CMA yet to approve NSE demutualisation as deadline nears

NAIROBI, KENYA: The planned demutualisation and eventual self-listing of the Nairobi Securities Exchange (NSE) appears headed for fresh trouble. This follows revelations that the Capital Markets Authority (CMA), currently operating without a substantive Chief Executive and a board chairman, is yet to approve the transaction.

Industry insiders link the delay to management upheavals at the authority. Demutualisation seeks to improve corporate governance in management of the NSE. But even as indications point towards a process likely to be derailed by lack of clear-cut policy direction at the market regulator, the NSE’s management remains bullish that the public could still own a piece of the bourse either before the end of this month or early next month.

“We have not yet received approval for demutualisation and the listing of the exchange. We are still waiting,” said NSE Chief Executive Peter Mwangi. “We haven’t been given the approval yet but we are still within deadline. There is no cause for alarm as we still have another two weeks.”


Another stockbroker said demutualisation is now being held back by the CMA, after all outstanding issues were resolved. “We are still waiting for the approval. All submissions have been done. The issue of demutualisation has to happen but we are still waiting for the regulator’s blessings,” said the source.

Contacted, CMA’s acting Chief Executive Paul Muthaura justified the delayed approval of the demutualisation, saying CMA and NSE are still working jointly over the matter. “That is an issue we are still working out with the NSE now. We are handling the demutualisation and listing process of the NSE,” Muthaura told Weekend Business.

However, the Kenya Association of Stockbrokers and Investment Banks (KASIB) lobby group has distanced itself from delays by CMA to demutualise the NSE. While stockbrokers have given all the necessary approvals as shareholders during a previous annual general meeting held by the NSE, the process of moving forward with the demutualisation yet to be concluded.

Demutualisation is supposed to transform the NSE from a company limited by guarantee to one limited by shares. “Stockbrokers have nothing to do with the demutualisation process and have all previous outstanding issues resolved,” said Willy Njoroge, Chief Executive-KASIB. “While the CMA has a skeleton board of directors that can form a quorum and appoint the chair, the acting chief executive may not have powers to authorise certain transactions.” The demutualisation at the NSE has been in the pipeline for a while with brokers, market regulators and Treasury, each fighting for a piece of the pie.

At present, the NSE is owned 100 per cent by 22 market participants, including Shah Munge and Francis Thuo, brokerage firms who have since exited.


The price of one trading seat at the exchange is estimated at Sh256 million. This was what Renaissance Capital paid for the slot that was left vacant when Francis Thuo and partners folded and shut down their business at the bourse. “Demutualisation of the Nairobi Securities Exchange which has been long overdue is now nearing completion. To ensure finalisation of this  exercise, I propose to amend the law to set the minimum shareholding of the exchange at five by the Government and Investor Compensation Fund, respectively,” said Treasury Cabinet Secretary Henry Rotich, while presenting this year’s budget.

While demutualisation at the NSE appears to have entered a slow climbing lane, more firms have been delisting from the bourse in what analysts attribute to poor corporate governance and stringent operation and disclosure requirements placed on them by CMA.

On the list of firms planning to leave are Rea Vipingo and CMC Motors while AccessKenya has already concluded the exit process. “Essentially, the signal in the noise of this buy out trend is that investors feel some shares are trading at compelling discounts. This is so in the agricultural niche where most companies are trading at deep discounts to their net asset value,” said Aly Khan Satchu, an independent analyst.

Last month, four directors including chairman Kung’u Gatabaki exited the CMA board.NSE’s self-listing was scheduled for June last year but the process has fallen behind schedule due to legal tussles over the allocation of shares amongst NSE, Treasury and CMA’s Investor Compensation Fund.

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