PRESENTATION ON THE NAIROBI STOCK EXCHANGE Visit by Netherlands Private Sector Development Staff Mr. Chris Mwebesa Chief...
TABLE OF CONTENTS <ul><li>The Role of the Nairobi Stock Exchange (NSE) </li></ul><ul><li>Current Status of the NSE </li>...
The Role of the Nairobi Stock Exchange (NSE) Mr. Chris Mwebesa Chief Executive March 29 2007
SOME DEFINITIONS OF A STOCK EXCHANGE:- <ul><li>A &quot;stock exchange&quot; is a market place, a physical location where s...
ROLE OF THE NSE:- <ul><li>The Role of the NSE in the Kenyan Economy is best discerned by examining the mandate of the Exch...
To provide accurate, factual and timely financial information Information News Clarification Media <ul><li>To provide oppo...
To provide first line market regulation Regulatory opportunity Information Market development Source of revenue Regulators...
Current Status of the NSE Mr. Chris Mwebesa Chief Executive March 29 2007
LISTINGS <ul><li>Products listed on the Nairobi Stock Exchange </li></ul><ul><li>52 equities; </li></ul><ul><li>5 corporat...
Market Structure Mr. Chris Mwebesa Chief Executive March 29 2007
CAPITAL MARKET KEY PLAYERS <ul><li>Capital Market Authority </li></ul><ul><li>Nairobi Stock Exchange </li></ul><ul><li>Cen...
Market Performance Overview Mr. Chris Mwebesa Chief Executive March 29 2007
EQUITY MARKET PERFORMANCE : NSE 20 Share Index & Mkt. Cap. (Dec. 2002 – Dec. 2006) 606.75 791.91 112.05 Mkt Cap. (Kshs. ...
EQUITY MARKET PERFORMANCE : NSE 20 Share Index & Mkt. Cap. 31 Dec. 2002 to 29 Dec. 2006
Market Indicators – Full Year 2005 and upto 12 months ending December 29 2006 71.23 791.91 462.48 Market Capitalization (B...
Market Performance January & February 2007 <ul><li>Market Indicators: </li></ul>6.23 83,863 7.76 109.08 723.66 5,387.28 ...
EQUITY MARKET PERFORMANCE : NSE 20 Share Index & Mkt. Cap. 31 Dec. 2002 to 28 Mar. 2007
EQUITY MARKET PERFORMANCE : NSE 20 Share Index & Mkt. Cap. (31 Dec. 2002 – 28 Mar. 2007) 471.65 640.53 112.05 Mkt Cap. (...
Market Absorptive Capacity 18 GoK treasury bonds with a face value of Kshs. 69.985 billion. 18 GoK treasury bonds with a f...
<ul><li>Privatisation transactions in the pipeline include the sale to the public and subsequent listing of Government sta...
Automation of the NSE Trading System Mr. Chris Mwebesa Chief Executive March 29 2007
AUTOMATION <ul><li>The implementation of the Automated Trading System happened on Monday 11 September 2006; </li></ul><ul>...
<ul><li>Opportunity to enhance revenue streams through information vending to our stakeholders. </li></ul><ul><li>The imp...
Participation in the Capital Markets - The Case for financing through the Capital Markets Mr. Chris Mwebesa Chief Executi...
<ul><li>To raise funds for expansion and growth (without the interest burden of funds borrowed from lending institutions...
FINANCIAL BENEFITS OF CAPITAL MARKETS FINANCING <ul><li>A company may issue: </li></ul><ul><ul><li>Shares; </li></ul></ul>...
<ul><li>Optimization of Capital Structure </li></ul><ul><li>Far too many firms are too heavily geared courtesy of bank deb...
<ul><li>Optimal Capital Structure is defined as the mix of debt and equity which minimizes the weighted average cost of ca...
<ul><li>Lowering the Cost of Capital </li></ul><ul><li>Equity </li></ul><ul><li>Cost of equity capital is the dividend ret...
<ul><li>Lowering of Cost of Capital </li></ul><ul><li>Debt </li></ul><ul><li>Cost of debt capital is interest payments adj...
OTHER BENEFITS OF LISTING CONTD. . . . <ul><li>Marketing Benefits </li></ul><ul><li>Increased profile hence brand equity...
Policy & Tax Incentives for Companies Listing on the NSE Mr. Chris Mwebesa Chief Executive March 29 2007
Policy and Tax Incentives <ul><li>As an incentive to encourage more listings at the NSE, the Minister proposed that newly ...
