Frome (L-R): NSE CEO Geoffrey Odundo, vice chairman Bob Karina, Bank of
Kigali CEO Diane Karusisi and group chairman Marc Holtzman during the
cross-listing of Bank of Kigali on the NSE on November 30, 2018. PHOTO |
SALATON NJAU | NMG
Listed companies in East Africa have not been keen to cross-list
on the regional markets, because of exchange rate risks and low volumes
of trading in shares.
While cross-listing shares
improves a firm’s visibility and enlarges its investor base, low or no
trading on their counters have left companies hesitant to issue shares
in new markets.
The lack of activity in cross-listed
firms’ shares has been blamed largely on the failure by the issuing
companies themselves to increase their free float (shares available for
trading), the incompatibility of trading and settlement systems in the
region, a lack of investor awareness, exchange rate risks and differing
trading regulations among the East African Community partner states.
Pierre Celestin Rwabukumba, chief executive of the Rwanda Securities Exchange, told The EastAfrican
that there is a need for investor education on cross-listed companies
“because one of the major problems with cross-listed stocks is lack of
investor awareness.”
Regional integration
Mr
Rwabukumba said cross-listing of company shares is important for
regional integration but the decision to pursue this lies purely with
the individual companies.
“Cross-listing of shares is something we shall push for as an
exchange, but these decisions concern the companies themselves, since
they come with additional costs as well as advantages,” Mr Rwabukumba
added.
Geoffrey Odundo, chief executive of the Nairobi
Securities Exchange, says cross-listed stocks are facing challenges
because the companies have failed to increase the volume of free float
shares in the new markets they have cross-listed on.
“One
of the initiatives to make the market for cross-listed stocks more
liquid is to encourage companies take free float to the market. That is
the direction we are taking,” said Mr Odundo.
“There is no free float in the secondary market of cross-listed stocks. That is the current situation,” he added.
Analysts,
however, say that companies no longer see value in cross-listing their
shares and that they would rather concentrate on building their brands
and improving the liquidity of their stocks in the respective markets.
“Many
companies do not see the benefit of cross-listing and are instead
concentrating on improving their brand presence and the liquidity of
their stocks in their respective capital markets,” said Daniel Kuyoh, an
analyst at Alpha Africa Asset Managers.
Illiquidity
According
to James Wangunyu, chief executive of Kenya’s Standard Investment Bank,
the illiquidity of cross-listed stocks is a major concern to issuers,
largely due to the incompatibility of trading systems in the region,
lengthy settlement processes and investor fears of incurring losses
linked to exchange risks.
“There are so many
regulations in each of the markets that need to be harmonised. Another
issue is that of exchange-rate risks, since investors have to be paid in
the local currencies of the countries in which the shares have been
cross-listed,” said Wangunyu.
In 2016, Kenya’s
investment firm Centum shelved plans to cross-list its shares on the RSE
and the Dar es Salaam Stock Exchange, citing lack of liquidity in its
cross-listed shares in Uganda as a result of a difficult and lengthy
settlement process.
“We have put those cross-listing
plans on hold at the moment. When you look at the trading of our shares
in Uganda, it is still very low while the purpose of cross-listing was
to ensure that more East African citizens participate and trade in the
shares,” the company’s chief executive James Mworia said.
While
several Kenyan companies have cross-listed their stocks on the Ugandan,
Tanzanian and Rwandan markets, the NSE has not benefited from
reciprocal listings.
Last year, Rwanda’s Bank of Kigali
became the second firm in the region to cross-list its shares on the
NSE, after Uganda’s utility firm Umeme, which cross-listed in 2012.
Bourse linkage project
The EastAfrican
understands that some exchanges in the region are uncomfortable with
allowing their companies to cross-list on the NSE for fear of losing
liquidity.
It is argued that integrating the central
depository systems of the region’s bourses would hasten trade in
cross-listed shares and boost liquidity.
The EAC member
states are working on a project to harmonise the electronic settlement
systems of four stock exchanges — the NSE, the DSE, the USE and the RSE —
to ensure that EAC citizens buy and sell shares listed on those
exchanges from their own respective countries.
The
project involves linking the clearing and settlements systems of the EAC
stockmarkets through an information technology platform called Smart
Order Routing System.
The initiative is funded by the
World Bank as part of efforts to support the establishment of a single
financial market among the five EAC member states.
The system will link the trading platforms of the four bourses enable them to operate as a single market.
The
system will allow investors to buy and sell shares of companies located
in different EAC countries without necessarily moving from country to
country.
Companies whose stocks are currently
cross-listed in East Africa include East African Breweries Ltd, Equity
Bank, Centum Investments, Kenya Airways, Jubilee Holdings Ltd, Umeme
Ltd, KCB, Nation Media Group, Bank of Kigali and Uchumi Supermarkets.
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