Category: News

ESX equity proves lucrative as authorities prepare for late 2024 launch

Authorities working to establish the country’s maiden stock exchange inch closer to raising one billion birr in initial capital as domestic firms rush to acquire stakes in the Ethiopian Securities Exchange (ESX).

The management of ESX has managed to raise 90 percent of the targeted capital from banks, state-owned enterprises (SOEs), and other businesses operating in Ethiopia.

This week saw Siinqee Bank, one of the industry’s newer entrants, announce a 50-million-birr equity investment in ESX, granting the former microfinance institution a five percent stake in the Exchange.

It is the second financial institution to make the leap, following Zemen Bank’s announcement of a 47.5-million-birr investment in ESX last month.

In October 2023, the Ethiopian Investment Holdings (EIH) and four SOEs under its wing made public the acquisition of a 25 percent stake in ESX. The SOEs include Ethio telecom, the Ethiopian Shipping and Logistics Services Enterprise (ESLSE), the Ethiopian Insurance Corporation (EIC), and Berhanena Selam Printing Enterprise.

YoditKassa, chief business development officer at ESX, says raising the targeted 75 percent of capital from the private sector has been relatively straightforward.

“I think we’ll be oversubscribed,” Yodit told The Reporter.

Her team wants to see the remaining 10 percent of initial capital raised before the deadline on March 29, 2024.

No foreign businesses or entities have thus far invested in ESX equity, barring Financial Sector Deepening (FSD) Africa, which has been playing a leading role in the formation of the stock exchange. FSD’s support will be repaid with a stake in ESX.

“FSD Africa’s stake is yet to be converted,” she said.

Yodit disclosed there has been increased interest from foreign companies eyeing a piece of the Exchange. However, there are questions that will have to be addressed, according to her.

“They are typical questions that any foreign investor would ask: like foreign currency repatriation. We are working with EIH on that,” Yodit told The Reporter.

The Exchange has yet to disclose a full list of its equity holders. The names on the list so far are the two commercial banks, five government-owned entities, and FSD Africa.

“We have a non-disclosure agreement when we sign contracts with the companies, so we can’t identify them. But we’ve finalized subscriptions of about 90 percent,” said Yodit. “We will disclose who all of our shareholders are after the allotment.”

Shareholders have to pay at least half the subscribed equity up front.

Heads of the Exchange are eyeing October 2024 for the ESX debut. This leaves a little over seven months to finalize procedures such as license acquisition, gathering public consensus on ESX rules, and the establishment of the Central Securities Depository (CSD) by the central bank, as well as the launch of the trading platform.

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New Kenya Bond Exchange Sees Opportunity in Budding Debt Market

  • Exchange to complete its capital raising in the first quarter
  • EABX will compete with existing Nairobi Securities Exchange

The new East African Bond Exchange, a would-be competitor for the Nairobi Securities Exchange, sees the prospect for exponential growth in Kenya’s bond market as it prepares to start operating in the first half of this year.

While Kenya has the third-biggest economy in sub-Saharan Africa, the value of corporate debt issued is barely 0.2% of its gross domestic product, compared with an average of 20% to 30% Of GDP in Asian nations, according to Terrence Adembesa, chief executive officer of EABX.

Meanwhile, he said the potential for trading the government’s domestic debt is three to four times the 5 trillion shillings ($31 billion) of outstanding liabilities, instead of just the 600 billion shillings traded in 2023.

“For an economy of our size, the debt market should be much deeper than it is and much more developed,” Adembesa said in an interview. “What you expect to see is enhanced liquidity, enhanced transparency and the provision of transparent pricing.”

Kenya sold $14.9 billion worth of bonds in 2023, compared with $14.6 billion a year earlier, according to Bloomberg calculations using official data. There were eight outstanding corporate bond issuers at the end of September, with a total outstanding amount of 28.4 billion shillings, according to data from the markets regulator.

EABX intends to enable issuers to better price their securities, while investors are expected “to have much more visibility around pricing,” Adembesa said. “You also expect to see a cost saving in terms of trading fees and issuing costs.”