<ul><li>Companies that apply and are listed shall get a tax amnesty on their past omitted income, provided they make a ful...
Eligibility Criteria for Listing on the NSE Mr. Chris Mwebesa Chief Executive March 29 2007
THE MARKET SEGMENTS <ul><li>The Main Board </li></ul><ul><li>The Main Investment Market Segment (MIMS); </li></ul><ul><li>...
ELIGIBILITY CRITERIA FOR LISTING EQUITY SECURITIES Immediately before the IPO should not be less than Ksh. 20.0 million. I...
Must have engaged in the same business for a min. of 2 years, 1 of which should reflect a profit with good growth potentia...
<ul><li>Following the IPO at least 20% of the shares must be held by not less than 100 shareholders excluding employees/fa...
ELIGIBILITY CRITERIA FOR PUBLIC OFFERS ON THE FIS AND LISITING ON FISMS Min. authorized issued and fully paid up share cap...
<ul><li>If the issuer is a bank or insurance company, the issuer must obtain a certificate of no objection from the releva...
End Mr. Chris Mwebesa Chief Executive March 29 2007
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NAIROBI STOCK EXCHANGE PRESENTATION ON THE NAIROBI STOCK EXCHANGE

Published on: Mar 3, 2016
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Transcripts - NAIROBI STOCK EXCHANGE PRESENTATION ON THE NAIROBI STOCK EXCHANGE

  • 1. PRESENTATION ON THE NAIROBI STOCK EXCHANGE Visit by Netherlands Private Sector Development Staff Mr. Chris Mwebesa Chief Executive March 29 2007
  • 2. TABLE OF CONTENTS <ul><li>The Role of the Nairobi Stock Exchange (NSE) </li></ul><ul><li>Current Status of the NSE </li></ul><ul><li>Market Structure </li></ul><ul><li>Market Performance Overview </li></ul><ul><li>Automation of the NSE Trading System </li></ul><ul><li>Participation in the Capital Markets </li></ul><ul><ul><li>A case for investing in securities; </li></ul></ul><ul><ul><li>A case for financing through the capital markets </li></ul></ul><ul><li>Policy & Tax Incentives for Companies Listed on the NSE </li></ul><ul><li>Eligibility Criteria for Listing on the NSE </li></ul>
  • 3. The Role of the Nairobi Stock Exchange (NSE) Mr. Chris Mwebesa Chief Executive March 29 2007
  • 4. SOME DEFINITIONS OF A STOCK EXCHANGE:- <ul><li>A &quot;stock exchange&quot; is a market place, a physical location where stocks and bonds are bought and sold, such as the Nairobi Stock Exchange, the JSE Ltd., New York Stock Exchange. </li></ul><ul><li>A stock market can be an actual place, but with the growth of electronic transactions a large fraction of stock market transactions are no longer centrally located in a particular location. </li></ul>
  • 5. ROLE OF THE NSE:- <ul><li>The Role of the NSE in the Kenyan Economy is best discerned by examining the mandate of the Exchange to all its Key Stakeholders. </li></ul><ul><li>We have numerous Stakeholders but the key ones are the Issuers (listed companies), Investors, financial services regulators and the Government. </li></ul><ul><li>NSE has a huge public profile and visibility which comes with a lot of negative publicity. We really are the first line regulator and where there are issues bigger than the NSE then the CMA must take up its mandate. </li></ul>
  • 6. To provide accurate, factual and timely financial information Information News Clarification Media <ul><li>To provide opportunities for </li></ul><ul><li>unlocking value </li></ul><ul><li>enhancing profile </li></ul><ul><li>raising governance standards </li></ul><ul><li>maximize shareholders value </li></ul>Liquidity Source of low cost capital Self actualization Competition Competition Governance Tax savings Exit Succession Education Issuers <ul><li>To provide an open and effective transparent avenue for </li></ul><ul><li>price discovery </li></ul><ul><li>wealth creation and management </li></ul>Information Investment opportunities Security Wealth creation Transfer process Transparency Helpdesk Arbitration opportunity Confidence Education Investors Mandate What we do for them NSE Stakeholders
