Owning East Africa: What are the ramifications?

The year 2011 has seen the successful initial public offering and consequent listing of three stock counters in East Africa namely; Bralirwa brewers (A subsidiary of the Heineken Group), Bank of Kigali both at the Rwanda Stock Exchange as well as British – American Investments Company (Britam) on the Nairobi Securities Exchange.  While the public response to the Rwandese offers was overwhelming, the Britam offer proved a lame duck having recorded an under subscription by 40%. One of the reasons for this outcome has been said to be its coincidence with the Bank of Kigali IPO. With the benefit of hindsight on the exemplary performance of Bralirwa, I believe, investors in East Africa braced themselves for a gold rush on Bank of Kigali (BK). True to their perception, the stock seems to be a performer having been listed at Rwf 125 and closed trading on the first day at Rwf 200. The stock has since then been oscillating above its listing price with its most recent pricing at Rwf 137. As we wait to see which way the wind is blowing at the young Rwanda Securities Exchange (RSE), it would be wise to understand the region and probably pre – empt future offers. 

Nairobi Securities Exchange (NSE)
The bourse is the oldest and the largest in the region having been set up in the early 1950s. Its size implies that the bourse is more open and attractive to foreign investors relative to the young bourses in Uganda, Tanzania and Rwanda. This therefore means that it’s more susceptible to the various tides in the global market unlike its counterparts in the region. In addition, its age highly accounts for the high number of local and foreign investors as well as the massive investor education since its inception not to forget the passing on of investing knowledge throughout the different generations since then. This huge pool of investors accounts for high market liquidity hence the likelihood that a buy or sale order placed will be more agile than anywhere else in the region. The most recent initial public offer (IPO) at the bourse has been Britam which having been listed at Ksh. 9 on the 2nd of September is currently trading at Ksh. 5.45 reflecting a downward trend by almost 50%, one similar to that of Safaricom.  It can highly be argued that investors at the bourse are mainly adopting a ‘wait for the cat to jump’ approach to investing given the highly publicly debated Hague proceedings as well as the fourth coming general elections in 2012. These and among other issues could have highly affected Britam’s performance. 

Rwanda Securities Exchange
The exchange is the youngest in the region having activated its stock market on 31st January 2011 with the subsequent listing of Bralirwa. Bralirwa’s performance has been great since its listing having achieved a record 62% gain on the closure of the first day of trading. On the 1st of September 2011, the bourse achieved its second primary listing with the listing of Bank of Kigali shares. This stock market as the chairman of the Uganda Stock Brokers Association, Mr. Robert Baldwin, comments ‘is off to an excellent start given that the two IPOs were all oversubscribed’. Most importantly is the fact that the exchange by passed the ancient paper share certificate system and kick started with the electronic central depository system. One might therefore be tempted to ask, ‘why Rwanda among all other East African states?’ Mr. Baldwin continues to comment that the Rwandese government is quite committed in promoting IPOs. Notably, President Paul Kagame publicly applied for his Bank of Kigali shares, a move that we can only brand as a perfect public relations exercise. The allotment process of these shares was also fair unlike that of Safaricom which had retail investors from EAC member countries gnash their teeth. The Bank of Kigali’s process at least ensured retail investors of their full minimum applications. 

On the other side of the coin, there are a few challenges on this budding market.  Notably being the foreign exchange risk which has been aggravated by the highly depreciating Uganda shilling against the Rwandese Franc. This challenge, as Mr. Baldwin comments, has led to the institution of creative solutions that have made the settlement period of shares sold a little longer.   

Join me next week as I continue to examine other markets in the East African region. Just to give you a feel, the Dar es Salaam Securities Exchange is set to list its 18th counter as Precision Air whose IPO is slated for the 7th of October 2011.


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