Kenya’s stock market is going digital and diversifying as it seeks to attract new investors to offset declining share values, global anxiety over emerging and frontier market risk and a dearth of initial public offerings.
That is the message of Geoffrey Odundo, chief executive of Nairobi Securities Exchange. Founded in 1954, the NSE is one of the oldest stock exchanges in sub-Saharan Africa after Johannesburg in South Africa and Harare in Zimbabwe.
In 2014, it followed Johannesburg’s example by listing on the exchange itself. Five years later a new strategy, which has seen the NSE make substantial investments in technology, is ready to bear fruit, says Mr Odundo.
“After we listed we changed our focus from just being an infrastructure provider to becoming a commercial business,” he explains from his office in the exchange’s mirrored headquarters in the Kenyan capital. That strategy has seen the NSE overhaul its trading platform, extend its services and engage hundreds of thousands of new Kenyan investors.
Despite this, the value of equities traded in the first eight months of 2019 was down 23 per cent as foreign investors — on whom the NSE relies for more than half of its trading activity — followed global trends and pulled funds from emerging and frontier markets.
In response, the NSE has tried to deepen local participation in the market as a counterbalance to the international situation. “We are carrying out a number of programmes to ensure that we make domestic investors equally active in the market,” Mr Odundo says.
In 2017, the NSE helped launch M-Akiba, the world’s first mobile-only government bond, which allows any Kenyan to acquire government paper for as little as $30 (the average monthly wage is $76). Since then M-Akiba has raised more than Ks1bn ($9.6m) and, though it has fallen short of the government’s Ks4bn target, the NSE has registered interest from more than 500,000 citizens. “That’s 500,000 people who previously had no idea of what a bond is,” he says.
The next step in the NSE’s democratisation will be the launch “very soon” of a trading function to allow users to buy and sell equities on their phones. The new capability will be accompanied by an upgrade to the NSE trading platform to allow intraday trading for the first time. Currently equity trades take three days to clear.
“Retail wants excitement, they want to see, can I buy this share, have I made a shilling more and can I sell it within the same period,” Mr Odundo says. “That’s the level of activity we want and we believe that’s going to stimulate the demand.”
The new platform will also allow the lending and borrowing of securities for the first time, enabling investors to “short” stock they believe is likely to underperform. Currently about 80 per cent of the shares issued on the exchange are held by long-term domestic pension funds. “We want them to lend that stock to investors who want to trade” he says. “All these [initiatives] are part of broadening the offering to get different pools of investors.”
Other new asset classes include a derivatives market launched in July. Eight years in the making, it is only the second derivatives market in sub-Saharan Africa after Johannesburg, which has offered equity derivatives since 1988.
This month a property developer, Acorn Project (Two), raised Ks4.26bn ($41m) in Kenya’s first green bond offering, designed to raise capital for projects that reduce carbon emissions. Though Acorn fell short of its Ks5bn target, analysts said the reception to the debut offering was favourable and Mr Odundo expects many other green bonds to follow. “Kenya is awash with green financing opportunities.”
Still, the problem remains that new entrants to the stock market are scarce and too many listed companies have suffered major losses.
The NSE has had no IPOs since 2015, compared with eight between 2006 and 2011. Equally, three of the 66 groups listed on the exchange have been forced into liquidation in the past two years, including ARM Cement, whose investors included the UK government’s private sector investment arm, CDC Group.
Mr Odundo says new listings will come next year, adding that the NSE is also incubating 17 companies as potential entrants to the market. Under the programme, called Ibuka, the NSE helps businesses to fast-track development with access to financial consultants, structuring advice and enhancing visibility with local and foreign investors.
“We are pretty optimistic about next year to see a couple of IPOs, possibly even one conversion from one of our incubator companies” says Mr Odundo. “Very positive outcomes are expected.”
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