East African stock exchanges are racing to establish investment clinics to help attract companies to the stockmarkets and end the persistent initial public offering (IPO) drought.
The Dar es Salaam Stock Exchange (DSE) joined Nairobi Securities Exchange (NSE) and Rwanda Stock Exchange (RSE) in implementing capacity building and training programmes for small and medium-sized enterprises (SMEs) looking to gain visibility and raise capital at the stockmarket.
In August, the DSE launched and started implementing the DSE Enterprise Acceleration Programme (DEAP) dubbed “Endeleza Project” which aims at, among other things, creating a database of potential issuance and listing entities where they will receive training on strategic planning, bookkeeping and accounting, administration, human resource as well as financial management.
Eight companies have so far enrolled for the programme including AKM Glitters Company Ltd, Victoria Finance Plc and FINCA Microfinance Bank. Others are AML Finance Ltd, Techno Image Ltd, Reni International Company Ltd, Selcom Paytech Ltd and Raha Beverages Company Ltd.
In October last year, the RSE launched the Capital Market Investment Clinic to support the SMEs in their preparation for raising capital from the stockmarket.
RSE chief executive Celestin Rwabukumba said the main idea behind the clinic is to accelerate the number of listings on the Kigali-based exchange that currently has 10 listed firms of which five are cross-listed from the NSE and the Johannesburg Stock Exchange.
Last year, Rwandan cement maker Cimerwa listed on the stockmarket by way of introduction while a South African healthcare focused investment firm, RH Bophelo Ltd (RHP) cross-listed on the RSE from the JSE.
Companies that progress successfully from the investment clinic, will either be listed on the Main Board of the RSE or the SME board.
Kenya, Uganda and Tanzania run distinct trading platforms for SMEs on their stock exchanges but Rwanda has opted to pursue a different route by creating an investment clinic to train, nurture and prepare SMEs for listing on the main board at the RSE.
The investment clinic adequately prepares companies to raise capital from the exchange by inculcating good corporate governance practises and helping them keep proper books of accounts.
In Kenya, the NSE in collaboration with the Kenya Association of Stockbrokers and Investments Banks (Kasib) launched a similar incubation programme dubbed “Ibuka” in December 2018, which sought to prepare and convince potential issuers to raise capital through the exchange.
The programme is expected to help selected Kenyan companies fast-track their development process by accessing financial advisors and consultants to help them structure their businesses, enhance visibility and get exposure to local and international investors.
So far, 27 firms have enrolled to the programme of which one of them (Homeboyz Entertainment Ltd) already has 63.2 million shares on the Growth Enterprise Market Segment (GEMS) of the Nairobi bourse.
However, new enrolment on the Ibuka programme has slowed down due to the Covid-19 pandemic, which has affected the financial positions of several firms through declining sales and productivity largely due to reduced disposable incomes for households.
“These companies have made very good progress but Covid-19 has slowed everything down,” Geoffrey Odundo, NSE chief executive told The EastAfrican in an earlier interview
Paul Mwai, Kasib chairman said the pandemic has caused several firms that had wished to join the programme to adopt a wait-and-see attitude.
NSE’s Growth Enterprise Market Segment (Gems) — the trading platform for SMEs — has only attracted six companies since it was launched in January 2013 of which one (Atlas African Industries) has been delisted.
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As a result, Kenya’s Capital Markets Authority (CMA) has gone back to the drawing board with a view of reviewing rules and regulations that have made it difficult for firms to list on the GEMS.
In Uganda, the Gems was launched at the Uganda Securities Exchange (USE) in 2015, but the market has not recorded a single listing.
In Tanzania, the DSE established the Enterprise Growth Market (EGM) segment in late 2013, and so far there are about six companies listed on the segment including Maendeleo Bank Plc, Mkombozi Bank Plc, Mwalimu Commercial Bank, Swala Oil and Gas Plc, Yetu Microfinance Bank, and JATU Plc.
Studies show that East African countries still remain the most expensive markets for stock investors in the continent with a bulk of the trading costs related to brokerage fees.