Alpha Africa Asset Managers
Daniel Kuyoh
East African Community
Geoffrey Odundo
James Mworia
James Wangunyu
Nairobi Securities Exchange
Pierre Celestin Rwabukumba
Rwanda Securities Exchange
Standard Investment Bank

Why firms would rather build their brands than cross-list on EA bourses

The lack of activity in cross-listed firms’ shares has been blamed largely on the failure by the issuing companies themselves to increase their free float (shares available for trading), the incompatibility of trading and settlement systems in the region, a lack of investor awareness, exchange rate risks and differing trading regulations among the East African Community partner states.

Pierre Celestin Rwabukumba, chief executive of the Rwanda Securities Exchange, told The EastAfrican that there is a need for investor education on cross-listed companies “because one of the major problems with cross-listed stocks is lack of investor awareness.”

“Cross-listing of shares is something we shall push for as an exchange, but these decisions concern the companies themselves, since they come with additional costs as well as advantages,” Mr Rwabukumba added.

Geoffrey Odundo, chief executive of the Nairobi Securities Exchange, says cross-listed stocks are facing challenges because the companies have failed to increase the volume of free float shares in the new markets they have cross-listed on.

“One of the initiatives to make the market for cross-listed stocks more liquid is to encourage companies take free float to the market. That is the direction we are taking,” said Mr Odundo.

Analysts, however, say that companies no longer see value in cross-listing their shares and that they would rather concentrate on building their brands and improving the liquidity of their stocks in the respective markets.

“Many companies do not see the benefit of cross-listing and are instead concentrating on improving their brand presence and the liquidity of their stocks in their respective capital markets,” said Daniel Kuyoh, an analyst at Alpha Africa Asset Managers.

According to James Wangunyu, chief executive of Kenya’s Standard Investment Bank, the illiquidity of cross-listed stocks is a major concern to issuers, largely due to the incompatibility of trading systems in the region, lengthy settlement processes and investor fears of incurring losses linked to exchange risks.

“There are so many regulations in each of the markets that need to be harmonised. Another issue is that of exchange-rate risks, since investors have to be paid in the local currencies of the countries in which the shares have been cross-listed,” said Wangunyu.

“We have put those cross-listing plans on hold at the moment. When you look at the trading of our shares in Uganda, it is still very low while the purpose of cross-listing was to ensure that more East African citizens participate and trade in the shares,” the company’s chief executive James Mworia said.

The EAC member states are working on a project to harmonise the electronic settlement systems of four stock exchanges — the NSE, the DSE, the USE and the RSE — to ensure that EAC citizens buy and sell shares listed on those exchanges from their own respective countries.

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