PRESENTATION ON THE NAIROBI STOCK EXCHANGEVisit by Netherlands Private Sector Development Staff Mr. Chris Mwebesa Chief Executive March 29 2007
TABLE OF CONTENTS • The Role of the Nairobi Stock Exchange (NSE) • Current Status of the NSE • Market Structure • Market Performance Overview • Automation of the NSE Trading System • Participation in the Capital Markets • A case for investing in securities; • A case for financing through the capital markets • Policy & Tax Incentives for Companies Listed on the NSE • Eligibility Criteria for Listing on the NSE
The Role of the Nairobi Stock Exchange (NSE) Mr. Chris Mwebesa Chief Executive March 29 2007
SOME DEFINITIONS OF A STOCK EXCHANGE:- • A "stock exchange" is a market place, a physical location where stocks and bonds are bought and sold, such as the Nairobi Stock Exchange, the JSE Ltd., New York Stock Exchange. • A stock market can be an actual place, but with the growth of electronic transactions a large fraction of stock market transactions are no longer centrally located in a particular location.
ROLE OF THE NSE:- • The Role of the NSE in the Kenyan Economy is best discerned by examining the mandate of the Exchange to all its Key Stakeholders. • We have numerous Stakeholders but the key ones are the Issuers (listed companies), Investors, financial services regulators and the Government. • NSE has a huge public profile and visibility which comes with a lot of negative publicity. We really are the first line regulator and where there are issues bigger than the NSE then the CMA must take up its mandate.
Current Status of the NSE Mr. Chris Mwebesa Chief Executive March 29 2007
LISTINGS Products listed on the Nairobi Stock Exchange • 52 equities; • 5 corporate bonds; • 72 Government of Kenya Treasury Bonds
Market Structure Mr. Chris Mwebesa Chief Executive March 29 2007
CAPITAL MARKET KEY PLAYERS • Capital Market Authority • Nairobi Stock Exchange • Central Depository & Settlement Corporation • Stockbrokers, Investment Banks and Dealers
Market Performance Overview Mr. Chris Mwebesa Chief Executive March 29 2007
EQUITY MARKET PERFORMANCE : NSE 20 Share Index & Mkt. Cap. (Dec. 2002 – Dec. 2006)
EQUITY MARKET PERFORMANCE : NSE 20 Share Index & Mkt. Cap. 31 Dec. 2002 to 29 Dec. 2006
Market Indicators – Full Year 2005 and upto 12 months ending December 29 2006
Market PerformanceJanuary & February 2007 Market Indicators:
EQUITY MARKET PERFORMANCE : NSE 20 Share Index & Mkt. Cap. 31 Dec. 2002 to 28 Mar. 2007
EQUITY MARKET PERFORMANCE : NSE 20 Share Index & Mkt. Cap. (31 Dec. 2002 – 28 Mar. 2007)
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.; • 34 % of Telkom Kenya offloaded through the NSE after 26 % has been sold to a strategic investor; We also expect from the private sector:- • Access Kenya – it will be the first locally owned ISP to list on the NSE
Automation of the NSE Trading System Mr. Chris Mwebesa Chief Executive March 29 2007
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.
Opportunity to enhance revenue streams through information vending to our stakeholders. • The implementation of the ATS and achievement of T+3, will bring us a step closer to meeting the Group of 30's (G30) standards on trading and settlement as adopted in 1989.
Participation in the Capital Markets- The Case for financing through the Capital Markets Mr. Chris Mwebesa Chief Executive March 29 2007
INSTITUTIONS LIST SECURITIES PRIMARILY TO:- • To raise funds for expansion and growth (without the interest burden of funds borrowed from lending institutions.); • To improve the liquidity of their securities; • To optimise their capital structure and lower their cost of capital; • To lengthen components of the capital structure(especially debt); • To increase public awareness about the institution and its products; • To unlock value. Founding shareholders, Sponsors, Promoters and Venture Capitalists use the capital markets to exit their investments with the aim of making a return on the initial investment, or to realise the true valuation of their enterprise.
A company may issue: Shares; Debt (Bonds); Both may be issued: Through a public floatation through an offer to the public such as the KenGen issue. Private placement to a few select investors such as the Shelter Afrique bond placement. FINANCIAL BENEFITS OF CAPITAL MARKETS FINANCING
Optimization of Capital Structure Far too many firms are too heavily geared courtesy of bank debt. Bank debt increasingly the cause of bankruptcies or other insolvency interventions No consideration for marginal cost of funds when borrowing Diversify sources of funding from short term commercial bank financing
Optimal Capital Structure is defined as the mix of debt and equity which minimizes the weighted average cost of capital. Factors affecting cost of capital that the firm CANNOT CONTROL!! Interest rate regime; Level of taxes; Factors affecting cost of capital that the firm can CONTROL!! Capital structure; Dividend policy; Investment policy; By optimizing what is in the firm’s control the firm can significantly lower its cost of capital.
Lowering the Cost of Capital Equity Cost of equity capital is the dividend return adjusted for growth; Dividend policy is in the control of the firm
Lowering of Cost of Capital Debt Cost of debt capital is interest payments adjusted for tax (tax deductible); Coupon interest payments lower than commercial bank lending rates because of the relatively higher interest rate regimes pertaining in the region and subsequently higher commercial lending rates;
OTHER BENEFITS OF LISTING CONTD. . . . Marketing Benefits • Increased profile hence brand equity; • Lock in customer-owners; • Improved perception of organisations stability; Management Benefits • Benchmarking, comparisons with competitors; • Staff ownership (ESOPs) hence improved productivity; • Strict conformity to disclosure requirements – better corporate governance; • Long term relationships with brokers, investment advisers, the NSE;
Policy & Tax Incentives for Companies Listing on the NSE Mr. Chris Mwebesa Chief Executive March 29 2007
Policy and Tax Incentives • As an incentive to encourage more listings at the NSE, the Minister proposed that newly listed companies pay corporation tax at a lower rate of 20%, for a period of 5 years, provided these companies offer at least 40% of their shares to the Kenyan public (2005); • New and expanded share capital by listed companies or those seeking listing exempt from stamp duty (2000/2001);
Companies that apply and are listed shall get a tax amnesty on their past omitted income, provided they make a full disclosure of their assets and liabilities and undertake to pay all their future due taxes (2001); • Expenses incurred by companies in having their financial instruments rated by an independent rating agency are tax deductible (1997/98); • Exemption of stamp duty and value added tax on the transfer of listed securities (1995); • Costs of IPOs were made tax deductible (1995)
Eligibility Criteria for Listing on the NSE Mr. Chris Mwebesa Chief Executive March 29 2007
THE MARKET SEGMENTS The Main Board • The Main Investment Market Segment (MIMS); • The Alternative Investment Market Segment (AIMS); • The Fixed Income Securities Market Segment (FISMS);
ELIGIBILITY CRITERIA FOR PUBLIC OFFERS ON THE FIS AND LISITING ON FISMS
End Mr. Chris Mwebesa Chief Executive March 29 2007