Proposed law seeks to limit foreign ownership in strategic firms

The Nairobi Securities Exchange (NSE) trading floor. The planned change in legislation hopes to protect the country’s national assets.

NAIROBI, KENYA: The Capital Markets Authority (CMA) will limit how much foreigners can own in strategic national assets.

Luke Ombara, the authority’s acting Director of Regulatory Policy and Strategy says the aim is to protect “national jewels” from being run down in the event foreign investors choose to liquidate their stake.

Approval

If the proposal is approved by the National Treasury then the 75 per cent ceiling set for foreign ownership in listed firms would be revised downwards, presenting a rare opportunity for local investors to enhance their shareholding position in these institutions.

“We will be proposing to the National Treasury on whether the market can be opened up 100 per cent for some securities and for those companies, which we consider, for lack of a better word, national jewels, the minister can put some limit in foreign shareholding,” Ombara told a stakeholders meeting convened to deliberate on the capital markets policy proposals in Nairobi yesterday.

The proposals are to be considered for the 2014/2015 Budget.

Foreign investors hold 22.1 per cent of the total number of shares in NSE listed companies, according to the latest data from CMA and constitute over 50 per cent of the trading activities at the 60-year-old bourse.

Foreign investments at the NSE remain resilient despite insecurity concerns that have affected other foreign dependent sectors, notably tourism sector.

NSE has witnessed 11 Initial Public Offering (IPOs) in last one decade (2004-2014) of which a total Sh15.54 billion shares had been offered to the public generating Sh73.28 billion.

IPO issuers

Amongst the issuers included African Lakes, which delisted in 2003, Mumias Sugar Company (MSC), Kengen, Scangroup, Eveready, Access Kenya, Kenya-Re, Safaricom, Coop Bank, British American Investment Company (Britam) and Nairobi Securities Exchange (NSE).

According to data from CMA, foreign investors hold 49.28 per cent stake in Equity Bank and 29.28 per cent shareholding in Kenya Commercial Bank (KCB), while about 3.8 per cent stake in Cooperative Bank is owned by foreigners.

National Carrier Kenya Airways is owned 42.42 per cent by foreign shareholders. Uchumi Supermarket is owned 31.04 per cent by foreigners.

According to the Capital Markets Regulations, every legal entity that offers securities to the public or listed company shall reserve at least 25 per cent of its ordinary shares for investment by local investors.

Equity turnover for the third quarter (January-September) of 2014 grew 18.3 per cent to Sh49.8 billion, against the Sh42.1 billion registered in a similar period last year.

Similarly, average market capitalisation rose 28.8 per cent to Sh.2.21 trillion, up from Sh.1.71 trillion.