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THE NAIROBI STOCK EXCHANGE Presentation to the National Defence College Donald Ouma Manager Research & Policy Analysis May 18 2007 TABLE OF CONTENTS NSE Vision and Mission Market Structure Market Performance Overview Absorptive Capacity Automation of the NSE Trading System

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THE NAIROBI STOCK EXCHANGEPresentation to the National Defence College

Donald Ouma

Manager Research & Policy Analysis

May 18 2007


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TABLE OF CONTENTS

  • NSE Vision and Mission

  • Market Structure

  • Market Performance Overview

  • Absorptive Capacity

  • Automation of the NSE Trading System

  • Corporate Actions for 2007


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NSE Mission and Vision

Donald Ouma

Manager Research & Policy Analysis

May 18 2007


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NSE VISION and MISSION

VISION – a picture of our desired future

To be a leading Securities Exchange in the world.

MISSION – a rallying point for the Board and Management

To provide a world class trading facility for wealth creation.


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NSE CORPORATE CORE VALUES


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NSE Brief History

Donald Ouma

Manager Research & Policy Analysis

May 18 2007


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NSE - Brief History

1920s – Dealing in shares and stocks commenced but on a gentleman’s agreement. No formal market, rules and regulations to govern stock market activities -

(Informal)

1951 – First stock broking firm commenced -Francis Drummond

1954 – NSE constituted as a voluntary Association of Stock Brokers - (Formal)

1984 – IFC/CBK Study,” Development of Money and Capital Markets” culminated in the formation of a regulatory body, Capital Markets Authority (CMA) In 1989

1988 – First privatization on NSE- sale of 30% Government stake in Kenya Commercial Bank


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NSE - Brief History

1991- NSE registered under the Companies Act (Cap 486), phased out" Call Over Trading System” in favour of the “floor based Open Outcry System”

1996- Kenya Airways privatization. The Privatization team awarded the World Bank Award for Excellence for 1996 for being a model success story in the divestiture of state-owned enterprises.

2000 – NSE appointed the National Numbering Agency (NNA) for Kenya.

2004 – Kenya Airways becomes the first listed company to cross list on the three East Africa Securities exchanges.


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NSE - Brief History

2004 – First phase of NSE automation launched- CDS, automating the settlement of equity trades executed on the NSE, coincided with the NSE Golden Jubilee.

Benefits:

  • Reduces mutilation, theft or loss of share certificates;

  • Reduction in transaction cost due to immediate transfer of shares pursuant to trades;

  • Reduces handling of large volume of paper work;

  • Shares held safely hence reducing doubts about fraud and fake certificates thus building confidence in the market;

  • Minimizes bad/wrong deliveries.


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Market Structure

Donald Ouma

Manager Research & Policy Analysis

May 18 2007


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LISTINGS

Products listed on the Nairobi Stock Exchange

  • 52 equities;

  • 5 corporate bonds;

  • 75 Government of Kenya Treasury Bonds


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THE MARKET SEGMENTS

The Main Board

  • The Main Investment Market Segment (MIMS) 44 companies;

  • The Alternative Investment Market Segment (AIMS) 8 companies;

  • The Fixed Income Securities Market Segment (FISMS);


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Market Performance Overview

Donald Ouma

Manager Research & Policy Analysis

May 18 2007


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EQUITY MARKET PERFORMANCE : NSE 20 Share Index & Mkt. Cap. (Dec. 2002 – Dec. 2006)


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EQUITY MARKET PERFORMANCE : NSE 20 Share Index & Mkt. Cap. 31Dec. 2002 to 29 Dec. 2006


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Market Indicators – Full Year 2005 and upto 12 months ending December 29 2006


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Market Performance2 January 2007 - 30 March 2007

Market Indicators:


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1st Quarter 2007 Performance Overview

Market Indicators: Changes from the Previous Quarter


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  • In the first quarter of 2007, the market underwent a correction. As of May 15 2007, the NSE 20 Share index is down 8.44% since the end of 2006 (a record-breaking year in all respects).

  • This can be attributed to a variety of factors:-

  • The January effect and the first quarter seasonality of reduced trading activity, which is caused by investors selling liquid assets to cover the obligations of the new-year;

  • Speculators taking profits and exiting the market;

  • Value investors sitting on the sidelines, waiting to pick up equities at more reasonable valuations;

  • 2006 IPOs brought in a slew of new investors who have never experienced a correction and due to lack of proper education some could be panic selling.