Capital Raise

The exchange, which received its operating license earlier this month, also plans to complete its capital raising in the first quarter of this year. The company received bids totaling about 2.6 billion shillings, above its target of 2 billion shillings, Adembesa said.

About 52% of exchange is owned by the Kenya Bankers Association an UK-backed development agency FSD Africa, he said.

“From a system perspective, we are now doing the testing,” Adembesa said. “We are able to see some trades occurring.”

EABX traces its roots back to 2009, when the Bond Market Association, a lobby group for fund managers, stockbrokers, investment bankers and lenders, decided to establish a self-regulatory organization for the fixed-income market.

EABX will ultimately enable trading of fixed-income securities in almost all of the East African Community member nations. Apart from Kenya, these comprise Tanzania, Uganda, Rwanda, Burundi, Democratic Republic of Congo, South Sudan and Somalia.

— With assistance from Bella Genga

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Capital markets: Absa teams up with professional bodies to boost staff capacity

Tier one lender Absa Kenya has teamed up with the Nairobi Securities Exchange (NSE) and the Chartered Institute for Securities and Investment (CISI) to enhance knowledge and expertise of the Capital markets amongst its staff.

The initiative aims to improve the value provided to their customer base by actively engaging in various Capital Markets offerings and achieving the best possible outcomes for their corporate and retail clients’ financial objectives, said Absa.

The capacity building programme dubbed Securities Industry Certification programme was designed by the CISI in conjunction with the Capital Markets Authority (CMA) and Financial Sector Deepening Africa (FSD Africa).

The organisers said it offers a broad introduction to the financial services professional sector, with a specific focus on investments from a global perspective.

It for instance focuses on local and international markets and covers key financial principles and products including assets and markets, equities, bonds, derivatives and investment funds.

The programme enables candidates to better engage with their clientele in determining their objectives, risk profile and constraints towards ensuring advice that is suitable and appropriate to each individual client, a key pillar towards ensuring that a practitioner acts as a fiduciary to their clientele.

The NSE, a CISI Accredited Training Partner, has been working with the Absa team to ensure appropriate delivery of the programme and attaining of the learning objectives.

Outgoing Nairobi bourse chief executive Geoffrey Odundo said the the NSE is committed to building and strengthening the capacity of capital market players through partnering with organizations such as the Chartered Institute for Securities and Investments.

“Capacity of market participants is at the heart of robust market infrastructures and we will continue to pursue strategic initiatives to accelerate this agenda,” he said.

Absa Bank said it will continue to beef up the skills of its workers.

“Absa is committed to continue being a market leader in providing differentiated financial services that are tailored to the unique needs of our client base,” said Absa Bank Kenya Director of People and Culture Mumbi Kahindo.

“Capacity building is key towards achieving this commitment, by ensuring that our people are armed with the right knowledge and skills to deliver the best experiences to our customers and stakeholders.”

CMA director of Policy and Market Development, CMA noted that appropriate capacity building will play a critical role towards positioning Kenya as a premier investment destination and an International Financial Center.

“Adoption of international certification standards will enable more diversified products and services in the market, thus ensuring that we remain competitive and attract international flow of funds,” he said.

His comments were echoed CISI EA Regional Representative Kimacia Gitau.

“We are proud to be associated with Absa and the NSE towards building appropriate Knowledge and expertise among the Absa Premier staff and the sector as a whole,” he said.

“We are fully committed to the advancement and dissemination of knowledge in the field of securities and investments within the region.”

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Kenya Green Building Society Hands Over Certificate To Governor Sakaja

Kenya Green Building Society (KGBS) in collaboration with the Financial Deepening Sector (FSD Africa) and the International Finance Corporation (IFC), handed over the IFC EDGE plaque and certificate to Nairobi Governor Johnson Sakaja in a colourful ceremony in Nairobi today.

The event meant to celebrate the Nairobi City County Governor’s office meeting the IFC EDGE Green Building standard, marking it as the first EDGE certified green government office building in Africa.

