The Nairobi Securities Exchange is About To Reawaken, But Challenges Persist

It has been a long while since the Nairobi Securities Exchange (NSE) witnessed a fresh exit of a company in Kenya. A lot has been said about the lull on the NSE but a well thought out approach might end the silence and see new companies raise funds on the bourse. 

David Waggema, Head of Business Development at the NSE said that there could be two or three listings this year at the NSE thanks to the Ibuka incubation programme by the NSE. 

Described as the baby pool of the NSE, the Ibuka programme aims to take advantage of an SME led economy to boost investor options in Kenya. 

According to Waggema, most potential companies are either wary of full disclosure that comes with the listing, find it expensive to have their firms listed or have no sufficient information on how to take advantage of the NSE. 

“Some of them (companies) feel that if they list with all the disclosures, some of their competitors will get wind of them (strategies),” Waggema explained. “But it still doesn’t add value when you are out of the NSE.”

“The concern is people want control of their company and they feel coming to the stock market will be diluting that control by having independent directors, but that is geared towards good corporate governance,” he added. 

Through their Ibuka Incubation programme, the NSE works with companies that are looking to list, to demystify the NSE. Through the programme, the firms get to learn how to put their books in order, adopt important corporate governance structures and know the tools of the trade and how a listing can be a great way to raise additional capital. 

The programme now hosts over 10 companies including newly admitted Tuskys Mattresses Limited, Vaell, Nile Capital Insurance Brokers, Polygon Logistics among many others. 

Waggema said that there is no upper or lower limit on companies that want to enter the incubation programme. “We have a Kshs 4 billion company and also startups,” he said. 

Growing local investors

Investors in the bourse are also an important aspect in growing trading at the NSE. Data from Capital Markets Authority, say there are slightly over 1.1 million local individual investors in the NSE, while foreign corporate investors and foreign individuals are 657 and 7,959 respectively.

According to CMA, despite foreign investors having a 20 percent share at the NSE, they have dominance in terms of trading. 

In the first quarter, the investors held 76.9 percent in trading and 69.2 percent in the second quarter. This means that the 79 percent local investors held the shares for speculation purposes and there was minimal short term trading. 

Waggema spoke of the NSE giving the companies visibility that could attract not only local individual investors but international capital too.

“In the process the company’s gain visibility. We had the Fusion Capital Development Reit part of why it failed it because they were not known by the public. But companies on the Ibuka platform are already getting traction. People can see them. 

“Some like Globe trotter, they receive more visibility from local and international media. The visibility is really helping in terms of business,” he said. 

New segments: REITS and Derivatives 

New investment vehicles including real estate investment trusts (REITS) and Derivatives can plough back the interest in the bourse and the NSE is already working on it. 

Unfortunately, there isn’t much education on these vehicles that could offer different investment vehicles. For Reits, the failure of Fusion Capital D-Reit and the lacklustre performance of Stanlib Fahari I-Reit have been blamed on the lack of education to the consumers. 

Kenya is struggling to keep afloat the singular REIT listing but countries like South Africa are hosting 29 REIT listings, bolstering the real estate market in the country. 

The NSE received a nod to launch a derivatives market at the bourse July this year, giving an opportunity to investors to trade instruments other than, bonds and shares. 

“The NSE Derivatives Exchange- NEXT- is the first Derivatives Market in East Africa and the Second Derivatives Exchange in Africa. This development will position Kenya and its capital markets as a key investments gateway for East and Central Africa as well as enhance Nairobi’s status a regional financial hub,” the Capital Markets Authority said in their recent CMA Soundness report. At its peak, the derivative market should boost the investor numbers at the NSE. 

As per now, Ibuka programme seems to be a solid route to boost listing and excite investor appetite at NSE.