Troubled Nairobi bourse-listed firms roil region’s stockmarkets

The trading floor of the Nairobi Securities Exchange. The collapse of yet another Nairobi Securities Exchange-listed company has spooked investors in East Africa’s stock markets, raising fears of possible cross-border contagion. PHOTO | FILE | NATION MEDIA GROUP  

In Summary

• NSE, which has 66 listed firms, has fallen victim to a growing number of financially distressed firms of which three have been put under receivership in a span of less than two years.
• Several NSE-listed companies are facing a cocktail of corporate governance and financial challenges.

By JAMES ANYANZWA
More by this Author

The collapse of yet another Nairobi Securities Exchange-listed company has spooked investors in East Africa’s stock markets, raising fears of possible cross-border contagion.

Mumias Sugar Company, for many decades Kenya’s biggest miller, was placed under statutory management last week for defaulting on debts estimated at more than Ksh12.5 billion ($125 million).

This follows a series of company failures that have rocked the region’s largest bourse, dampening investor interest in the regional stock markets.

NSE, which has 66 listed firms, has fallen victim to a growing number of financially distressed firms of which three have been put under receivership in a span of less than two years.

Loss making and debt-ridden cement maker ARM and fashions retailer Deacons (EA) were put under administration last year.

Besides, several NSE-listed companies including Kenya Airways, Uchumi Supermarkets, Express Kenya, Sameer Africa, National Bank of Kenya, Eveready East Africa, East African Portland Cement, Sasini, Kenya Power, Transcentury, East African Cables and Home Afrika are facing a cocktail of corporate governance and financial challenges.

CRISIS

The crisis facing the Kenyan bourse is sending shivers into other regional markets, with fears of further dampening investor interest in markets that are struggling to attract new capital through new listings.

“To tell you the truth I’m worried. A section of investors will feel bad and will not come back to the market. They will be scared. This trend is not good for the markets. Something needs to be done across the board,” Rwanda Stock Exchange (RSE) Chief Executive Celestin Rwabukumba told The EastAfrican.

“I have been looking at this trend and asking what is happening. We need to increase scrutiny on these companies to ensure there is proper systems, corporate governance and accountability in place. The shareholders of these companies should also put the management in check. It is about internal controls.”

According to Mr Rwabukumba, the solution lies in enforcement of market regulations.

“The regulations which are there are not bad the problem could be the enforcement,” he said.

DIFFICULT TIMES

In Tanzania, the long-running battle between the government and Acacia Mining Plc over a tax dispute has frightened potential investors.

In 2017 the Tanzanian government slapped a $190 billion tax bill on the company for under-declaring exports. The government also banned industry exports of unprocessed metal in a move set to hit the company hard.

Last week, after completion of its buyout by its parent firm Barrick Gold Corp, the company was delisted from the London Stock Exchange. However, the company remains listed on the Dar exchange despite its tribulations.

In Kampala, Uganda Clays is facing trouble in repaying a loan it obtained from National Social Security Fund about eight years ago amounting to   Ush11.5billion ($3.1 million) to build the Kamonkoli factory in Mbale. The fund is seeking to convert the debt into equity.

Uganda Clays Ltd made a loss of $198,000 for the six months’ period to June 30 while Uganda’s National Insurance Corporation (NIC) is said to be facing governance issues.

EAC stockmarkets are struggling with declining share prices, low trade volumes, declining market capitalisation and a scarcity of initial public offering (IPO).

CONCERN

NSE chief executive Geoffrey Odundo told The EastAfrican that the company failure crisis that has hit the Nairobi bourse is a cause for concern as it affects performance of the entire market.

He, however, downplayed fears over the contagion effect on regional stock markets.

“Of course we are concerned because when more companies are affected by these financial challenges they affect the performance of our markets,” said Mr Odundo.

“I think there is no immediate impact on regional markets because these companies have been facing these challenges for a while,” he added.

He said more efforts are being put in place to avert further company failures by setting up a recovery board where distressed companies will be given time to either get better or be delisted.

“We have had the first level of consultation with companies and we expect to do more sensitisation about this recovery board, so the process is ongoing,” said Mr Odundo.

NEED FOR MORE OVERSIGHT

Analysts see the failures of companies as a reflection of how bad companies are being run, putting investors’ wealth at risk.

“There probably needs to be a different level of oversight from the regulators. We cannot just take these issues at face value. These companies need to be investigated,” said Daniel Kuyoh, a Nairobi-based independent financial analyst.

The contagion effect of the NSE crisis becomes more significant given that regional stock markets play host to several of Kenya’s cross-listed stocks.

East Africa is said to have some of the most expensive stock markets in Africa in terms of brokerage fees, clearing and settlement fees, and other charges, with the cost of trading shares on the continent being considerably higher than in the developed markets.

According to Kenya’s capital markets regulator Kenya’s equity turnover levels remain low in comparison with global peers largely due to limited options of counters to trade on with major trading reflected on the top five companies at the bourse by market capitalisation including Safaricom, Equity, EABL, KCB and Co-operative Bank.

***

LISTINGS BY COUNTRY

Uganda: The stockmarket failed to attract new companies for six years until August 2018 when Indian drugmaker Cipla Quality Chemical Industries came to the market to sell 657 million shares (an 18 per cent stake) to the public. Before that, the last initial Public Offering was in 2012 involving utility firm Umeme.

Rwanda: The RSE saw only one IPO in 2017 with the listing of I & M Rwanda. The bank had to wait for five years before the government offloaded its stake in I & M Rwanda.

Kenya: The bourse has not attracted an IPO from a corporate entity in the past 10 years, except the self-listing of the NSE in 2014. Kenya has 66 listed companies following the delisting of Atlas African Industries in April this year while three others (Deacons, ARM and KenolKobil) have been suspended.