Interview: Paul Muthaura

To what extent do you see new product offerings driving future growth?

PAUL MUTHAURA: The exceptional returns we saw in 2013 on the Nairobi Securities Exchange (NSE) were driven by fairly traditional products, with active secondary trading in the equity and bond markets. Based on continuous investment in improved market infrastructure, as well as a substantially strengthened regulatory environment, we have seen a greater number of domestic and international institutional investors seeking to gain exposure on the Kenyan market. With the prospect a full spectrum of new products – including exchange-traded funds; real estate investment trusts; infrastructure, project and securitisation bonds; expansion into equity-linked and structured debt instruments; roll-out of derivative instruments; and sharia-compliant products – there is little question that continued growth will be driven by these new offerings. These will allow for greater diversification of investment portfolios by both retail and institutional investors and significantly improve the market’s absorption capacity for the expected increase in funds related to implementation of Vision 2030. These expectations on continued future growth have been clearly captured by monitoring and evaluation metrics under the 10-Year Capital Markets Master Plan (CMMP), published in May 2014, on equity market capitalisation, the ratio of corporate debt to GDP, the value of exchange-traded financial derivatives and targets for sharia-compliant instruments.

What can be done to spur more listings on the Growth Enterprise Markets Segment (GEMS)?

MUTHAURA: GEMS is being targeted to provide a listing and capital-raising avenue for certain economic players. It seeks to address gaps in access to funding for small and medium-sized enterprises, which are the focus of Vision 2030. It also aims at responding to increased activity of private equity in the country and region, and the call by investors for a listing segment to provide price discovery and visibility for exit. With a positive outlook in extractive sectors related to natural resources, there was a clear recognition that more appropriate mechanisms were needed to allow for both early-stage fund raising and support for transparent diversification of local ownership.

In this context there have been consistent joint efforts by the CMA, NSE and nominated advisors to review and refine listing criteria for the segment to address any barriers to access. In addition, these three bodies are involved in education programmes to improve local understanding of the role of and opportunities provided by capital markets. It is on this basis that the CMMP has identified GEMS as the key platform for increased listings with a minimum target of four new listings per year over the plan period.

What sort of scope do you see for attracting more international companies to dual list?

MUTHAURA: At the core of Vision 2030 is the establishment of Nairobi as an international financial centre. Dual listings are one of the quickest ways to increase links between Kenyan and global capital markets. With the entry of internationally listed entities, particularly in extractive sectors, the NSE is expecting to see an increase in dual listings to aid these firms in building a local investor base (for regulatory compliance and longterm investment stability) and a platform for raising project capital in country. This is further complemented by the increasing expansion of Kenyan companies in the wider region and the recognition that multi-jurisdictional capital raising will become increasingly necessary to fund projects in relevant currencies.

The CMMP has identified opportunities presented by the listing of global depositary receipts and depository notes to improve the accessibility of existing traded securities on the Kenyan market for international investors. In addition, the structuring of Kenya Depository Receipts is aimed at helping entities listed in the region make their securities available for trade on the NSE to leverage growing liquidity in the local market.