New products to drive stock market

By David Mugabe

Charles Wanenga who bought into Safaricom is now a happy man after seeing the resurgence in its share price.

East Africa’s largest telecom company sprung to life hitting a new high of sh440 (Ksh14.2) early this week after about six years of underperformance that left many retail investors selling the share at a loss.

The sh440 was more than double the initial June 2008 public offering (IPO) price of sh155 (Ksh5) a share. At one time, the share price fell below its IPO price.

Safaricom was crosslisted in Uganda with hundreds of Ugandans taking a piece of it. Thus the news of the entry of ALTX Uganda as the second exchange pleases Wanenga because it means there will be competition and the spark to spur the 17-year-old Uganda Securities Exchange to become more creative in wooing new products.

Like Wanenga, the National Social Security Fund (NSSF) which is the most active investor at USE is also happy with the news of a second exchange. But Richard Byarugaba is raising the same concern of a lack of products.

“The question is the current stock exchange has struggled in coming up with listed companies, how will the second one be?” asks Byarugaba.

Umeme was the last company to list close to three years ago. Before then, the other local companies to list were New Vision and Stanbic Bank eight and five years earlier respectively. In between, there were a few crosslisted companies including Centum and Equity from Kenya.

“We need at least two to three listings coming on board annually,” notes Byarugaba.

ALTX Uganda, according to its chief executive Joseph Kitamirike, will be a fully automated securities exchange.

It is pending regulatory approval and should open by May 2015. Kitamirike notes that the strength of ALTX Uganda, a subsidiary of the South Africa-based ALTX Africa Group, will provide new products that are easily tradable and provide some of the best returns. It also provides continent-wide integration.

Some of the products include depository receipts which enable investors to trade from one exchange and redeem their investments in another country market.

On Tuesday, ALTX announced the entry of GMEX group who took a 25% stake in ALTX Africa and are providing the Africa-wide technology called ForumMatch that will enable cross border trading.

“We have the technology resources now to go across Africa, the gun to shoot and spread securities trading across Africa,” announced Kitamirike.

Kitamirike says they are going to test with dummy products and once they are satisfied, they should have securities to list.

One product allows an investor from Uganda for instance to go to South Africa and buy MTN shares worth $1m, and they are then issued receipts to trade in Uganda.

Other products allow an investor to hold their commodity such as gold in a foreign country but they are issued securities locally in Uganda which securities prices move in relation to the price of the gold in the global market.

ALTX will operate an electronic marketplace for securities, derivatives, currencies and commodities. It will operate an electronic depository for securities.

Why Uganda

Uganda is emerging as an attractive market with good growth prospects.

The African Development Bank listed its first bond outside South Africa in Uganda about two years ago- a sign of strong indicators that saw the bond issue well received.

“Also, because developments in the oil sector, Uganda needs certain derivatives in order to trade oil internationally,” notes Kitamirike.
 

The then chairman of Uganda Securities Exchange Onegi Obel (left) handing over the bell to then New Vision board chairman Bart Katureebe (right) with Editor in Chief at the time, William Pike looking on. This was during the listing of The New Vision on the securities exchange in December 2004.

Limited products

Most listed products are out of government divestiture process - where government offloads its stakes in previous state owned enterprises.

Flourishing private enterprises like Roofings with a sh250b investment have still not found the exchange attractive even for raising expansion capital.

Roofings took up a $64m syndicated loan involving several banks and the World Bank to finance its expansion instead of floating shares on the capital markets.

Stuart Mwesigwa, the Roofings business development manager, says after growing to its current size, Roofings would in the future consider raising capital through the stock exchange.

“This capital market is new. If someone is getting funding from the World Bank, they feel comfortable because they have to go through extreme conditionalities,” says Mwesigwa.

The Capital Markets Authority (CMA) that granted ALTX Uganda’s exchange application in March 2014 acknowledged that ALTX has sent in their exchange rules for exchange traded funds, depository receipts and asset backed securities that CMA is currently reviewing.

“It will take 45 days to go through them, the legislation for those products is already in place, the issue is to approve the rules,” said Charles Nsamba, CMA communications officer.


Firms that have raised capital on the USE

A number of companies have gone to the stock market to seek expansion capital and sometimes regulatory approval. Bank of Baroda, Stanbic have all gone to the stock market to fulfill the new capital requirements by the Central Bank that all banks must raise their minimum capital to sh25b.

The New Vision

Uganda’s largest multimedia house was listed on the Uganda Securities Exchange in November 2004. 51,000,000 ordinary shares were issued at sh19.66 per share raising nominal capital of over sh1b. In 2008, the Company undertook a rights issue which was the second corporate action which increased the company’s ordinary shares to 76,500,000 shares of sh19.66 each and a share capital of sh1,5b was raised.

Stanbic bank

This was the most successful listing and by far the most active counter in the close to two decades of the exchange. The 2007 Initial Public Offer of 1,023,773 394 shares amounting to 20% of the shares of the company proved ground-breaking in the history of the market. The response was phenomenal with 37,449 applications for 3 billion shares totaling sh211 billion hence a 200% oversubscription.

dfcu Bank

dfcu is the second financial institution to list on the USE. The dfcu offer of 79,509,743 shares represented a 39.97% stake in the company at a value of sh45b at offer price and was oversubscribed.

Bank of Baroda

On the November 14 2002, Bank of Baroda (Uganda) Ltd shares were officially listed on the USE making Bank of Baroda the first financial institution to list their shares on the USE. Their IPO of September 2002 was 16.7% oversubscribed and the initial trading of the share saw the price rise from sh600 to sh715 per share representing a 20% increase.