Capital Markets Authority issues draft rules in a bid to spur listings at the NSE

The Capital Markets Authority has made public new draft regulations in a bid to attract potential issuers to list on the local stock exchange. This comes at at time when the Nairobi Securities Exchange (NSE) has witnessed a dip in performance as investors shy away from the exchange. It is quite telling that the last initial public offer was in 2015.

The Authority hopes the relaxed rules will enable the NSE to play a bigger role in corporate funding and at giving companies easier access to funding and restore investor confidence.

The weakness of the stock market deprived companies of a source of funds pressured balance sheets and hurt investor confidence. Many foreign portfolio managers have pulled money out of the Kenyan market with the latest data from the regulator showing that foreign investors at the NSE dumped $14.3 million worth of stocks in April, the highest this year on a month over month basis.

“The issuer to be listed (the main investment market segment) shall be a body corporate duly incorporated and/or registered under the laws of Kenya. The issuer must have been in existence for at least five years” Reads part of the draft regulations.

As part of the proposals, the regulator also wants to scrap a rule that limits Initial Public Offerings (IPOs) to public companies limited by shares and registered under the companies act. Most importantly, the CMA wants to attract young and innovative companies with the potential to grow by relaxing rules on profitability.

The draft rules only require potential issuers to have been in existence for at least five years of which one of the years should reflect a profit with good growth potential and a revenue earning record.

Currently, listing regulations require potential issuers to have declared profits after tax attributable to shareholders in at least three of the last five completed accounting periods to the date of the offer.

In its latest Market Soundness report, the regulator noted that it had received feedback from market players that the existing Public Offers Listing and Disclosure Regulations, 2002 are a major barrier to new listings.