The Capital Markets Authority (CMA) is considering tighter share valuation rules to save investors from incorrect prices when companies are listing on Nairobi bourse.
CMA Director of Policy and Regulation Luke Ombara said issues around pricing of shares have seen some of the entrants on the Nairobi Securities Exchange (NSE) fall below par value upon starting to trade.
“Nominated advisors have been doing the valuation and we have had issues especially on shares dropping below par value after listing,” Mr Ombara said.
Responding to the press after opening a round table discussion on policy proposals geared at injecting vibrancy at the bourse, Mr Ombara said inaccurate valuation has been part of the challenges that have seen Growth and Enterprise Market Segment (Gems) under-perform.
Gems, which was mainly meant for small but promising companies, has only attracted five companies since it was launched in 2013. This is below CMA’s target of having three to five new Gems listings per year.
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The five firms on the Gems market- Home Afrika, Flame Tree Group, Kurwitu Ventures, Nairobi Business Ventures and Atlas Development- have had a dismal run. According to Ombara, this has scared some of the potential issuers.
“There has been incidences of incorrect valuation. You find companies coming to the Gems and start trading below par value. Now there are those potential companies who fear that if they come, they will also trade below par value,” bemoaned Mr Ombara.
Save for Kurwitu Ventures, which was listed at Sh1,250 and now trades at Sh1,500, the rest of the shares on the Gems are far below listing prices.
Valuation of shares is currently left in the hands of nominated advisors, usually called in short form as Nomads. Currently, NSE has 22 Nomads. A Nomad is expected to understand the business of a company and also prepare its board for listing.
Pricing of securities
The Nomad is also expected to advise and guide an issuer on the application of listing requirements of Gems and manage the submission of the listing statement and all other documentation to the NSE and ensure its completeness and correctness before submission.
CMA feels that there is need to tighten the rules on share valuation. It is looking at a possibility of coming up with detailed valuation methodology for pricing of securities within the regulatory framework.
“Part of the strategy is to examine more on how to improve on the quality of valuation,” Mr Ombara says.
