Investors unsettled as new listings come to stock market
This week will see TransCentury and British American Investment Company Ltd take the first steps in listing at the Nairobi Stock Exchange(NSE).
While the deep pocked TransCentury will be entering the bourse by introduction, British American Investment Company will be doing an initial public offering (IPO) running from July 12 to August 5, 2011.
“After it got new shareholders through private placement, TransCentury is scaling up by providing these investors with a more liquid market to trade,” said Robert Bunyi, a financial analyst.
But even with all the listing merits, there are those who are still unclear over TransCentury’s game plan.
For instance, why would a deep pocked private investment club go through the rigours of public scrutiny by listing its shares at the stock market?
Even more intriguing is a move by Deacons, a lacklustre clothing line, to also follow this route.
Deacons and TransCentury will be walking the path of CfC Insurance Holdings Limited, a South African controlled firm which recently listed at the NSE by way of introduction.
Unlike those who have listed at the NSE through IPO window, TransCentury, CfC and Deacons is looking to the bourse for entirely different reasons.
“Listing at the bourse is ideal for any firm looking for an independent valuation of its shares.
Once listed, there will be offers and bids coming into the market, allowing for a price discovery,” said John Kirimi, Managing Director, Sterling Investment Bank.
Shareholders of TransCentury, Deacons or CfCIH will also be able to objectively determine the true value of their holding in the firm, through a price determination mechanism offered at the bourse.
“ Listing at the exchange gives a company room to make more disclosures, resulting in better governance and improved transparency,” said Kirimi.
For instance, a listed firm must publish its financial accounts after each quarter as well as meet all laid down liquidity and solvency requirements.
But what is unsettling investors is the possibility that existing shareholders of CfCIH, Deacons or even TransCentury could be looking for an exit option, after their stocks are listed at the bourse.
The ‘listing by introduction’ option appears to offer a perfect opportunity for any interested shareholder in these firms, to offload and make a clean exit.
The Capital Markets Authority requires that shareholders of a firm listing by introduction at the NSE will not dispose of any of their stock for a period of two years from the date of listing.
In addition, no changes in the senior management including the managing director are planned or expected during the two years after listing.
But even with these guaranteed continuity and lock-in safeguards, there is no guarantee that shrewd characters will not offload at a later date, leaving the market stuck with “junk” stocks.
When Sameer Africa put its cash in the tyre business, it had little idea that Firestone would eventually be swamped as new brands entered the local market to offer stiff competition.
Sameer has since lost its dominance in the local tyre market. And with that, Naushad Merali and other principal shareholders, have shed off their shareholding in Sameer Africa which owns Yana tyres.
“Listing gives an exit option to existing shareholders of a company and this is a major consideration. However, the bourse can also be used to raise additional capital, exchange assets or even acquire other firms,” said Job Kihumba, Executive Director, Standard Investment Bank.
TransCentury, which has invested heavily in infrastructure, could be listing to have a better profile.
This positioning is expected to come in handy as the firm seeks more funds to pump in such projects as the new metro railway line for Nairobi.
Whether by introduction or through an IPO, listing allows existing shareholders to cash in on their investments, as it happened in companies such as AccessKenya and ScanGroup.
“There is nothing wrong with this exit strategy because listing invariably always leads to a firm’s market value going up,” said Kihumba.
TransCentury is preparing to list by introduction to shield itself from a bearish NSE that has been down 11 per cent since the beginning of the year. It will be listing on 14 July at a price of Sh 50 a share.
But the same is not the case for British American Investment Company which has chosen to brave the bearish front at the NSE to list through the IPO window.
The NSE has been ranked the worst performer in Sub-Sahara Africa this year and will be looking at some five new listings to bolster its fortunes. CFCIH started trading on April 21, making it the first listing at the bourse after more than a dry spell lasting more than two years.
TransCentury will be the next to list upto Sh267 billion issued ordinary shares of Sh0.50 each and a further Sh150 billion unissued ordinary shares of Sh 0.50 each reserved for a convertible bond programme.
With the TransCentury and Deacons queue drawing all the attention, eyes will also be on British American Investment Company, which is planning an IPO.
The firm is the holding company of British American Insurance Company (Kenya), British American Asset Managers Ltd and Britam Insurance Company (Uganda) Limited.
This IPO is expected to open on July 12 and close on August 5. The firm expects to raise Sh5.85 billion to support its local and regional expansion drive in Kenya, Uganda, Tanzania, Rwanda, Burundi and Southern Sudan.
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