Kampala-
African Alliance will exit Uganda’s brokerage business next month. The
company will
close the curtains on its 15-year journey at the stock exchange due to low revenues.
close the curtains on its 15-year journey at the stock exchange due to low revenues.
The announcement has
raised questions about the South African company’s future in African
capital markets, as its major shareholder struggles with a slowdown in
various financial markets.
The financial services firm
announced on April 11 that it was exiting the stockbrokerage business
and terminating its membership of the Uganda Securities Exchange.
At
the time, Mr Kenneth Kitariko, the African Alliance chief executive
officer, said: “When the business is not making money, you have to plan
for the future and the shareholders were not happy subsidising the stock
brokerage business anymore.”
The company, he added has in the 15 years of its existence not made much money in the brokerage space, thus it was prudent to take a drastic move to save other arms such as advisory services that it is engaged in.
A statement released by African Alliance at the time, indicated it will close its stockbrokerage services on April 25 and client accounts will be transferred to UAP Old Mutual Financial Services by May 6 following approvals by the Uganda Securities Exchange and Capital Markets Authority.
The company, he added has in the 15 years of its existence not made much money in the brokerage space, thus it was prudent to take a drastic move to save other arms such as advisory services that it is engaged in.
A statement released by African Alliance at the time, indicated it will close its stockbrokerage services on April 25 and client accounts will be transferred to UAP Old Mutual Financial Services by May 6 following approvals by the Uganda Securities Exchange and Capital Markets Authority.
However,
African Alliance will maintain its investment advisory operations in
Uganda. No job losses are expected in the aftermath of the restructuring
exercise.
The company has previously handled some of
Uganda’s largest initial public offerings including Umeme, Satnbic and
the crosslisting of Nation Media Group on the USE, among others.
Prior
to its exit from the stockbrokerage business, African Alliance had in
2010 suspended its unit trust services, citing a low asset base,
fluctuating interest rates and poor returns on investment.
Total
assets accumulated by the unit trust business amounted to less than
Shs4b ($1.06m) after six years of operation, according to company
records.
The firm also closed its asset management
unit last year on similar grounds. The total value of pension funds
managed by this unit stood at Shs140b ($37m) by the time of closure - in
an industry whose asset management fees have averaged less than 3 per
cent in the past.
Sold subsidiary in Rwanda
African Alliance Group sold its Rwandan subsidiary last year for an undisclosed sum, but the business retained its brand name, following years of low revenues posted by the Kigali-based operation.
African Alliance Group sold its Rwandan subsidiary last year for an undisclosed sum, but the business retained its brand name, following years of low revenues posted by the Kigali-based operation.
A
series of meetings held between the Group’s majority shareholder and
heads of its African subsidiaries last year in South Africa discussed
the idea of selling off some of its operations, with most of the
executives endorsing the proposal.
Whereas potential
buyers for some operations have been sought, there has been no further
guidance from its head office on sale negotiations with interested
parties since last year, according to sources familiar with the matter.
African Alliance Group has subsidiaries in Kenya, Uganda, Zimbabwe, Malawi, Zambia, Nigeria, Mauritius, Botswana and Ghana.
This exit is a stark contrast to events dating back to the period between 2004 and 2007, when many foreign institutional investors in the US and Europe were excited about investing in Africa’s financial markets amid rising liquidity levels.
This exit is a stark contrast to events dating back to the period between 2004 and 2007, when many foreign institutional investors in the US and Europe were excited about investing in Africa’s financial markets amid rising liquidity levels.
This trend inspired African
Alliance to expand its operations across Africa in an attempt to benefit
from foreign investors, observers say.
But the
massive foreign portfolio outflows experienced in 2008, 2009 and 2017
have destroyed “hot money” dreams in many African financial markets
eager for short-term, offshore dollar flows.
Cost of sending money
The drought and the lack of consistence in issuing initial public offerings at the stock markets could be straining the operations of financial service firms involved in the brokerage business.
The drought and the lack of consistence in issuing initial public offerings at the stock markets could be straining the operations of financial service firms involved in the brokerage business.
Although
drug maker – Cipla – last year listed on the exchange through an
initial public offering, it came after six years, creating a drought at
the exchange.
The exchange had last had an Umeme IPO.
Thus observers say, many companies involved in stock brokerage might be
struggling to make sufficient returns.
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