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1st Quarter 2007 Performance Overview

Market Indicators: Corresponding Quarter 2006


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EQUITY MARKET PERFORMANCE : NSE 20 Share Index & Mkt. Cap. (31 Dec. 2002 – 15 May 2007)


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EQUITY MARKET PERFORMANCE : NSE 20 Share Index & Mkt. Cap. 31Dec. 2002 to 15 May 2007


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Market Absorptive Capacity

Donald Ouma

Manager Research & Policy Analysis

May 18 2007


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Market Absorptive Capacity


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Issue of the 15 Year Treasury Bond

The Government of Kenya issued and listed the first 15 year treasury bond on the Nairobi Stock Exchange

  • The bond with a coupon of 14.5% was priced at 14.9%.

  • The bond attracted 460 bids worth Kshs. 6.9 billion.


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Transactions in the Pipeline

Donald Ouma

Manager Research & Policy Analysis

May 18 2007


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Transactions in the Pipeline

Privatisation transactions in the pipeline include the sale to the public and subsequent listing of Government stakes in the following:-

  • 40% of Kenya Re-insurance Corporation;

  • 25% of Safaricom Ltd.;

  • An undetermined stake of Telkom Kenya offloaded through the NSE after 51 % has been sold to a strategic investor on September 25 2007;

    From the private sector:-

  • On June 4 2007, Access Kenya – will be the first locally owned ISP to list on the NSE


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Progress Report on Automated Trading at the NSE

Donald Ouma

Manager Research & Policy Analysis

May 18 2007


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AUTOMATION

  • The implementation of the Automated Trading System happened on Monday 11 September 2006;

  • The ATS is sourced from Millennium Information Technologies (MIT) of Colombo, Sri Lanka, who are also the suppliers of the Central Depository System (CDS). MIT have also supplied similar solutions to the Colombo Stock Exchange and the Stock Exchange of Mauritius;

  • The NSE trading hours have increased from 2 to 3 hours (10:00 am – 1:00 pm). Besides trading equities, the ATS is also fully capable of trading immobilised corporate bonds and treasury bonds;

  • 43.82 % of the value of 2006 equity turnover took place after the automation.


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AUTOMATION

  • The daily NSE trading session will begin from 09:00 am and end at 12:00 Noon to coincide with the launch of the International News Television Network CNBC African Channel on June 1 2007;

    • CNBC Africa will provide daily coverage of the Kenyan, South African and Nigerian Capital Markets from Bureaux in Sandton, Nairobi, Abuja, and Lagos.

    • Further bureaux in Africa will be established on a roll out basis.


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Challenges

Donald Ouma

Manager Research & Policy Analysis

May 18 2007


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Challenges

Product Offering

  • Increasing the number of issues from the private sector;

  • Introducing new products onto the Exchange;

  • Diversifying our revenue streams

    Becoming more effective as a Self Regulatory Organisation (SRO)

  • NSE has a huge public profile and visibility which can turn negative. We really are the first line regulator and where there are issues bigger than the NSE then the CMA must take up its mandate.


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Future Plans

Donald Ouma

Manager Research & Policy Analysis

May 18 2007


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Product Offering

  • Encouraging private sector issuers to raise capital;

  • Facilitating regional IPOs – simultaneous raising of capital on NSE, DSE and USE;

  • Asset backed securities and infrastructure bonds;

  • Exchange traded funds;

  • Real Estate Investment Trusts;

  • Cross listing of the blue chip firms already listed on the NSE, DSE and the USE;

  • Kenya Airways, East African Breweries and Jubilee Holdings Ltd are currently cross listed on all the 3 securities exchanges;

  • Leveraging on our upgraded website and ATS to offer data vending services;

  • Develop a market for medium sized firms;

  • Progressive review of the regulatory environment.


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Changing the Corporate Structure

Becoming more effective as a Self Regulatory Organisation (SRO) and being able to raise capital from the market

  • The NSE wishes to demutualise in 2008;

  • The Exchange will become a limited liability company with share capital;

  • The right to access the trading floor of the exchange will be separated from ownership of the exchange – improving corporate governance structures at the NSE;

  • The NSE has also signed a MoU with the Uganda Securities Exchange will the ultimate intention of proceeding with a merger of the two exchanges to create a regional exchange with trading floors in Kampala and Nairobi.


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End

Donald Ouma

Manager Research & Policy Analysis

May 18 2007


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