Stockbrokers push for non-voting shares

Money Markets

Kenya Association of Stockbrokers and Investment Banks VP Amish Gupta speaks during the listing of DTB new rights at the NSE on August 26. PHOTO | SALATON NJAU 

By GEORGE NGIGI, gngigi@ke.nationmedia.com

In Summary

• These will see shareholders enjoy capital gains without diluting majority owners’ stake.

Stockbrokers are pushing for the creation of non-voting shares in an effort to increase the trading turnover at the Nairobi Securities Exchange (NSE) without diluting the powers of the majority owners.

Amish Gupta, vice president of the Kenya Association of Stockbrokers and Investment Banks (KASIB), Tuesday said investors were demanding for shares that would see them earn capital gains only.

Shareholders buy into companies where they expect to harvest huge capital gains or to share in the profit made by firms that have high dividend payouts.

“We will be pushing for issuance of a class of shares that is listed and issued to shareholders who do not wish to have equal rights of voting or dividends. It is done in other markets and we believe it’s time it is done in Kenya,” said Mr Gupta who is also director of investment at the Standard Investment Bank.

The stockbrokers are lamenting the Sh12.4 billion refund to investors in the recently concluded Diamond Trust Bank rights issue. The cash was left on the table following heavy oversubscription underlining demand for local shares.

Low turnover at the NSE has been pinned on majority shareholders in large companies being unwilling to dilute their stake beyond a certain limit.

Berkshire Hathaway, controlled by billionaire Warren Buffet, is one of the notable companies with two classes of listed stocks, with the class ‘B’ shares having lower voting rights equal to two-hundredth of class ‘A’ share.

Google issued two classes of shares when it went public, ensuring its founders and top executives maintained control. Each of the class B shares reserved for Google insiders carry 10 votes while those sold to the public carried a vote each.

Introduction of dual share listing is targeted to increase listing in the Kenyan market where fear of losing control by founders has been identified as a major deterrent to new listings, says Johnson Nderi, corporate finance and advisory manager at ABC Capital Ltd.

“It will also increase securities available to cash-rich fund managers who have few options,” he said.

High stock turnover enables brokers to earn more through commissions while attracting more players, especially foreign investors, to the market.

Mr Nderi, however, cautions that investors who bought the class B shares forfeit their rights in controlling the company, entrusting this to the majority shareholders.

KASIB said it will also be pushing for same day trading of shares, which ensures that an investor can buy and sell the same stocks in the same trading session, capitalising on intra-day margins.

The market recently introduced same-day trading in government securities.