Business Daily (Nairobi)
David Mugwe
23 December 2011
Increased initial public offerings (IPO) and listings in the East Africa over the past 12 months brought about new opportunities and renewed focus on investing in equity and fixed income securities in the region.
In 2011, equity investors were given a chance to invest in five companies that were issuing shares through public offers at the Rwanda Stock Exchange (RSE), Nairobi Securities Exchange (NSE) and Dar es Salaam Stock Exchange (DSE).
Two other companies introduced their shares at NSE adding to the number of listed companies and to opportunities for investors.
The nine new equity investment opportunities, however, brought to the fore the ease at which investors can profit from East Africa’s youngest bourse, the RSE, and the difficulties they face at the DSE and when investing in cross-listed securities.
At the East Africa Securities Exchange Association (EASEA) final meeting this year at Kigali, members drawn from Kenya, Tanzania, Uganda, Dar es Salaam and Rwanda noted the various challenges that investors in the region were facing.
Although East Africa has been harmonising laws to enhance the free flow of goods services, equity investors from the five countries, including Burundi are faced with restrictions particularly in Tanzania which has so far had two share issues this year. Other challenges include the fluctuation of exchange rates, increased transaction costs and difficulties in trading cross listed securities.
Challenges
The EASEA noted that payment for shares during regional IPO’s was a challenge, with reference to exchange rate risk and transfer charges levied by commercial banks as well as delays in refunds to investors in oversubscribed IPOs.
“Restrictions on the flow of funds across the region were noted. Standardisation of the treatment of East African citizens needs to be implemented in full,” noted a joint communiqué from the EASEA. Currently, each of the East African countries have different rules governing the trading and ownership of equity securities.
The maximum participation by foreign investors in listed companies is capped at 60 per cent in Tanzania, 75 per cent in Kenya while it is 100 per cent Uganda and Rwanda.
At the Dar es Salaam bourse, once the cap is reached, a foreign investor — including a citizen of Kenya, Uganda, Rwanda, and Burundi–can only sell their shares to a Tanzania citizen.
This rule affects the liquidity of shares at East Africa’s second largest stock market in contrast to other East African markets that have less stringent foreign investor rules.
Investors are of the view that if the region is to fully integrate then such rules should be harmonised and East African citizens should be treated the same at all the stock exchanges.
During the last share offering which closed this month, East African Breweries was looking to sell a 20 per cent stake in Tanzania Breweries Limited (TBL), but prior to the offer foreign investors owned 56.64 per cent of the company. The share issue prospectus noted that if foreign investors, including citizens of the four other East African countries acquired 3.36 per cent of the shares on sale, the sale to Tanzania citizens rule would kick in.
TBL’s shares were priced at TSh2,060 but at the secondary market they were selling at Tsh2,020 on the market on the last day of the secondary share sale. Although EABL was selling the shares at a 12.4 per cent premium as compared to the prior three months average price, the restrictions in Tanzania could have been another reason why the market price did not climb above or get close to the secondary IPO price. Trading in cross listed securities, which are mainly from the Nairobi bourse, is also a challenge and they do not trade as frequently in the other regional markets.
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