New Dar bourse capital rules to lift Kenyan stock trade

Money Markets

A man enters the trading room of the Dar es Salaam Stock Exchange in Tanzania. The bourse has introduced new guidelines to boost foreign inflows. PHOTO | FILE | NATION MEDIA GROUP 

By CHARLES MWANIKI

In Summary

• The changes are seen as a step in right direction for a country long perceived as slow in letting in foreign capital into its financial market.

Trading turnover of Kenyan companies cross-listed on the Dar es Salaam Stock Exchange (DSE) is set to rise once new rules designed to boost foreign inflows into the bourse are finalised. Six Kenyan firms namely EABL, Kenya Airways, Jubilee Holdings, Nation Media Group, Uchumi and KCB are cross listed on the DSE.

A research note by Renaissance Capital says the general daily traded equities volume on the DSE will increase substantially from the average $400,000 (Sh35 million) when the new regulations abolishing the 60 per cent cap on foreign holdings in listed companies become effective. On September 19, the State revoked Foreign Investors Regulation 2003 restricting foreign inflows.

The changes are seen as a step in right direction for a country long perceived as slow in letting in foreign capital into its financial market.

According to Rencap, while Tanzanian stock market turnover is far below the likes of Kenya, which averages $9 million (Sh792 million) a day and Nigeria’s $28 million (Sh2.5 trillion), its ambitious plans to boost total market capitalisation to 50 per cent of gross domestic product by 2017—to about $25 billion (Sh2.2 trillion) —should further boost liquidity.

The DSE market capitalisation is $5.6 billion (Sh498 billion), which is about a fifth of NSE. It has a portfolio 20 listed companies, just under one-third of Kenya’s total.

“The market has been off-the-radar screen for foreign investors because of local rules restricting foreign investors to owning 60 per of the market cap of Tanzanian companies,” says Rencap in the coverage note. “With many major names already up to the 60 per cent limit, there has been little ability for foreigners to access the market, and trading volumes have been low.”

With foreign investors ramping up exposures in the Kenyan market in the past two years more so in blue chips, the restricted financial environment of Tanzania has meant the option of a spillover into that market was lost.

ABC Capital corporate finance manager Johnson Nderi said a major barrier to increased investor inflows into Tanzania remains capital controls making repatriation difficult but which its central bank promises to remove.

“They need to also fully liberalise their capital account so that investors can gain confidence in their market,” he said. “The recently signed treaties with fellow EAC members would come in if they don’t hold up their end of the bargain and allow free movement of capital,” Mr Nderi said of the rules allowing countries to intervene for their investors.

Kenya’s Capital Markets Authority has also signalled in its 10-year master plan released this year plans to abolish the country’s 75 per cent limit on foreign ownership of listed companies.

This is to enable the markets to achieve a status of emerging market by 2020 as rated by the Morgan Stanley Capital International (MSCI) Index, and also enable Nairobi to enter the Global Financial Centre Index ranking of financial centres published by the Z/Yen Group.

“As Kenya aspires to qualify for the MSCI ranking as well as have Nairobi as an international financial centre, the review of the foreign ownership framework is a necessary condition,” said CMA in the master plan.

The blanket 75 per cent ceiling is seen to have an impact on liquidity of certain stocks, with the increasing foreign investor activity likely to make this worse.

In the MSCI rating criteria such restrictions are viewed negatively in assessment of openness of markets to foreign investment.