  • 7. To provide first line market regulation Regulatory opportunity Information Market development Source of revenue Regulators To provide a platform for policy implementation, privatization and capital raising Privatization/exit opportunity Barometer of economy Raise funds Execute policy FDI Government To provide robust capital market infrastructure for them to conduct their business Business opportunities Transparency Efficiency Economies of scale Members and Market intermediaries To remain relevant to our competitors Competition Other markets (globalization) Banks Real estate Competitors To be the employer of choice in the financial service sector Employment Career growth Self actualization Self esteem Staff Mandate What we do for them NSE Stakeholders
  • 8. Current Status of the NSE Mr. Chris Mwebesa Chief Executive March 29 2007
  • 9. LISTINGS <ul><li>Products listed on the Nairobi Stock Exchange </li></ul><ul><li>52 equities; </li></ul><ul><li>5 corporate bonds; </li></ul><ul><li>72 Government of Kenya Treasury Bonds </li></ul>
  • 10. Market Structure Mr. Chris Mwebesa Chief Executive March 29 2007
  • 11. CAPITAL MARKET KEY PLAYERS <ul><li>Capital Market Authority </li></ul><ul><li>Nairobi Stock Exchange </li></ul><ul><li>Central Depository & Settlement Corporation </li></ul><ul><li>Stockbrokers, Investment Banks and Dealers </li></ul>
  • 12. Market Performance Overview Mr. Chris Mwebesa Chief Executive March 29 2007
  • 13. EQUITY MARKET PERFORMANCE : NSE 20 Share Index & Mkt. Cap. (Dec. 2002 – Dec. 2006) 606.75 791.91 112.05 Mkt Cap. (Kshs. Billions) 314.25 5645.65 1362.85 NSE 20 Share Index % Change 29 Dec.2006 31 Dec.2002 Mkt. indicator
  • 14. EQUITY MARKET PERFORMANCE : NSE 20 Share Index & Mkt. Cap. 31 Dec. 2002 to 29 Dec. 2006
  • 15. Market Indicators – Full Year 2005 and upto 12 months ending December 29 2006 71.23 791.91 462.48 Market Capitalization (Billions) 42.10 5,645.65 3,973.04 NSE 20 Share Index 239.01 382,366 176,483 No. of Deals 257.42 42,845.50 13,590.50 Bonds Turnover (Kshs. Millions) 159.98 62,444.34 36,523.68 Equity Turnover (Kshs. Millions) 66.40 1,454.67 874.20 No. of shares traded (Million) % Change 2006 2005 Mkt. Indicator
  • 16. Market Performance January & February 2007 <ul><li>Market Indicators: </li></ul>6.23 83,863 7.76 109.08 723.66 5,387.28 Feb 2007 289.38 1.60 Bonds Turnover (Kshs. Mn) -26.98 114,853 No. of Deals -25.95 10.48 Equity Turnover (Kshs. Billion) -19.98 136.31 No. of shares Traded (Mn) -12.21 824.29 Mkt Cap.(Kshs. Bn) -6.70 5,774.27 NSE 20 Share Index % Change Jan 2007 Mkt. indicator
  • 17. EQUITY MARKET PERFORMANCE : NSE 20 Share Index & Mkt. Cap. 31 Dec. 2002 to 28 Mar. 2007
  • 18. EQUITY MARKET PERFORMANCE : NSE 20 Share Index & Mkt. Cap. (31 Dec. 2002 – 28 Mar. 2007) 471.65 640.53 112.05 Mkt Cap. (Kshs. Billions) 251.56 4791.22 1362.85 NSE 20 Share Index % Change 28 Mar. 2007 31 Dec. 2002 Mkt. indicator
  • 19. Market Absorptive Capacity 18 GoK treasury bonds with a face value of Kshs. 69.985 billion. 18 GoK treasury bonds with a face value of Kshs. 74.8 billion; Corporate bonds with a face value of Kshs. 5.8 billion Debt Kshs. 84.44235 billion ( The market applied for Kshs. 18.2, Kshs. 3.8 and Kshs. 4.608 billion over and above the amounts required in the KenGen, Scangroup and Eveready Batteries East Africa IPOs respectively ). Kshs. 82.369 billion KenGen IPO Kshs. 7.8 billion; Scangroup IPO Kshs. 721.0 million; Eveready Batteries (E.A) IPO Kshs. 556.8 million; Diamond Trust Bank rights issue Kshs. 776.55 million; The GoK sale of its 18.04 stake in Mumias Sugar Company Kshs. 4.553 billion. Kshs. 1.769 billion Equity 2006 2005
  • 20. <ul><li>Privatisation transactions in the pipeline include the sale to the public and subsequent listing of Government stakes in the following:- </li></ul><ul><ul><li>40% of Kenya Re-insurance Corporation; </li></ul></ul><ul><ul><li>25% of Safaricom Ltd.; </li></ul></ul><ul><ul><li>34 % of Telkom Kenya offloaded through the NSE after 26 % has been sold to a strategic investor; </li></ul></ul><ul><li>We also expect from the private sector:- </li></ul><ul><ul><li>Access Kenya – it will be the first locally owned ISP to list on the NSE </li></ul></ul>TRANSACTIONS IN THE PIPELINE
  • 21. Automation of the NSE Trading System Mr. Chris Mwebesa Chief Executive March 29 2007
