CMA relaxes NSE listing rules to encourage IPOs


Securities trader at Nairobi Securities Exchange trading floor at the Exchange Building in Nairobi.

Photo credit: File | Nation Media Group

The Capital Markets Authority (CMA) has published revised rules that would allow more companies to list on the Nairobi Securities Exchange(NSE) and encourage additional initial public offer (IPOs) in an effort to reverse a six-year drought in business.

Kenya’s last IPO was in 2015 when property investment fund ILAM Fahari I-Reit was listed on the NSE after raising Sh3.6 billion.

As part of the radical changes, the regulator has struck out a rule that restricted IPO listings to public firms limited by shares and registered under the Companies Act.

A public company limited by shares is a legal entity that is separate and distinct from its members and directors or management.

“The issuer to be listed (in the main investment market segment) shall be a body corporate duly incorporated and/or registered under the laws of Kenya. The issuer must have been in existence for at least five years”, the CMA says in the draft regulations.

Should the proposal be approved, the window for listing could be opened to entities registered under the Limited Liability Act, 2012.

The regulator also proposes to relax a rule on the profitability of firms seeking to go public in the main investment market segment.

The law currently provides that an issuer must have declared profits after tax attributable to shareholders in at least three of the last five completed accounting periods to the date of the offer.

“The issuer must have been in existence for at least five years, one of which should reflect a profit with good growth potential and a revenue earning record,” the draft regulations say, pointing at a softer profitability requirement than is currently the case.

The CMA also targets the entry of Special Purpose Acquisition Companies (SPACs) that would help counter the growing influence of Private Equity firms.

SPACs are firms that have no commercial operations and are formed strictly to raise capital through an IPO or to acquire or merge with an existing company.

According to the draft regulations, an issuer applying for listing of its shares on the main investment segment as an SPAC must have a market capitalisation of not less than Sh1 billion based on the issue price.

SPACs, also known as blank-cheque firms, are generally formed by investors or sponsors with expertise in a particular industry or business.

In creating an SPAC, the founders sometimes have at least one acquisition target in mind, but they do not identify that target to avoid extensive disclosures during the IPO.

“SPACs have relatively lower underwriting and completion fees, shorter time frame to listing and the fact that valuation can be determined based on prior negotiations between SPAC sponsor and target company as opposed to the traditional IPO where stock price is entirely dependent on market conditions and listing time”, the regulator says.

To catalyse the issuing of securities in the market, CMA is proposing the rollout of a small and medium-sized enterprise fixed income securities segment which will allow the raising of debt by listed SMEs.

“The minimum size of the issue shall be Sh20 million and maximum Sh250 million. The minimum subscription shall be Sh10,000 or such higher amount as the Authority may prescribe from time to time”, the regulations say.

CMA also seeks to tighten scrutiny of books presented by entities seeking to go public.