Kenya: Majority of Small and Medium Enterprises (SMEs) owned by families in the country do not want to list on the Nairobi Securities Exchange (NSE) fearing loss of clout in their firms and thus being edged out.
A new report by capital market players revealed that family enterprises are hesitant to share their businesses information with the public as required in law once an entity is made public. Stephen Wells, one of the report authors, said that the SMEs are always reluctant to relinquish control and be subjected to new and tight regulation regime.
The report, "Review of Growth Enterprise Market Segment (GEMS) and increasing access to Kenya's capital market by SMEs" was launched together with a working group to implement the Capital Markets Authority (CMA) Master Plan of 2014-2023. The report has been subjected to public consultation before its final implementation.
A team of experts drawn from Capital Markets Authority (CMA), NSE, and Financial Service Deepening (FSD) - a programme supporting development of financial markets in Kenya - were involved to the development of the report.
Well noted that family-oriented enterprises are equally discouraged by the cost charged when they list.
"They prefer operating under their own terms mostly dictated by their past history. Most of SMEs are 100 per cent owned and controlled by the family members. Further, they operate successful business in the country and undertaking mega development projects," said Mr Wells during the launch of the report at a Nairobi hotel yesterday.
He said the combined cost of nominated transaction adviser and legal firm to support a listing is between Sh2 and Sh4 million while the NSE's initial charge fees for a listing is Sh150, 000. In addition to these fees, Well said listed firms must pay Central Depository & Settlement Corporation (CDSC) between Sh500,000 and Sh1 million for incorporating and maintaining the share register.
This, Well added, is over and above indirect cost such as getting adequate accounts to comply with the listing requirements, the cost of complying with governance and management requirements, as well as the cost of management time diverted from running the business toward managing the listing process.
"Some of the families believe that because they have struggled to sustain their businesses, there is no need for them to graduate to public companies," he said. Once made public, the companies have to adhere to good corporate governance, tax regime and have to adopt global best business practices.
However, Nairobi Securities Exchange Chief Executive Geoffrey Odundo said the trend of SMEs owned by families is slowly changing owing to increased awareness and changing dynamics in the business sector.
"For example, in the last two years of GEMs, four have been listed and more are likely to be listed before the end of end of the current financial year," he said. Acting Director in charge of Regulatory Policy and Strategy at CMA Luke Ombara said that SMEs once they agree to list must cede 15 per cent of their shareholding to new shareholdings.
"Majority of SMEs have a perception that surrendering part of shareholding to other players will reduce their influence in the business and thus be edged out," said Ombara.
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