Uganda's stock market clocks 10 years
FOR an institution that turns 10 this year, it is 2007 that stands out as one of the best years at the Uganda Securities Exchange (USE). The listing of Stanbic Bank last year after a successful Initial Public Offer (IPO) catapulted the bourse from sluggish trade to a vibrant market.
By Sylvia Juuko
FOR an institution that turns 10 this year, it is 2007 that stands out as one of the best years at the Uganda Securities Exchange (USE). The listing of Stanbic Bank last year after a successful Initial Public Offer (IPO) catapulted the bourse from sluggish trade to a vibrant market.
Simon Rutega who has been at the helm for the past decade is proud of the performance.
“10 years is worth celebrating. We had a nascent financial market with only short-term instruments. Ten years later, we have nine equities, 31 government bonds, seven corporate bonds with a population sensitised about capital markets,†he says during an interview.
The bourse had only the East African Development Bank (EADB) bond listed at the time it commenced and only got equity in 2000 when Uganda Clays (UCL) listed at sh4,000 a share.
Subsequently, other stocks were listed. They include British American Tobacco (BATU), Bank of Baroda, dfcu Bank, New Vision and Stanbic Bank. The cross listed stocks include Kenya Airways, East African Breweries and Jubilee Insurance. Market capitalisation has grown from sh2.3b when UCL was listed to sh6.4 trillion currently.
For any skeptics, it’s now clear that capital markets can be used as an avenue to raise cheap financing away from the traditional and expensive funds from the commercial banks.
The bourse has raised over sh2.5 trillion from equities, corporate and government bonds in the last decade.
“Most skeptics thought we were wasting time but it’s clear that for our economy to be transformed, we need to have capital markets to mobilise domestic resources. It could have been better with equities and the only way is up, and that is growth,†reckons Rutega.
Another set of winners are the shareholders who have not only benefited from the recent bull run that saw their stocks increase in price but also earned good dividends following good performance of listed companies.
This has created the availability of a different asset class for the Ugandans that have previously looked at cash and land. The bourse currently boasts of about 55,000-60,000 retail investors.
The vibrancy of the bourse was also driven by massive foreign interest mainly in Stanbic and other counters that are considered cheap stock. This foreign participation has positioned the country as an attractive investment destination.
It is expected that private companies that seem reluctant to list will consider this as a comparatively cheaper sourcing of financing and then spin off.
While Rutega acknowledges lack of private sector participation, he is bullish they will eventually come on board.
“Private companies do not want to pay the initial costs of education. I am optimistic they will list because the need to raise more capital on the market will become more paramount. The corporate governance and tax administration issues are improving.â€
He says listing enables companies to raise funds through various options like rights issues, corporate bonds in addition to bank financing because they have full disclosure so creditors are more confident to commit funding.
While there were initial concerns about absorptive capacity, the successful issue of Stanbic put that to rest. The bank wanted to raise sh70b but had to refund sh140b after the IPO.
Despite an improvement in performance, the bourse is still dogged by liquidity issues. There is increased appetite for existing equity but with the few options, some investors take a long-term view which impacts on trading volumes.
Upcoming listings this year include National Insurance Corporation, Kenya Commercial Bank and Equity Bank cross-listings as well as corporate bond issues from Stanbic and National Water and Sewerage Corporation. This will galvanise activity at the bourse.
While analysts say most counters at the bourse had reached their full valuation, Rutega disagrees.
“As we get more options to invest, the market will reach correct value. We need more players so that the market is more efficient in pricing. It’s always a supply and demand issue but the market will always correct itself.â€
He considers foot-dragging by Parliament regarding passing of the Central Depository System (CDS) law as some of the challenges weighing down the bourse. This is a stumbling block towards efforts to implement one trading platform in East Africa. The CDS that will automate trading is expected to be functional by the end of the year.
The bourse has been tested regarding rules governing brokers with a brokerage firm, Crane Financial Services, suspended from trading over impropriety.
Rutega is resolute that cases of indiscipline have been effectively dealt with, adding that the rules were not 100%.
“We want to maintain market integrity to protect investors. The rules ensure this happens. Of course we have conflicting interests but we have been reviewing these rules in consultation with market players. Some changes will come with automation,†he said.
