A third of Kenya’s listed companies issued profit warnings last year, reflecting the tough economic times that have hit the country’s private sector.
The Capital Markets Authority says 20 firms issued profit warnings while 14 companies actually fell into losses last year.
“This was aggravated by uncertainties around the Presidential elections during the second half of 2017, as well as prolonged drought that was experienced in the country earlier in 2017, which led to increased inflationary pressure and a reduction in disposable income,” CMA said in a study conducted early this year.
The previous year, 16 firms warned that their returns would fall below their 2015 figures and 13 companies made losses.
In 2015, a total of 18 companies made losses, the largest figure in recent years while 14 firms issued profit warnings. In 2014, ten firms issued warnings and 11 made losses.
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“The most common reason provided by companies for the profit warnings and losses was tough macro-economic conditions and especially, the impact of the depreciation of the Kenyan shilling and high interest rates on their respective businesses,” said the study report.
CMA said the dismal performance is the cause of a listing drought at the Nairobi Securities Exchange (NSE).
“This may be one of the reasons for potential issuers keeping away from listing, as going to market when prices of affected listed companies were on a decline would not have been prudent,” it said.
The study is part of an effort to address the shortfalls at the equity and bond markets that saw the National Treasury, CMA, NSE, Central Depository and Settlement Corporation launch a joint strategy to address the low uptake.
Other partners in the initiative included the Fund Managers Association, the Kenya Association of Stockbrokers and Investment Banks, licensed market intermediaries and the East African Venture Capital Association.
Stimulating market
CMA said, over the years, privatisation of state corporations has been key in stimulating the market with Initial Public Offers (IPO) being oversubscribed.
Kenya Commercial Bank attracted a 327 per cent subscription in 1988 while Housing Finance got 303 per cent subscription in 1992. Safaricom was subscribed by 532 per cent 10 years ago.
The market regulator hopes that floating State-owned enterprises on foreign markets could also boost liquidity in home markets.
“This privatisation strategy may enlarge the participation of foreign investors and overcome informational barriers to foreign investment,” CMA said.
Kenya plans to cross-list National Oil Corporation shares at the NSE and the London Stock Exchange.
