Kenya is pushing for capital markets reforms to reduce the volume of free float or tradeable shares for large companies seeking to list on the Nairobi Securities Exchange, from 25 per cent to five per cent.
This is one of a string of measures that the Capital Markets Authority has fashioned with hopes of attracting new companies and improving liquidity on the ailing exchange, currently weighed down by declining trade volumes and failure to attract new investors and companies.
The amendments to the Capital Markets (Securities) (Public Offers Listing and Disclosures) Regulations 2002, which are expected to be incorporated in next year’s (2019/2020) budget include the reduction in the free float for large-sized companies seeking to list on the Nairobi bourse from 25 per cent to five per cent, as an incentive to float shares to the public.
Luke Ombara, CMA’s director in-charge of regulatory policy and strategy told The EastAfrican that several big firms, whose identity he declined to disclose, have kept off the market because of the high free float requirement.
"Many companies have shied away because of our minimum free float requirement. The truth is that they don’t want a 25 per cent free float but you can see that even one per cent will create a substantial amount of new shares. We therefore retain 25 per cent with no new listings or accept five per cent with new listings and more shares available. You see the logic," said Mr Ombara.
"This will only be applicable to newly-listed firms. The law will have to be crafted carefully to clarify that and because this could be interpreted as applying different standards, the new firms may be required to comply with the current floating rate within a certain period. It’s a catch 22 as you can see and that is why it has to be discussed and agreed with the stakeholders."
The regulator has hired a consortium of both local and foreign consultants to help overhaul the entire Public Offers, Listing and Disclosure regulations as part of key measures to breathe new life into a securities exchange that has not pulled an initial public offering from a corporate entity since 2008.
The NSE has been characterised by low liquidity levels where the market is dominated by five large companies — Safaricom, Equity Bank, East African Breweries Ltd, KCB Bank and Co-operative Bank of Kenya — controlling over 70 per cent of the market capitalisation, according […]