Three east African bourses aim to set up alternative markets focused on
fast-growing companies this year, a move they hope will also boost liquidity
and draw more business.
The stock exchanges of Kenya, Tanzania and Uganda have each drawn up
rules to allow small and medium-size enterprises, as well as other companies
that do not qualify for their main boards, to list.
The effort is the latest attempt to breathe life into Africa's nascent
bourses. Africa is home to some of the world's fastest growing economies but
its small, relatively illiquid capital markets have yet to catch up.
"We're a young economy and we thought that in order to remain
relevant as a stock exchange we needed to provide this platform for small
companies looking to raise public capital in order to expand the
business," said Donald Ouma, head of market and product development at the
Nairobi Securities Exchange.
The effort, which senior officials said was not co-ordinated between
the three countries, will create markets with less stringent criteria,
including lower capital and shareholder requirements.
Neighbouring Rwanda may eventually follow suit. Rwanda's one-year-old
stock exchange, home to four companies, may also introduce guidelines later
this year to accommodate SMEs, a top regulator said.
The slow pace of listings by local companies on the exchanges has
prompted the renewed effort to lure younger but riskier firms, many of them
family-owned.
By targeting SMEs, which outnumber blue chips and are seen as an engine
of job creation, they hope to nurture companies that could one day list on the
main board and expand into the wider East African Community.
A flotation could also provide an additional source of financing for
firms that often rely on short-term credit from banks or, if lenders view them
as too risky, family resources.
The Uganda Securities Exchange and the Nairobi Securities Exchange will
name their new markets the Growth Enterprise Market Segment (GEMS), while the
Dar es Salaam Stock Exchange in Tanzania has opted for the Enterprise Growth
Market Segment.
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| Mr Kitua |
All three attempted alternative markets in the past but were unable to
attract new firms because the rules were still too onerous or they were seen as
inferior to the main market.
This time, the officials said, the exchanges would step up efforts to
market the benefits of listing.
Under the new rules, the three bourses require firms seeking admission
to appoint a nominated advisor, a feature borrowed from the London Stock
Exchange's Alternative Investment Market.
The advisor will guide the companies through the listing process and
also advise them after admission.
Joseph Kitamirike, the USE's chief executive, told Reuters last week
that he expected regulators to approve GEMS next month and that the exchange
was already in talks with three potential candidates.
He said GEMS was designed for companies of any size that did not
qualify for the main board, rather than SMEs. So far, firms in the insurance,
transport and real estate sectors had shown interest but he also expected
technology firms to join the segment.
"Any company that has a growth story to tell we are willing to
facilitate," he said.
Tanzania's bourse chief executive Gabriel Kitua said he expects no more
than two listings this year, but added that many businesses could potentially
qualify.
"The private sector is just coming to maturity at this moment in
time," he said. "The big companies, they're not as many as small and
medium scale companies."
Nairobi's Ouma said GEMS is targeting four flotations in 2013.
Regulators in Rwanda recently began a joint study with the African
Development Bank into the financing needs of SMEs and intend to issue
guidelines for the creation of a separate market, Robert Mathu, head of the Capital
Market Authority, said.
"There's an intention to come out with guidelines that will
specifically accommodate SMEs to be able to access long term capital through
the capital market," he said. "The whole essence of (an) SME market
is to make that market a breeding ground for the main market."
Source: Reuters,http://af.reuters.com, reported by Tosin Sulaiman in London
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