Mass Cross Listing in the Offing

11 Firms:

After my earlier posts on cross border listing (see Below), it is now emerging that eleven (11) firms have approached the regulators to cross list on the East African bourses. It is noteworthy however that although the regulators have been trying to level the playing ground, alot of issues still need to be addressed before companies join in this bandwagon.

East African Exchange:

With the establishment of an East African Exchange (EAE) also in the offing, the eleven companies are said to be as follows: Kenya with 5, 3 fromUganda and 3 from Tanzania.

Pioneers:

Earlier the Kenyan companies that had taken the cue to pursue cross border listing include East African Breweries (EABL), Kenya Airways (KQ) and Jubilee Insurance.

Listed Companies:

Among the east African players, Kenya still leads the pack with 53 firms and the number is expected to rise with the listing of Kenya Re,Safaricom and others soon to come. Der es salaam and Uganda Exchanges follows in the number of listed firms with only 7 and 6 respectively. This is excluding the Kenyan firms (EABL, KQ and JHL) that have poineered to cros list in the exchanges.

New Incentives:

The regulators have put in place alot of niceties for companies striving to cross list which include:

-Issuing a summarised Information Memorandum.

-No requirement of reporting accountant’s report.

-An abridged financial statements for the last five (5) years is acceptable.

-Provision of the latest annual or interim accounts submitted to the home exchange would be accepted as the latest financial statements.

-Standard initial fee of US$5,000 (Sh360,000) against previous amounts of US$21,126 (Sh1.5 million) to cross list its securities across Kenya and Uganda.

-However, only companies listed in the Main Investment Market Segment (MIMS) of both bourses will be eligible for cross listing. (Business daily)

Nonetheless, more still needs to be done to make the East African Integration a reality in all aspects then we can proudly talk about an Economic Integration, Political Integration and finally adopting a one currency for the East African Union.

Of Cross Border Listing and Cross Trading (Part II)

Cross trading is the emerging trend where investors seeking to diversify their portfolio of investments would seek to venture into other markets and invest in such available options as equity, bonds, commercial papers, derivatives and other available products in that market.

East African perspective:

In East Africa for example, Investors have been craving for the stock market pie with Kenya leading the pack with several IPOs having been significantly oversubscribed with others slated for the year expected to follow the same record trend. Over the last 5 years, turnover at the NSE has grown phenomenally from Sh2.9 billion in 2002 to Sh95 billion last year while the number of CDSC accounts that have been opened have in the last 2 increased from 80,000 in 2005 to an estimated 700,000 investors to date.

Insatiable Appetite for Investments Opportunities:

The rally at the NSE has produced millionaires overnight.Take the case of EA Cables price rally that produced all times high of around Shs 1000 per share among the other shares price surge occassioned by the unprecedented news of stock splits, dividends and bonuses declared by most companies including Barclays, ICDCI, Sasini, CMC, KCB, Cables etc. It is evident that investors are hungry for other viable stock market investments as seen with the latest trend of switching to the emergent high return promising pyramid schemes that have sprouted in every corner of this country. Sadly though, most of these schemes were scams meant to defraud unsuspecting investors of their hard earned monies as seen with the widespread closures, default rates and collapse of even the seemingly big wigs of the pyramid scheme-DECI. Most investors lost their monies and statitistics available shows that this ran into hundreds of millions.

Some investors who had sold their stocks, leading to a bear run had the NSE, are now back with whatever little they managed to salvage.

Nonetheless, the oversubscription of all the IPOs from 2006 to date is a clear testament to the insatiable investment appetite in the country. The strong returns posted by Kenyan equities listed at the NSE have not gone unnoticed with international interest in the country’s markets building up in recent years latest among this is the interest receive from top Wall Street operatives.

African Stock markets:

Africa has only 15 active stock exchanges which include exchanges in South Africa, Nairobi, Uganda, Tanzania, Botswana, Nigeria, Cairo, Malawi, Mauritius, Namibia, Ghana, Zambia, Zimbabwe, Tunisia with the regions equity markets incomparable in size to other emerging markets worldwide posting a combined market capitalisation of US$39.2 billion, excluding South Africa's JSE, in 2005. The JSE which is the 16th largest exchange in the world, had a market capitalisation of US$ 566billion, accounting for 94 per cent of Sub—Saharan Africa’s total market cap. As it is, the JSE’s market cap is 14 times larger than all the other African markets combined(Business Daily).

Cross Trading, Stanbic Experience:

The continued media hype in Kenya lead many streaming to the appoitment banks and stock brokers to have a stake in the much publicizedStanbic Uganda IPO. However, after the rigorous process of filling forms and paying for the shares, Kenyan investors were the losers as they were considered for residual shares after all the local investors had gotten their share. After the meagre share allotted came the issue of share certificates that reminds us of the days NSE was still without the Central Depository system.