Going forward, the bourse is looking at integration of markets. To underpin this, USE will be hosting the 12th annual African Stock Exchanges Association (ASEA) conference in November that will attract 300 people.
FOR an institution that turns 10 this year, it is 2007 that stands out as one of the best years at the Uganda Securities Exchange (USE). The listing of Stanbic Bank last year after a successful Initial Public Offer (IPO) catapulted the bourse from sluggish trade to a vibrant market.
Simon Rutega who has been at the helm for the past decade is proud of the performance.
“10 years is worth celebrating. We had a nascent financial market with only short-term instruments. Ten years later, we have nine equities, 31 government bonds, seven corporate bonds with a population sensitised about capital markets,†he says during an interview.
The bourse had only the East African Development Bank (EADB) bond listed at the time it commenced and only got equity in 2000 when Uganda Clays (UCL) listed at sh4,000 a share.
Subsequently, other stocks were listed. They include British American Tobacco (BATU), Bank of Baroda, dfcu Bank, New Vision and Stanbic Bank. The cross listed stocks include Kenya Airways, East African Breweries and Jubilee Insurance. Market capitalisation has grown from sh2.3b when UCL was listed to sh6.4 trillion currently.
For any skeptics, it’s now clear that capital markets can be used as an avenue to raise cheap financing away from the traditional and expensive funds from the commercial banks.
The bourse has raised over sh2.5 trillion from equities, corporate and government bonds in the last decade.
“Most skeptics thought we were wasting time but it’s clear that for our economy to be transformed, we need to have capital markets to mobilise domestic resources. It could have been better with equities and the only way is up, and that is growth,†reckons Rutega.
Another set of winners are the shareholders who have not only benefited from the recent bull run that saw their stocks increase in price but also earned good dividends following good performance of listed companies.
This has created the availability of a different asset class for the Ugandans that have previously looked at cash and land. The bourse currently boasts of about 55,000-60,000 retail investors.
The vibrancy of the bourse was also driven by massive foreign interest mainly in Stanbic and other counters that are considered cheap stock. This foreign participation has positioned the country as an attractive investment destination.
It is expected that private companies that seem reluctant to list will consider this as a comparatively cheaper sourcing of financing and then spin off.
While Rutega acknowledges lack of private sector participation, he is bullish they will eventually come on board.
“Private companies do not want to pay the initial costs of education. I am optimistic they will list because the need to raise more capital on the market will become more paramount. The corporate governance and tax administration issues are improving.â€
He says listing enables companies to raise funds through various options like rights issues, corporate bonds in addition to bank financing because they have full disclosure so creditors are more confident to commit funding.
While there were initial concerns about absorptive capacity, the successful issue of Stanbic put that to rest. The bank wanted to raise sh70b but had to refund sh140b after the IPO.
Despite an improvement in performance, the bourse is still dogged by liquidity issues. There is increased appetite for existing equity but with the few options, some investors take a long-term view which impacts on trading volumes.
Upcoming listings this year include National Insurance Corporation, Kenya Commercial Bank and Equity Bank cross-listings as well as corporate bond issues from Stanbic and National Water and Sewerage Corporation. This will galvanise activity at the bourse.
While analysts say most counters at the bourse had reached their full valuation, Rutega disagrees.
“As we get more options to invest, the market will reach correct value. We need more players so that the market is more efficient in pricing. It’s always a supply and demand issue but the market will always correct itself.â€
He considers foot-dragging by Parliament regarding passing of the Central Depository System (CDS) law as some of the challenges weighing down the bourse. This is a stumbling block towards efforts to implement one trading platform in East Africa. The CDS that will automate trading is expected to be functional by the end of the year.
The bourse has been tested regarding rules governing brokers with a brokerage firm, Crane Financial Services, suspended from trading over impropriety.
Rutega is resolute that cases of indiscipline have been effectively dealt with, adding that the rules were not 100%.
“We want to maintain market integrity to protect investors. The rules ensure this happens. Of course we have conflicting interests but we have been reviewing these rules in consultation with market players. Some changes will come with automation,†he said.
Going forward, the bourse is looking at integration of markets. To underpin this, USE will be hosting the 12th annual African Stock Exchanges Association (ASEA) conference in November that will attract 300 people.