NSE eyes IPO pipeline to unlock private capital firms' exit plans

NSE Chief Executive Officer, Frank Mwili. [File, Standard]

Nairobi Securities Exchange (NSE) is in discussions with private equity and venture capital firms on how they can better leverage the bourse to maximise returns from their investments and completed deals.

The conversations are focused on positioning the NSE as a viable exit route, where investors will be able to unlock value through initial public offerings (IPOs), similar to practices in more developed markets.

 It was noted in The African Private Capital Association (AVCA) annual summit, which kicked off on Monday, that the lack of this strategy has limited the growth of private capital in the market.

While the country and the region at large register deals amounting to billions, venture capital and private equity find it challenging to exit the market.

An IPO, however, would make exits easy, which would also compound the growth of deals.

An IPO allows private and venture capital to realise their investments on time while also raising more money for diversification or re-investment.

Notable companies such as Uber and Tesla have utilised this strategy to scale up. Tesla is now listed on the National Association of Securities Dealers Automated Quotations (NASDAQ) while Uber is listed on the New York Stock Exchange (NYSE).

Frank Mwiti, NSE chief executive, said for public markets to be successful, the system needs to support the full life cycle of private capital.

He said that if private equity and venture capital firms are gaining strong traction in originating, structuring, and investing in deals, then the NSE aims to take part in the value-creation phase after the deals are completed, while also supporting investors during their exit stage.

“That could either be by listing their portfolio companies on NSE or raising capital to grow their business through the NSE, and in that way, we can complete the cycle,” he said. “Otherwise, we can’t say we have a successful private capital ecosystem if we do not complete the cycle.”

A major challenge, however, that stops such businesses from issuing IPOs is the corporate governance factor, which is paramount when dealing with the capital markets. As such, to access liquidity, private equity and venture capital get a lifeline in the secondary markets.

Additionally, the IPO process is often lengthy and demanding, making it slower than the pace at which businesses need to access liquidity.

Mwiti, however, says NSE’s role in this space will ensure corporate governance is instilled in businesses, which is critical when deepening the capital markets.

“These are conversations NSE is having with private equity and venture capital players in our market. We are here to be a link between public market capital and private markets,” he said at the sidelines of the summit.

The summit is themed Break the mold: Reshaping the future of African private capital.

Abi Mustapha-Maduakor, AVCA Chief Executive, noted how the changing macroeconomics associated with global instabilities and changing economic stances are affecting the flow of private capital to Africa.

As such, domestic capital has become more critical than ever for investments in industries across the continent.

“One of the consequences of uncertainty is more protectionism and selectivity around institutions that deploy the capital,” she said. “That is the reality, not just in Africa.”

While these macroeconomic challenges have affected the flow of capital, she noted that a positive occurrence is that there has not been depressed deal activity.

“What we have started seeing from a private capital perspective is that the deployment amount is smaller,” she said.