State proposes law to protect IPO investors

By James Anyanzwa

The Government is proposing new legislation, which will bar foreign investors from selling shares immediately after initial public offerings (IPOs).

Planning Minister Wycliffe Oparanya said such laws would protect local investors from capital losses, which result from falling share prices.

"We should have a safeguard where foreign investors should trade up to a particular period before they are allowed to dispose their shares," Mr Oparanya said Friday.

Oparanya said foreign investors should be locked in for at least six months before they are allowed to offload shares to enable the market to stabilise.

Supply and demand

"This would allow the market to stabilise at a particular level, mainly due to the forces of supply and demand," he said.

Oparanya said lessons from the Safaricom IPO had shown the need to protect local investors who invest their hard earned cash in listed companies.

Safaricom IPO, which was priced at Sh5 per share, rose to a high of Sh7.50 during the listing day on June 9, last year, but eventually dropped by 44 per cent to Sh2.80 a year later as foreign investors liquidated their investments in emerging markets.

Many investors, who borrowed from commercial banks to buy Safaricom shares burnt their fingers and were left grappling in financial distress.

The minister was speaking during the launch of the Kenya Association of Stock Brokers and Investment Banks (Kasib) investor education programme.

While lauding the initiative as ‘good’ for the market, Oparanya also told brokers to address governance issues that have triggered the collapse of three brokerage firms.

"It is important that you observe ethics when it comes to the capital markets," he said.

Code of conduct

In June, Kasib launched a code of conduct, which will guide players in the capital markets.

He said the Government has come up with regulations to strengthen the market and instill ethics and professionalism.

Oparanya said the stock market was critical to the Government, as an avenue of mobilising the much- needed resources to fund implementation of projects identified under the Vision2030 programme.

He told stockbrokers and investment bankers to open their outlets away from Nairobi to rural areas to reduce travelling costs incurred by investors.