NSE kicks off reform process

By James Anyanzwa

Shareholding of the Nairobi Stock Exchange (NSE) will be split among three key investors during the first part of the demutualisation process.

This development comes after it emerged that the bourse, which is seeking to redeem its image, is currently valued at Sh4.5 billion, according to preliminary figures submitted to the Capital Markets Authority (CMA).

The Government, CMA’s Investor Compensation Fund (ICF), and the NSE’s current members (stockbrokers and investment banks), will temporarily own shares in the exchange for a period of between one to three years.

The entities shareholding will then be diluted, either through a private placement, an initial Public Offering (IPO) or self-listing.

The initial allotment of NSE shares will be done free of charge.

"They will not pay for these shares. In fact, we have already submitted a preliminary valuation to the authority for consideration," said Peter Mwangi, NSE’s chief executive.

However, the modality of apportioning the shares is yet to be agreed upon, he said.

But earlier proposals had indicated that the stockbrokers would be allotted 80 per cent of the shareholding, with the remaining 20 per cent shared between the Government and the ICF.

Enjoy monopoly

Currently, brokers enjoy a monopoly of the NSE. The demutualisation process seeks to deal with corporate governance by separating ownership and trading rights of the member firms, among others.

Proponents of the process see it as the solution to the challenges facing the exchange, which include conflict of interest. In some cases brokerage firms, who are the principal members of the bourse, act as dealers, and fund mangers.

"The allocation amongst the members is something they have to agree among themselves. Whatever will be proposed will be part of the application to the authority, and has to be approved by CMA," Mwangi told capital markets stakeholders in Nairobi on Tuesday.

The event, which was organised by the CMA, sought to sensitise stakeholders on the demutualisation of the NSE and build consensus.

According to the demutualisation report presented to stakeholders on Tuesday, brokerage firms will be required to reduce their shareholding to below 40 per cent after the transition period.

Miss deadline

However, it emerged the completion of the demutualisation process may not be realised within the planned dateline of December 31.

"I see demutualisation completed in the first half of next year," said Mwangi.

"From this point it is a political process. We have actually begun our lobbying," said Stella Kilonzo, CMA chief executive.

A draft Demutualisation Bill has already been completed and presented to the Ministry of Finance and the AG’s chambers.