The certification follows the conclusion of the United Nations climate conference in Dubai in 2023, which emphasized the pivotal role of cities, local governments, and mayors in combating climate change.

While attending the ceremony, Governor Johnson Sakaja expressed his delight, highlighting two key points.

The Governor emphasized that Africa has the potential to lead the way in designing sustainable spaces to tackle future challenges, given the existing skills, incentives, and capabilities.

Governor Sakaja further expressed the importance of cities and local governments in driving the conversation on climate change and shaping cities that reflect dignity and progress, aligning with the vision of the Africa We Want, with Nairobi as its green capital.

This certification signifies leadership in climate action at the local government level and marks the initial step in Nairobi’s implementation of its Climate Action plan, solidifying its status as the green capital of the world.

Governor Sakaja emphasized that climate change, adaptation, and

environmental management are critical global challenges, but Nairobi stands out for its innovation,

resilience, and leadership.

Nasra Nanda, Chairperson of the Africa Regional Network at World GBC and CEO of KGBS, noted that the certification is not only a victory for Nairobi and other local governments but

also for Kenya and Africa as a whole.

Nasra expressed KGBS’s commitment to leveraging this milestone to advocate for green legislation and to make Nairobi truly the green and resilient capital of Africa, while also unlocking green finance for the city.

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Licensed East African Bond Exchange to take on NSE

Competition in Kenya’s bond market is set to heat up following the Capital Markets Authority’s (CMA) approval of an application for a license for Over-the-Counter (OTC) trading by the East African Bond Exchange (EABX).

The Business Daily has learnt that the market regulator granted EABX the license on Tuesday, setting the stage for competition between the Nairobi Securities Exchange (NSE) and EABX for bond market activity whose annual turnover has averaged Sh734.0 billion between 2020 and 2023.

An OTC market is an infrastructure that allows traders to interact without having to go through a formal securities exchange. The framework works purely through bilateral negotiations between traders without the intervention of the established securities exchange since all trades are captured electronically and directly between the engaging parties.

This comes just a fortnight after the International Monetary (IMF) Staff Report following the January 17, 2024, sixth review of Kenya’s $4.43 billion, Sh717.3 billion, programme indicated that the government had committed the fund to take steps towards an OTC automated exchange to complement the operations of the NSE.

“We will further enhance the market infrastructure through policy support to market participants to operationalise an over-the-counter automated exchange to complement the broker intermediated Nairobi Securities Exchange,” the government committed to the IMF in the just concluded reviews.

“The aim of the exchange will be to promote trading transparency and settlement efficiency and attract more capital in the economy eventually leading to reduction of yields and cost of new public debt.”

This marks the third milestone for EABX with the first having been the no objection for set up acquired in 2020 and the second being the approval for capital raising secured in 2023.

The rollout of an OTC market for bond trading in the country now means fixed income activity in Kenya’s capital markets will be operating much like Nigeria, which has the Nigeria Stock Exchange and the OT bond trading targeted FMDQ Group operating side by side with FMDQ Group having been set up in 2012.

The top leadership of CMA has decried that whereas Kenya was ahead of Nigeria in bond market reforms a decade ago, Nigeria’s set up of an OTC bond trading market has seen the West African economy leapfrog ahead of Kenya in bond trading activity.

“When you look across the globe, the biggest OTC market is foreign currency. You can also find trading in OTC in equities, debt securities, derivatives and many others. Bonds, despite being not very small issuances, are finding their way in most jurisdictions in trading via OTC. Contrary to what you expect in a centralised exchange, the requirements for trading in an OTC market are far less onerous. The annual market turnover for Nigeria’s FMDQ comes to about Sh90 trillion annually and you can see the potential given that we were slightly way ahead of Nigeria in terms of bond market reforms,” CMA’s Director for Policy and Market Development, Luke Ombara, told journalists recently.

The NSE raked in an average of Sh73.2 million per annum in bond levies over the last two years and stands to lose a revenue line should activity gravitate towards EABX. Bond dealers in brokerage entities are also set to take a hit should the OTC market take off and cement direct engagement between traders.

