Structure, types of and requirements for listing on NSE

An employee makes notes in front of an electronic stock information screen inside the Nairobi Securities Exchange Ltd. (NSE), in Nairobi, Kenya, on Tuesday, Dec. 8, 2015. The government had planned to plug the 2016-17 fiscal deficit with about 240 billion shillings of external borrowing, and about the same amount raised on the domestic debt market. Photographer: Riccardo Gangale/Bloomberg

The NSE market has grown since its registration in 1954 under the Societies Act (1954) as a voluntary association of stockbrokers charged with the responsibility of developing the securities market and regulating trading activities, with the most recent developments being:

The introduction of the Growth Enterprise Market Segment (GEMS) in 2013 with the intention of providing more options for SMEs finance, especially long-term funding, by use of favourable listing requirements tailored for SME’s. Currently the segment has five listed stocks, with four having listed by introduction, and one through cross listing;

The introduction of NEXT, which is the Nairobi Securities Exchange (NSE) derivatives market aimed at facilitating trading of equity index futures and single stock futures in the market. The financial derivatives market is expected to go live in 2019, after conclusion of the 2-phase test trade from July to November 2018, aimed at testing market system set-up, trade execution, reporting and settlement as well as risk management controls. The 1st phase carried between 3rd July and 3rd August 2018 saw participating investment banks and stockbrokers trade in three-month contracts using virtual cash of up to Sh1m. The 2nd phase started in September, involving trading using real money,

Approval of the Policy Guidance Note for the listing and trading of global depositary receipts and notes in July 2017, allowing Kenyan firms to sell shares in other countries without cross-listing as well as International companies to sell shares in Kenya without listing on the NSE,

Launch of the Barclays NewGold ETF, the largest Gold exchange-traded fund (ETF) in Africa and the 7th largest in the world, which was listed on 27th March 2017, valued at approximately $1.4b. The listing made 400,000 units, valued at nearly Sh500m, available for trading in the NSE with the opportunity for growth depending on demand, and,

The change of name to the Nairobi Securities Exchange in July 2011 Limited reflecting the strategic plan of the NSE to evolve into a full service securities exchange which supports trading, clearing and settlement of equities, debt, derivatives and other associated instruments. In the same year, the equity settlement cycle moved from the previous T+4-settlement cycle to the T+3-settlement cycle.

In 2001, the NSE was split into three market segments according to type of investment and type of asset class, and in 2013, a fourth segment, the Growth Enterprises Market Segment (GEMS), was introduced to give SMEs an opportunity to access the capital markets and grow their businesses. The four segments include:

Main Investment Market Segment (MIMS): The main segment of the NSE where most companies are listed, currently having 48 listed stocks with a total market capitalization of Sh2.15t, as at October 19, equivalent to 99.5% of the total NSE market capitalization. It is suitable for bigger companies that have been around for a longer period. For a company to be listed in this segment, it must submit at least five years of audited financials, three of which should be profitable years, and must have at least Sh50.0m worth of fully paid up share capital and at least, Sh100.0m in assets. Listing fees for this segment is 0.06% of securities value to be listed, subject to a minimum of Sh200, 000 and a maximum of Sh1.5m.

Alternative Investment Market Segment (AIMS): Better suited for medium-sized companies that have at least Sh20m in assets and Sh20.0m of fully paid up share capital at the time of listing. The company must also have been in existence in the same line of business for a minimum of two-years and demonstrate good growth potential. The AIMS segment currently has 9 listed companies with a market cap of Sh8.1b as at October 19, equivalent to 0.4% of the total NSE market cap. Listing fees for this segment is 0.06% of securities value to be listed, subject to a minimum of Sh100, 000 and a maximum of Sh1.0m.

Fixed Income Securities Market Segment (FISMS): Designed to incorporate listing and secondary market trading of fixed income securities, mainly corporate and government bonds, and,

Growth Enterprises Market Segment (GEMS):  Introduced to provide a regulated platform whereby SMEs could gain access to cheaper capital market funds and benefit from the regulatory environment that comes with it, promoting corporate governance and transparency. Its requirements were made less stringent to accommodate the smaller growth companies, with requirements such as: (i) no minimum firm asset value and profitability record required, (ii) submission of audited accounts for just the year that precedes the year of listing, with no profitability requirement, and (iii) a minimum of Sh10m in paid up share capital. It has five listed stocks, with a total market capitalization of Sh1.0b as at October 19, equivalent to 0.1% of the total NSE market capitalization, including Atlas which was suspended in May 2017.

Companies can get listed on the various segments of the market through the following ways:

Initial Public Offer (IPO): The most common type of listing. It involves a company issuing new shares while listing on the selected stock exchange that will result in a new set of shareholders from the public buying the shares at a specified share price, and hence the company raising capital from the exercise.

Listing by Introduction: This type of listing occurs when a company takes its existing shares and lists them on an exchange. Since only existing shares are listed by introduction, it follows that no new shares will be issued and no additional funds will be raised. This type of listing only provides the company with a regulated environment within which to operate and a platform to trade shares with the public investors in the capital markets.

Cross Listing: This occurs when a company that is already listed on one stock exchange decides to list on another stock exchange other than its primary or original exchange. Cross listing is advantageous in that it gives the listed company a larger scope of access to capital from different jurisdictions and different investors. No new shares are issued. Atlas managed the first cross listing between the London Stock Exchange and the NSE raising Sh450m, by offering 10% of its 393.9m total issued shares for cross-listing on the NSE with price per share set at Sh11.5 with a minimum subscription of Sh1.0m per investor, and,

Reverse Listing: This is a rare kind of listing strategy also referred to as back door listing where a company that is not listed on any exchange purchases a listed company and becomes automatically listed by virtue of this transaction. It is common when a company that wants to have access to the capital markets also wants to avoid the time and cost spent in a regular listing. The listing of I&M bank for instance, was through reverse acquisition of City Trust Limited (CTL) in 2013.   Cytonn Investments