Jitters as more firms delist from Nairobi Securities Exchange

By Jackson Okoth

Nairobi, Kenya: All eyes are on firms listed at the Nairobi Securities Exchange (NSE) with investors figuring out who is likely to throw in the towel next. In recent months, a number of listed companies have made their exit from the Nairobi Securities Exchange (NSE).

The list of those who have left or are planning to include AccessKenya, CMC Motors and Rea Vipingo — a sisal plantations firm. South Africa’s Dimension data bought out Access Kenya for a tidy sum of $34 million. Auto dealer CMC Holdings — long associated with powerful individuals within the Government and UK-owned Rea Vipingo Plantations (RVP) are going through takeover motions.

The only new firm to be listed on the NSE in 2013 was Home Africa, while I&M Bank joined the bourse through a reverse takeover. 

“This movement in and out of the Nairobi bourse points to several factors. Either compliance costs are becoming too high for listed firms or the level of supervision by the regulator is too intrusive, making some uncomfortable,” said David Owiro, Programme Officer at the Institute of Economic Affairs.

Fresh capital

The question is whether those listed at the bourse are finding it more attractive to delist and draw in a new portfolio of investors and fresh capital.  “The recent boardroom wrangles within CMC Motors and the scrutiny it has been subjected to by Capital Markets Authority (CMA) could be acting as a disincentive for more listings and a source of worry for those already at the bourse,” said Owiro.

Experts maintain that CMA must begin to ask itself the hard questions including whether its regulations are too cumbersome and why the bourse is not attracting new listings.

Demutualisation of Nairobi Securities Exchange is expected to open a window that will also allow investors to gain or lose depending on movement of the NSE indexes.

The process is also expected to improve governance as more players take up a stake at the bourse in addition to counters of listed firms.

“On the list of those targeted for acquisitions are companies in the plantations sector. In terms of their net value, most of these firms are grossly undervalued, based on the huge tracts of land they sit on,” said John Kirimi, chairman of the Kenya Association of Stockbrokers and Investment Banks (Kasib).

In December, 2013 Kakuzi Limited issued a profit warning, informing investors that its net income could fall by at least 25 per cent. The firm cautioned that its profit after tax is expected to drop due to the sharp decline of international tea prices.

Other NSE listed agricultural firms such as Williamson Tea, Kapchorua Tea and Limuru Tea have already indicated that the sharp drop in tea prices could hit their profits.

Interestingly, the ongoing buzz surrounding demutualisation of the exchange appears not to have impressed foreign investors who dominate activity at the bourse.

Access fees

Demutualisation process, which is supposed to make the bourse more credible and attractive, is currently stalled as the regulator and market players haggle over market access fees, setting up a derivatives exchange and diluting the stake held by stockbrokers at the NSE.

Delisting means permanent removal of securities of a listed company from a stock exchange. After the delisting, the securities of that company can no longer be traded on that stock exchange.

A company can delist for several reasons. The majority shareholders may want to increase their stake in the company, especially in depressed market conditions.

 The management may also take the delisting route while seeking greater freedom in decision-making, without having to adhere to tedious compliance rules of stock exchanges and approval of shareholders or the company is merged or acquired by another firm.