  • 22. AUTOMATION <ul><li>The implementation of the Automated Trading System happened on Monday 11 September 2006; </li></ul><ul><li>The ATS is sourced from Millennium Information Technologies (MIT) of Colombo, Sri Lanka, who are also the suppliers of the Central Depository System (CDS). MIT have also supplied similar solutions to the Colombo Stock Exchange and the Stock Exchange of Mauritius; </li></ul><ul><li>The NSE trading hours have increased from 2 to 3 hours (10:00 am – 1:00 pm). Besides trading equities, the ATS is also fully capable of trading immobilised corporate bonds and treasury bonds. </li></ul>
  • 23. <ul><li>Opportunity to enhance revenue streams through information vending to our stakeholders. </li></ul><ul><li>The implementation of the ATS and achievement of T+3, will bring us a step closer to meeting the Group of 30's (G30) standards on trading and settlement as adopted in 1989. </li></ul>
  • 24. Participation in the Capital Markets - The Case for financing through the Capital Markets Mr. Chris Mwebesa Chief Executive March 29 2007
  • 25. <ul><li>To raise funds for expansion and growth (without the interest burden of funds borrowed from lending institutions.); </li></ul><ul><li>To improve the liquidity of their securities; </li></ul><ul><li>To optimise their capital structure and lower their cost of capital ; </li></ul><ul><li>To lengthen components of the capital structure (especially debt); </li></ul><ul><li>To increase public awareness about the institution and its products; </li></ul><ul><li>To unlock value . Founding shareholders, Sponsors, Promoters and Venture Capitalists use the capital markets to exit their investments with the aim of making a return on the initial investment, or to realise the true valuation of their enterprise. </li></ul>INSTITUTIONS LIST SECURITIES PRIMARILY TO:-
  • 26. FINANCIAL BENEFITS OF CAPITAL MARKETS FINANCING <ul><li>A company may issue: </li></ul><ul><ul><li>Shares; </li></ul></ul><ul><ul><li>Debt (Bonds); </li></ul></ul><ul><li>Both may be issued: </li></ul><ul><ul><li>Through a public floatation through an offer to the public such as the KenGen issue. </li></ul></ul><ul><ul><li>Private placement to a few select investors such as the Shelter Afrique bond placement. </li></ul></ul>
  • 27. <ul><li>Optimization of Capital Structure </li></ul><ul><li>Far too many firms are too heavily geared courtesy of bank debt. </li></ul><ul><li>Bank debt increasingly the cause of bankruptcies or other insolvency interventions </li></ul><ul><li>No consideration for marginal cost of funds when borrowing </li></ul><ul><li>Diversify sources of funding from short term commercial bank financing </li></ul>
  • 28. <ul><li>Optimal Capital Structure is defined as the mix of debt and equity which minimizes the weighted average cost of capital. </li></ul><ul><li>Factors affecting cost of capital that the firm CANNOT CONTROL!! </li></ul><ul><li>Interest rate regime; </li></ul><ul><li>Level of taxes; </li></ul><ul><li>Factors affecting cost of capital that the firm can CONTROL!! </li></ul><ul><li>Capital structure; </li></ul><ul><li>Dividend policy; </li></ul><ul><li>Investment policy; </li></ul><ul><li>By optimizing what is in the firm’s control the firm can significantly lower its cost of capital. </li></ul>
  • 29. <ul><li>Lowering the Cost of Capital </li></ul><ul><li>Equity </li></ul><ul><li>Cost of equity capital is the dividend return adjusted for growth; </li></ul><ul><li>Dividend policy is in the control of the firm </li></ul>
  • 30. <ul><li>Lowering of Cost of Capital </li></ul><ul><li>Debt </li></ul><ul><li>Cost of debt capital is interest payments adjusted for tax (tax deductible); </li></ul><ul><li>Coupon interest payments lower than commercial bank lending rates because of the relatively higher interest rate regimes pertaining in the region and subsequently higher commercial lending rates; </li></ul>
