Cross-listed stock: Is Safaricom curse at work?

Cross-listing also leads to an increase in the liquidity of the stock through the exposure. Many companies see cross-listing as an attractive business venture. Currently, there are eight companies cross-listed on the Uganda Securities Exchange (USE). These are East African Breweries Limited, Jubilee Holdings, Kenya Airways, KCB group, Equity Bank Group, Uchumi Supermarkets, Nation Media Group and Centum Investment Company Limited.

The presence of these East African giants on the Ugandan bourse would be expected to increase the excitement in the stock market. However, there has been minimal action on cross-listed counters during the year. Yet on other counters, it has been business as usual for non-cross-listed stock. The question is: why? To understand this, one needs to backtrack to 2007 when East African mobile telecom giant Safaricom floated its shares to the public.

Many East Africans excitedly bought the shares with the hope that the prices would rise exponentially and they make a kill. The reverse was true. People made the worst stock investment decision of taking out bank loans at high interest rates to buy the shares.

Nobody could ever predict what would happen next. The disappointment that followed when the company’s share price collapsed from Kshs 5 (Ugx 150) is still fresh in the minds of many Ugandans. No one would understand how the most profitable company in East Africa could have shares so meagrely valued. Some people pointed to foul play and vowed to apply caution the next time a similar buy arose.

The fact that all the companies whose shares are cross-listed on the USE does not make matters any better for the potential investors. The memory of the great Safaricom flop has scared many Ugandans off cross-listed stock.  It is high time the East African giants promoted their goodwill and stability on the Uganda media regularly and secondly the USE should also attract non-Kenyan firms to cross-list. This may take some time but will surely work.

Share immobility

Secondly, there is a general immobility of share markets in East Africa due to the lack of an efficient payment system. While shares may be available on one market, and demand in the other country, it generally takes more than two weeks to coordinate the transfer of the shares from the market with supply and payments from the market with demand.

Arthur Nsiko, a trader at African Alliance securities, says it currently takes up to 30 days and sometimes up to 60 days to move shares between the two markets of Kenya and Uganda – something that is a big inconvenience to investors and traders.

“Purchasing cross-listed shares has not been as seamless as it should,” Robert Baldwin, the Crested stocks boss said in an interview.

He noted that high-level talks between capital markets regulators in East Africa would soon unlock value in cross-listed stock.

East African securities regulatory authorities from Kenya, Uganda, Rwanda, Burundi and Tanzania recently met in Nairobi to agree on new ways of harmonizing standards in the region.

At the cross-listing of Umeme shares in Nairobi, the East African Regional Inter-depository Transfer Mechanism that links share markets in Uganda and Kenya was successfully tested.  A team is currently vetting securities trading systems in the five East African states to trace and mitigate any possible risks that may occur when the five share markets are linked electronically.

Kenya Airways made a pretax profit of Kshs 548 million (Ugx 116.4 billion) in its first half ended September, from a loss of Kshs 6.589 billion (Ugx 197 billion) in the same period last year.

The news led to a brief rally in the company’s share price on the Ugandan markets, moving to Ugx 405 from Ugx 398 the week before. However, the immobility of shares between Kenya and Uganda ensured that no deals were closed over the counter.

Equity bank, Kenya’s fastest growing bank, recorded a 107% growth in half year pretax profit of Kshs 1bn, up from Kshs 503  million last year. The bank’s 2012 after-tax profits jumped 22% to Kshs 3.21 billion from Kshs 2.63 billion the prior year.

The bank paid Kshs 1.35 billion in dividends this year. Despite that, the company’s’ share price declined to Kshs 1,022 from Kshs 1,049 due to changes in the Kenyan market. No deals were closed on the Ugandan market.

Kenya Commercial bank realized a 14% jump in 2012 profits Kshs 17.2 billion] due to higher net interest income. The bank’s half year pretax profit rose 19% to Kshs 10.1 billion due to improved operational efficiency, increased business and positive international business contribution. Still, no deals were closed on the KCB counter on the Ugandan market.

Safaricom jinx

It is no secret that the Kenyan economy is growing much faster than Uganda’s. As such, the firms are performing much better at that level. Given booming economic conditions in Kenya, it is very possible investors in the money markets will make quite good returns on the cross-listed stock. However, there is need to break free from the Safaricom jinx. And this will come with concerted public education and training. We hope, Mr Benard Magulu, the man who has been tipped to become the CEO of Uganda’s stock exchange, has a clear strategy to attract the locals to the party.

March 20th, 2018 | by

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