Further, this move comes at a time when the NSE is struggling with depressed activity within the equities market.

The licensing of an OTC market player marks the second major change in under six months in Kenya’s bond market with President William Ruto having launched the new online bond trading platform, DhowCSD, on September 11, 2023.

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Inside Kenya’s ambitous plan to raise Sh9trn from green bonds

With the framework in place, it is a matter of when, not if, the government will issue a green bond, and experts estimate it may be very soon as no hurdle now stands in the way. Green bonds allow public and private institutions to raise finances to be used specifically for environmental projects that help with climate change mitigation and adaptation.

Through the framework, the government specified the kind of projects that will benefit from the proceeds of a green bond, should it float one, focusing on programmes that will boost Kenya’s environmental sustainability.

“Proceeds of the Kenyan Sovereign Green Bond will be used to finance in whole or in part eligible green assets or projects that are to bc identified from the approved National Budget by Parliament,” states the framework. Some of the projects earmarked to benefit from the financing are sustainable water and wastewater management systems, which are expected to increase supply of water to farmers, households and industry, solving one Of the most widespread challenges associated with climate change today.

Other projects will be in renewable energy, projected to reduce the energy access gap; clean transport, including the much anticipated bus rapid transport (BRT); and green residential and commercial buildings to boost energy efficiency.

Green bond

Experts who worked on the framework say it was built on the International Capital Markets Association’s (ICMA) green taxonomy — a standard on what kind of projects can benefit from funds raised from a green bond. Mr Evans Osano, the Capital Markets Director at Financial Sector Deepening (FSD) Africa, which helped in the development of the framework, explains that

The framework also specifies how the government will select and evaluate projects, how the proceeds will be managed and how the impacts of the investments made from the proceeds will be reported. “Credible, science-based, widely supported guidelines about what assets or projects qualify for green bonds help investors make informed decisions about the green credentials of a bond,” says Vimal Parmar, a senior capital markets specialist at FSD Africa.

This means that unlike traditional bonds, green bonds require a much higher level Of transparency about the use Of the funds raised from them, a factor which has been a double-edged sword for the growth of the green bonds in Africa.

While the idea of green bonds is not new, it has remained an elusive concept for African governments. Since its inception in 2008, only two African countries have so far successfully issued sovereign green bonds.

Nigeria was the first country to float such an instrument in 2019, raising $40 million (Sh6.5 billion), followed by Egypt, which raised $750 million (Sh127 billion) in 2020. Globally, 32 countries have issued green bonds, raising around $355.6 billion (Sh57.2 trillion), of which only 0.2 percent has come to Africa, data from the ICMA shows.

Mr Osano believes that the slow issuance in Africa is because “the requirements are quite onerous; therefore, issuers have to be prepared to meet them”. It is not yet clear how much Kenya will seek to raise from the market in the expected first issuance of a green bond, or whether the bond will be floated locally or on the international market, like a Eurobond. However, the climate finance gap is currently estimated at Shll.16 trillion (S69 billion), which is the amount required to meet Kenya’s Nationally Determined Contributions (N DCS) — the country’s climate change mitigation and adaptation commitments — by 2030.

Osano avers that while green bonds may not raise the entire deficit, they are the most important form of climate finance, as “it has the potential to raise the highest amount for climate finance.” I le estimates that up to 75 per cent Of the gap, about Sh8.7 trillion, could be raised from green bonds by 2030.

Ikechukwu Iheagwarn, East Africa regional director at credit rating agency, contends that green bond investors are indeed more concerned with the environmental impact of the finances they raise, rather that the returns, making green bonds much cheaper than traditional bonds.

“Investors in a green bond won’t look at it like a conventional bond. They look at the expected impact and gives concessional terms, so it will definitely be cheaper than other bonds,” says Mr Iheagwam.