  • 31. OTHER BENEFITS OF LISTING CONTD. . . . <ul><li>Marketing Benefits </li></ul><ul><li>Increased profile hence brand equity; </li></ul><ul><li>Lock in customer-owners; </li></ul><ul><li>Improved perception of organisations stability; </li></ul><ul><li>Management Benefits </li></ul><ul><li>Benchmarking, comparisons with competitors; </li></ul><ul><li>Staff ownership (ESOPs) hence improved productivity; </li></ul><ul><li>Strict conformity to disclosure requirements – better corporate governance; </li></ul><ul><li>Long term relationships with brokers, investment advisers, the NSE; </li></ul>
  • 32. Policy & Tax Incentives for Companies Listing on the NSE Mr. Chris Mwebesa Chief Executive March 29 2007
  • 33. Policy and Tax Incentives <ul><li>As an incentive to encourage more listings at the NSE, the Minister proposed that newly listed companies pay corporation tax at a lower rate of 20%, for a period of 5 years, provided these companies offer at least 40% of their shares to the Kenyan public ( 2005 ); </li></ul><ul><li>New and expanded share capital by listed companies or those seeking listing exempt from stamp duty ( 2000/2001 ); </li></ul>
  • 34. <ul><li>Companies that apply and are listed shall get a tax amnesty on their past omitted income, provided they make a full disclosure of their assets and liabilities and undertake to pay all their future due taxes ( 2001 ); </li></ul><ul><li>Expenses incurred by companies in having their financial instruments rated by an independent rating agency are tax deductible ( 1997/98 ); </li></ul><ul><li>Exemption of stamp duty and value added tax on the transfer of listed securities ( 1995 ); </li></ul><ul><li>Costs of IPOs were made tax deductible ( 1995 ) </li></ul>
  • 35. Eligibility Criteria for Listing on the NSE Mr. Chris Mwebesa Chief Executive March 29 2007
  • 36. THE MARKET SEGMENTS <ul><li>The Main Board </li></ul><ul><li>The Main Investment Market Segment (MIMS); </li></ul><ul><li>The Alternative Investment Market Segment (AIMS); </li></ul><ul><li>The Fixed Income Securities Market Segment (FISMS); </li></ul>
  • 37. ELIGIBILITY CRITERIA FOR LISTING EQUITY SECURITIES Immediately before the IPO should not be less than Ksh. 20.0 million. Immediately before the IPO should not be less than Ksh. 100.0 million. Size: Net Assets Min. authorized issued and fully paid up share capital of Ksh. 20.0 million. Min. authorized issued and fully paid up share capital of Ksh. 50.0 million. Size: Share Capital Criteria for AIMS Criteria for MIMS Requirement Part B Part A
  • 38. Must have engaged in the same business for a min. of 2 years, 1 of which should reflect a profit with good growth potential. +ve profits after tax attributable to shareholders in at least 3 of the last 5 completed accounting periods prior to listing. Track Record, profitability and future prospects Criteria for AIMS Criteria for MIMS Requirement Part B Part A
  • 39. <ul><li>Following the IPO at least 20% of the shares must be held by not less than 100 shareholders excluding employees/family members of the controlling shareholders. </li></ul><ul><li>No investor shall hold more than 3% of the 20% shareholding. </li></ul>Following the IPO at least 25% of the shares must be held by not less than 1000 shareholders excluding employees. Share ownership Structure Criteria for AIMS Criteria for MIMS Requirement Part B Part A
  • 40. ELIGIBILITY CRITERIA FOR PUBLIC OFFERS ON THE FIS AND LISITING ON FISMS Min. authorized issued and fully paid up share capital of Ksh. 50.0 million, and net assets of Ksh. 100 million Immediately before the IPO. Size: Share Capital All fixed income securities (FIS) except for commercial papers shall be listed, freely transferable and not subject to any restrictions on marketability or pre-emptive rights. Listing and transferability of securities Requirement
  • 41. <ul><li>If the issuer is a bank or insurance company, the issuer must obtain a certificate of no objection from the relevant regulator. </li></ul><ul><li>Where there is a guarantor and in the event that the guarantor is a bank or insurance company licensed to operate in Kenya, the consent of the CBK or the Commissioner of Insurance as the case may be, will be required. </li></ul>Certificate of Comfort Requirement
  • 42. End Mr. Chris Mwebesa Chief Executive March 29 2007

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