East Africa’s stockmarkets are no longer favourites of investors seeking to raise capital for growth and expansion.
Initial public offerings, which are usually associated with booming markets, have dried up and analysts say the unwillingness among new companies to offer shares to the public is a ticking time bomb heralding the eventual demise of the exchanges.
The latest developments casts doubt on the future of stockmarket listing in the region with some of the listed counters such as Kenya’s national carrier Kenya Airways considering a delisting option.
The EastAfrican has learnt that stringent market regulations, the high cost of listing, increased disclosure requirements, tough operating environments, falling corporate earnings and trading malpractices such as insider trading and front running of bonds by dealers in Kenya have eroded investor confidence and kept potential issuers away from the stockmarket and bond market.
In addition, local investors who had been active in issuing IPOs have exited most markets in the region, leaving the exchanges in the hands of foreign investor.
Companies are now shifting focus to private equity and private placements to raise capital outside the stockmarket.
“I think to some extent there is a tendency by private firms to shy away from the disclosures required in the market. There is also increased competition from private equity funds, that are offering an alternative source of capital which does not require the kind of public exposures the stockmarkets require,” said Paul Mwai, chairman of the Kenya Association of Stockbrokers and Investments Banks (KASIB).
According to Mr Mwai, who is also the chief executive of AIB Capital, PE funds often exit to other PE funds after five to seven years, adding that incentives should be offered to attract them to the stockmarkets.
“There is a needs for incentives for PE funds to exit into the stockmarket,” he added.
According to Daniel Kuyoh, an independent market analyst, the attractiveness of private equity and debt is driving firms away from the stockmarket adding that the trend is likely to persist until the listing requirements are relaxed.“Unless there are greater incentives for public listing, companies will continue to seek alternative capital sources, so unless there is a more concerted effort by the stockmarket and regulators to incentivise private companies, they will remain private,” said Mr Kuyoh. Regulations The EastAfrican has also learnt that regulations and tax compliance have become a thorn in the flesh for potential issuers, who fear being on the […]