Green bonds market

Today, the global green bonds market is estimated to be worth S 2.2 trillion, more than a tenfold increase from what it was worth about ten years ago, positioning the facility as a leading source of climate finance for African countries. With Kenya now much closer to issuing the financial market product that ever, experts contend that it won’t just be a source Of funds for ‘government
projects, it is expected to bolster economic growth, save lives, livelihoods, and businesses, which are already bearing the brunt of climate change.

“Without the green finance from green bonds, no African country will meet the net-zero emissions goal nor the sustainable development goals. We need the finances to realise those goals,” said Rachel Antwi, head of sustainability at Pan-African lender EcoBank. “Climate change has severe consequences over the short to medium term across multiple sectors, such as agriculture, industry, energy, water, trade and tourism. If we don’t act now, it will impede Kenya’s vision to be a nation that has a clean, secure and sustainable environment by 2030.” Explains ESD Africa’s Parmar.

“Ihe National Treasury estimates that every year, floods alone erode 2 to 2.1 percent of Kenya’s gross domestic product, and droughts cost the country about pollution, general environmental degradation and other challenges which either stem from climate change or increase the country’s vulnerability to climate shocks.

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Letter: Current package of half measures can’t cure Africa’s debt crisis

Moritz Kraemer’s Markets Insight piece (January 19) rejects the suggestion that the downgrading of African sovereign eurobonds is evidence of an anti-African bias. If anything, Kraemer argues, the credit rating agencies have been rating too generously, evidenced by figures showing the default ratio for B-rated African countries has historically been much higher than the global average.

But the data he presents to support this is patchy. African countries do not have a long history of ratings or even market access and in any case this fails to explain why African countries routinely have to pay more for their debt than Latin American countries with similar or riskier profiles.

Where he is right, however, is that criticising rating agencies will not help to solve the debt crisis affecting more than half the low-income economies in sub-Saharan Africa.

The seriousness of the situation cannot be overstated. These countries are paying an average of 31 per cent of revenues as debt service. This leaves little room for spending on development after recurrent expenditure is accounted for. As a consequence, gains on the poverty front are eroding quickly. The World Bank predicts that across sub-Saharan Africa, per capita gross domestic product, which has not increased since 2015, will drop at an annual average rate of 0.1 per cent over the 10 years to 2025, by when the number of people living in absolute poverty will have reached 472mn, or 37 per cent of the region’s population.

Addressing this situation will need more than the current package of half-measures which are aimed at addressing the liquidity problem for market access countries. Africa’s debt crisis is also a solvency one with developmental ramifications. What is needed is a comprehensive approach: the equivalent of the Heavily Indebted Poor Countries (HIPC) initiative, which the World Bank and IMF launched in 1996 to ensure that no poor country faced an unmanageable debt burden.

But safeguards should be put in place to address the moral hazard of debt forgiveness. There should also be much greater attention on reforming the Common Framework — the G20’s mechanism for dealing with insolvency and protracted liquidity problems — to facilitate orderly and quicker debt restructuring for those market access countries that would need to do so.

Evans Osano
Director, Capital Markets, FSD Africa

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Ethiopia stock exchange launch target slips from mid-year on delayed capital raise

Ethiopian Securities Exchange CEO Tilahun E. Kassahun details short and long-term goals for the country’s planned stock exchange.

The planned timing for the launch of Ethiopia’s first stock exchange since the 1970s has slipped from the middle of this year to the third or fourth quarter, Tilahun E. Kassahun, CEO of the Ethiopian Securities Exchange, tells The Africa Report.

The exchange is seeking to raise S16m, a quarter of which is being provided by the government. About half of the remainder has been secured from the private sector, and the aim now is to close the capital raise by the end of March. The capital raising was opened in November 2023, and the aim had been to close in early January. The Christmas break contributed to the delay in fundraising, Tilahun says. “Foreign investors were out on holiday.”

Privately held Ethiopian bank Zemen has said it will buy a 5% stake in the exchange. FSD Africa, which is funded by the United Kingdom government, will also have a stake. “We want most of Ethiopia’s commercial banks to invest,” says Tilahun, adding that foreign investors including other stock exchanges are being targeted.