Dividends:

Recently, after the wait, the arrival of the Stanbic Bank Uganda’s dividend payout cheques (7%) was an excitement to many investors though this was short-lived as those who received the cheques were surprised that the dividend almost amounted to nothing after being converted to the local currency which is of higher value than that of the East african counterparts. Further, the paying of Ksh.1,000 bank charges for cheque clearance inorder to cash the cheques proved much higher than its value, especially for most investors with minimal share allocation. This made the dividen almost worthless if not useless. With some intervention, the cahrges were readjusted as follows; amount below 1000 cost ksh 100 and amounts above ksh 1000 would cost ksh 150. Read Bankelele's experience!

Cross Border Trading:

As earlier alluded, most investors who thronged dealers offices and banks to buy Stanbic had not considered the perils of investing in another currency and all associated stumbling blocks. The company and even the Ugandan Authorities had not instituted a proper dividend reinvestment program (DRIP) that would enable investors reinvest their dividends until such a latter date when cashing them would be worth the rigor.

Most investors did not understand that cross trading is normally affected by the market performance in the market concerned as well as the fluctuations in the foreign currency rates. Read more

Of Cross Border Listing and Cross Trading (Part I)

Cross Border Listing (CBL) has become important in the last decade as companies have become international in their orientation. Technological progress and liberalization of capital flows has fostered considerable competition amongst global stock exchanges for equity listings and trade. The US exchanges over then last few decades have attracted a sizeable share of the cross listed firms.

Emerging Issues:
There issues currently brewing in Kenya yet investors may have taken a back seat, not out of will but, due to inadequate understanding of the issues at hand.

1. First and foremost is the much hyped East African Exchange that will bring together the Exchanges of Kenya, Uganda and Tanzania.

2. Secondly, is the issue of listing securities of our locally quoted companies in other exchanges as well as allowing foreign companies to list at the NSE.

3. The other issue is the clause in the budget of 2007/08 that would allow East african residents to invest in our bourse (NSE) as locals without going through the rigours of the selection process for east african corporate and individual residents.

Cross Border Listing (CBL):

Cross-border listing refers to the listing of securities issued by a foreign issuer on a domestic securities exchange. Therefore when a foreign company decides to expand its horizons and wants to go public in another jurisdiction, this is considered a Cross border Initial Public offering" or Cross border IPO.

The implications of cross border listing are immense and with every country stipulating its own listing regulations for companies it is noteworthy that corporate entities seeking to list elsewhere are no exception to the rigorous vetting process. Several factors still hampers cross border listing which encompass, language barriers, currency conversion, and different regulations.

Clearly, cross-border IPOs are often complex and challenging transactions that demands strict adherance to laid down rules of the exhange in question whereupon the company intends to list.

Reasons for Cross border Quotation:

Cross border listings can help the company raise more capital by targeting new shareholders. However not all cross border listing are accompanied by share placements as this may affect liquidity and share price. Publicly-listed foreign corporations would therefore undertake to list on overseas exchanges for a variety of reasons:

1. To boost its status as a truly global player.

2. To raise Capital through debt or equity.

3. To increase trading volume.

4. To improve shareholder relations.

5. To enhance its visibility among overseas investors and consumers.

6. To tap into retail and institutional funds and benefit from changing global attitudes toward equity investing.

Media Interests:

Normally, cross-border listing would attract media interest in the host country thereby improving brand awareness and corporate image. This can be a valuable asset for companies in the consumer products sector and other groups that depend on product or service recognition and visibility, possibly leading to spill over benefits for product or service-market sales.

Implications of CBL:

Shareholder Base: It leads to the diversification of a company's shareholder base thus spreading their financial risk in the same way that diversifying a portfolio can spread investment risk. This can alter the volatility and liquidity levels of a stock. For most companies this is a positive development.
Institutional Interest: Fund managers consider the company's fundamentals, quality, skill and accessibility of management, leadership position in the market, the scope and scale of the competition, and the stock's liquidity, important particularly for small and mid-cap stocks.
Retail Interest: Cross-border listing is an effective vehicle for increasing demand by overseas retail investors, who currently invest in foreign equities.

Liquidity: Increased liquidity can inspire market makers to compete with the new market to the lower bid/ask spreads. The increase in average daily trading-volume through new investors from foreign markets often results in an increasing share-price, higher market-cap and additional sponsorship. Moreover, a targeted equity offering through a new share placement may ensure deeper liquidity.
Raising Capital: Cross-border listings often assist foreign company in targeting new shareholders for fresh capital. However, not all cross-border listings must be accompanied by a share placement. There's always the possibility that a share placement might affect liquidity and share price.