NBV and real-estate developer Home Afrika #ticker:HAFR have reported losses amid tough operating environments while the rarely traded Kurwitu Ventures #ticker:KURV remains largely inactive as an investment firm.

Atlas African Industries that listed in December 2014 was delisted after it went for more than three years without publishing its financials. It also ceased to exist as a going concern after being struck off the companies register under the Guernsey laws where it was domiciled.