“There’s [a] very strong private-sector appetite.” The capital raising is also open to individual investors, and has a minimum ticket size of $180,000.

The exchange is working on a pipeline of about six unnamed state-owned enterprises, which will be listed. The pace of initial public offerings (IPOs) may be gradual. “You can’t have two IPOs in six months in Ethiopia,” Tilahun says. More investor education is needed before there can be a stream of IPOs. “Our retail investors are not educated yet.”

Repatriating funds

Preparations for the exchange have been ongoing for the last 18 months, and have included visits to stock exchanges in Nigeria, Kenya, Ghana, Morocco, Euronext, Malaysia and all three exchanges in China. Cooperation with the Nigeria Exchange Group (NGX) has been ongoing and the NGX has helped prepare the rulebook which will be used in Ethiopia.

As a latecomer to stock exchanges, Ethiopia can learn from previous successes and failures, Tilahun says. The Nigerian exchange “is one of the strongest in terms of management in

The first year is likely to see a focus on listings by introduction of private companies, rather than IPOs, Tilahun says. About eight private companies may be listed in this way in the first year, and some private banks are now taking steps on hiring advisers with a view to listing, he adds.

The long-term goal of the exchange is to have about 90 companies listed within 10 years, with a balance between state-owned and private businesses. Tilahun is confident that foreign investors can be attracted and that they will be able to move their money out of the country. There won’t be any restrictions on investors repatriating principal and dividends, subject to the availability of foreign exchange, Tilahun says.

The government and the central bank are planning new reforms to improve foreign currency availability, Tilahun says. Problems getting money out of the country “are not the result of prohibition”, he says. “When the environment improves, investors get to repatriate their funds.”

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Finance Minister launches SEC’s 5-year strategic plan for market regulation

The Minister for Finance, Mr Ken Ofori-Atta, has unveiled a comprehensive five-year strategic plan for the Securities and Exchange Commission (), signalling a dynamic approach to market regulation and positioning the Commission as a top-tier securities market regulator in Africa.

Commencing in 2023, the strategic plan outlines five overarching goals and encompasses 60 initiatives designed to fortify the SEC’s role in the financial landscape.

The goals include deepening and expanding markets, enhancing market awareness and education, building the capacity and capability of the SEC, strengthening market infrastructure, and developing a robust legal and regulatory framework.

The official launch took place during the SEC’s Ghana Capital Market Conference, a significant event marking the Commission’s 25th anniversary. The conference focused on the theme “Deepening and Diversifying Ghana’s Capital Market Towards a more Resilient Financial System.”

In his address, Minister Ofori-Atta emphasized the pivotal role of the capital market, contributing approximately 14% to the Gross Domestic Product (GDP) and impacting around 10 million people in the country.

He underscored the government’s commitment to implementing targeted policy initiatives aimed at diversifying the investor base, reducing external dependency, and fostering broader market participation.

The Finance Minister highlighted initiatives, such as the development of a framework for domestic credit rating agencies, aiming to provide impartial assessments of companies and securities. These measures align with the broader objective of ensuring a more positive impact on the economy.

Reverend Ogbarmey Tetteh, the Director-General of SEC, acknowledged the evolving financial landscape and the unique challenges it poses to capital market stakeholders.

He stressed the need for financial markets to evolve, innovate, and develop versatile investment products to navigate the changing environment successfully.

Over the past five years, the SEC has introduced 22 guidelines, enhancing the resilience and robustness of the capital market. Tetteh outlined upcoming guidelines on crowdfunding, green bonds, financial resources, market making, margin trading, securities lending, borrowing, and asset-backed securities, all contributing to market resilience.

The Commission has already initiated the implementation of a Risk-Based Supervision framework, marking a strategic shift from the compliance-based supervision mode of operators.

Established in September 1998, the SEC underwent a name change from the Securities Regulatory Commission to the Securities and Exchange Commission in 2000 (Act 590).

The Securities Industry Act, 2016 (Act 929), further expanded the SEC’s powers, replacing the previous Securities Industry Law, 1993 (PNDCL 333).

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