Firms listed on the Nairobi Securities Exchange (NSE) last year avoided bonus share schemes to shareholders as the value of investor wealth on the bourse dropped by 27.54 percent or Sh547.06 billion.
A bonus issue, usually funded through profits or existing share reserves, is an offer of free additional shares to existing shareholders mainly to encourage more retail investor participation in their stock by lowering the price per share and adding liquidity.
A bonus share also provides an alternative to issuing a dividend payment for rewarding investors and also boosts the image of a company.
The boards of management of NSE-listed firms are presently facing a balancing act to either conserve capital by issuing bonus shares in the face of a deteriorating operating environment or issue dividends to shareholders weighed by the high cost of living- as a result of inflationary measures, interest rate hikes, weakening of local currency, high fuel costs and geopolitical tensions globally.
“Bonus shares are perceived to be signs of better times for the company in the future but I think people are now keen on dividends because of the hard times,” said Mr Paul Mwai, NSE’s vice chairman.
Data from the Capital Markets Authority (CMA) shows that last year, several firms issued interim dividends rather than bonuses to protect capital.
These included East African Breweries Ltd (EABL), Standard Chartered Bank (Kenya), Kapchorua Tea, Williamson Tea, Carbacid Investments Plc, KenGen, Bank of Kigali(BoK) and British American Tobacco (BAT).
In 2022, only one firm (Car and General) issued a bonus share while there was none in 2023, according to CMA’s statistical bulletin for the fourth quarter (October-December) of last year. A difficult operating environment has seen foreign investments sell off their investments on the NSE, with the value of listed firms (Market capitalisation) declining by 27.54 percent to Sh1.43 trillion in 2023 from Sh1.98 trillion in 2022.
Foreign investors’ share of the market declined to 50.6 percent in 2023 from 54.1 percent in 2022, though, foreign investors' activities still heavily influence the market performance.
“Kenya's stock market performance hinges heavily on a handful of prominent players, with Safaricom, the country's telecommunications giant and a magnet for foreign investors, accounting for a whopping 41 percent of the all-share index in 2023,” according to the Africa Capital Markets Report (2023-2024 Outlook) by Emerging Africa Group, dubbed ‘A Tightrope Walk’.
“This concentration led to significant distortions this year, as foreign investors, lured by greener pastures elsewhere, dumped their holdings, causing Safaricom's value to plummet by 42.4 percent.”
On the other hand activities in Kenya's fixed-income market were mixed in 2023.
While deal volume surged 3.6 percent to 27,389 transactions, driven by increased activity from retail investors, the total value traded plunged 13.2 percent from Sh741.85 billion to Sh644.0 billion, with the decline attributed to tight market liquidity.
“The tight market liquidity drove yields in the secondary market bonds high,” says the report.