Markets regulator seeks to cut large cap market dominance

Capital Markets Authority CEO Paul Muthaura. FILE PHOTO | NMG 

By CONSTANT MUNDA

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Summary

• CMA wants international companies to trade shares in Kenya without having to physically list — to attract blue-chips from the continent.
• The regulator is concerned that Safaricom, EABL, Equity, KCB and BAT control two thirds of the Nairobi Securities Exchange (NSE) capitalitalisation.
• CMA is reviewing one application for cross-listing on the Nairobi bourse following approval of the Global Depository Receipts (GDRs) rules on July 13.

The Capital Markets Authority is targeting African large caps for cross-listing on the Nairobi bourse amid concern over the concentration of market wealth in just five companies.

The regulator is banking on the Global Depository Receipts (GDRs) framework — which provides a lower-cost route for international companies to trade shares in Kenya without having to physically list — to attract blue-chips from the continent.

The CMA is concerned that Safaricom

, East African Breweries , Equity , KCB and British American Tobacco Kenya

controlled 65.61 per cent of the Nairobi Securities Exchange (NSE) capitalitalisation by June; a slight rise from 63.7 per cent in March.

The market wealth concentration rate rises further to 80.47 per cent or Sh1.787 trillion of the Sh2.22 trillion total market when the top 10 large caps are factored in.

READ: Resurgent NSE large caps beat other African markets

NSE’s market cap grew 17.46 per cent compared to Sh1.89 trillion in March. According to the CMA’s Soundness Report for the first half of the year, 56 companies on the NSE accounted for about 19.53 per cent of the total wealth.

“One of the opportunity we see is that with introduction of the GDRs, we are hoping that we will allow large companies that are operating on the African continent to cross-list into Kenya or to do their primary listing in Kenya using the GDR framework because it is slightly easier than doing a full local listing,” CMA chief executive Paul Muthaura said.

“So, we are hoping that that can play a role in trying to reduce the concentration risk.” Safaricom accounted for 40.99 per cent of the NSE’s wealth in the six months through June, according to the report that provides stability and risk indicators in capital markets.

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EABL, Equity, KCB and BAT accounted for 9.21, 6.41, 5.21 and 3.81 per cent respectively. “Their market concentration risk needs to be mitigated by, among others, increasing the number of listings,” the report says.

Mr Muthaura said the regulator was reviewing one application following approval of the GDR rules on July 13.

“Increasingly, African companies will need to maintain a listing presence on the continent and that Kenya has an opportunity to carve out an opening in this space,” Nairobi-based investment analyst Aly-Khan Satchu said.