NAIROBI STOCK EXCHANGE

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NAIROBI STOCK EXCHANGE

• A Presentation to University Students
  2005

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TABLE OF CONTENTS

• What is a Stock Exchange
• What are share and bonds
• Capital Markets Structure
• The NSE Market Segments
• Listing in NSE
• Eligibility Criteria for Listing
• The Continuous Listing Obligations

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What is a Stock Exchange?Role and
Functions.What we deal with.
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What is a stock exchange?

• A Stock Exchange is a market where-
• Institutional and retail investors can buy and
  sell securities. The price of these securities
  varies according to supply and demand.
• Through which companies, multilaterals,
  parastatals, SPVs, government and local
  authorities can raise funds for expansion and
  development by issuing equity and debt securities
  to the public.

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Roles and Functions of The Nairobi Stock Exchange

• Stock Exchanges Promote a culture of thrift, or
  savings.
• Stock Exchanges
• Ensure the investment is liquid
• Facilitate transfer of savings to investment in
  the most productive sectors
• Promote higher standards of accounting, resource
  management and transparency in the management of
  business.

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Other indirect functions performed by stock
exchanges, include

• Growth of related financial services sector e.g.
  insurance, pension and provident fund schemes
  which nurture the spirit of savings.
• Improvement of access to finance for new and
  smaller companies - The Alternative Investments
  Market Segment (AIMS). This can also be realized
  through Venture Capital institutions which are
  fast becoming key players in financing small
  businesses.
• Encouragement of public floatation of private
  companies increasing the supply of assets
  available for long-term investment.

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What are shares and bonds

• A share is a unit of ownership
• A bond is a loan between a borrower and lender at
  a promise to pay interest.

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Capital Markets Structure
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• Regulatory Bodies
• The Capital Markets Authority (CMA)
• The Nairobi Stock Exchange (NSE)
• Regulations
• CMA (Securities), (Public Offers, Listing and
  Disclosure) Regulations, 2002
• NSE Listing Manual, 2002
• NSE Membership Rules, Trading Rules, Delivery and
  Settlement Rules
• Corporate Governance Guidelines, 2002.

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Regulations

• CMA (Takeovers and Mergers), Regulations, 2002
• Collective Investment Schemes, Regulations 2001
• Central Depository Act 2000
• CMA Foreign Investor Regulations, 2002
• Rating Agency Guidelines, 2001

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LISTING IN NSEWhy list?

• Institutions list Securities primarily
• To unlock value. Sponsors, Promoters and Venture
  Capitalists use the capital markets to exit their
  investments or share risk.
• To raise funds for expansion and growth without
  the interest burden of funds borrowed from
  lending institutions.
• To improve the liquidity of their securities.
• To increase public awareness about the
  institution and its products.

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MAJOR BENEFITS OF LISTING

• Funds for expansion and growth without the
  interest burden.
• Provides a market for securities.
• Greater liquidity of securities.
• Improves perception of an institutions financial
  stability and transparency.

• Objective valuation of securities by market
  forces.
• Greater efficiency due to more rigorous
  disclosure requirements.
• Greater public profile and awareness of the
  institution and its products.

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The NSE Market Segments
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The Market Segments

• The Main Board
• The Main Investment Market Segment (MIMS)
• The Alternative Investment Market Segment (AIMS)
• The Fixed Income Securities Market Segment
  (FISMS)
• Futures and Options (FOMS)- to be implemented
• Soon to be introduced (Distinct from the Main
  Board)
• Over the Counter (OTC) Market Segment

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METHODS OF LISTING

• Securities may be brought to listing by way of
• Initial public offering (IPO) where the public
  at large is invited to subscribe.
• Introduction to provide a market for existing
  shareholders.
• Private placement shares are placed for sale to
  already identified investors.

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Eligibility Criteria for Listing
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Eligibility Requirements for Public Offering of
Shares and Listing
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Eligibility Requirements for Public Offering of
Shares and Listing
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Eligibility Requirements for Public Offering of
Shares and Listing
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Eligibility Requirements for Public Offering of
FIS and Listing on the FISMS
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Eligibility Requirements for Public Offering of
FIS and Listing on the FISMS
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Eligibility Requirements for Public Offering of
FIS and Listing on FISMS
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Eligibility Requirements for Public Offering of
FIS and Listing on FISMS
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Eligibility Requirements for Public Offering of
FIS and Listing on FISMS
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The Continuing Listing Obligations
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General Eligibility Requirements for Public
Offering of Shares and Listing

• Incorporation The company must be incorporated
  or registered under the Companies Act.
• Financial records shall have published audited
  financial statements complying with IAS for an
  accounting period ending on a date not more than
  3 months prior to the proposed date of the offer
  for issuers whose securities are not listed and 6
  months for issuers whose securities are listed.

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General Eligibility Requirements for Public
Offering of Shares and Listing

• Competence and suitability of directors and
  management The issuer must not be in breach of
  any of its loan covenants the maximum debt
  capacity.
• As at the date of application and for a period of
  2 years prior, no director shall have-
• Any petition under bankruptcy laws (individuals),
  winding up petition (corporates)
• Any criminal proceedings, nor be subject to any
  pending criminal proceedings, or any offence or
  such action within or outside Kenya
• Subject to any ruling of a competent
  court/Government body that prohibits temporarily
  or otherwise from engaging in any type of
  business practise or activity

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RESPONSIBILITIES OF A LISTED INSTITUTION

• Once on the Official List, the institution has a
  number of responsibilities which can broadly be
  classified into
• Disclosure
• Corporate governance
• Investor relations.

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General Eligibility Requirements for Public
Offering of Shares and Listing

• Competence and suitability of directors and
  management
• Suitable senior management with relevant
  experience for at least 1 year prior to listing.
• No change of management for a period of 12 months
  following the listing other than for reason of a
  serious offence that may be considered to affect
  the integrity or be inappropriate for management
  of a listed company.
• At least a third of the Board as non executive
  directors.

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General Eligibility Requirements for Public
Offering of Shares and Listing

• Transferability of Securities Securities must be
  freely transferable and not subject to any
  restriction on marketability or pre-emption
  rights.
• Undertaking The Company must undertake to comply
  with the rules of the market
• Voting Shares Only one class of voting shares
  which are the shares listed on the Exchange.
• Approval All Companies seeking listing shall
  have their information memoranda or prospectuses
  approved by the Capital Markets Authority.
• Shares Only fully paid shares are listed at the
  Exchange.
• Dividend Policy Clear future dividend policy.

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General Eligibility Requirements for Public
Offering of Shares and Listing

• Solvency and adequacy of working capital Should
  not be insolvent.
• Certificate of Comfort If the issuer is listed
  in a securities exchange outside Kenya or is
  licensed to operate as a bank or an insurance
  company the issuer must obtain a letter of no
  objection from the relevant regulator.

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Disclosure of Periodic Financial Information

• Dividends and interest
• Such payments on issued securities should be
  notified to the securities exchange, the
  Authority and the securities holders immediately
  upon declaration by means of a press
  announcement.
• The declaration shall be at least 14 days prior
  to the closing date of the register and shall
  contain the following minimum information
• the closing date for determination of
  entitlements
• the date on which the dividend or interest will
  be paid and
• the cash amount that will be paid for the
  dividend or interest.

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Disclosure of Periodic Financial Information

• Interim and Preliminary Reports
• An Issuer shall publish an interim report within
  2 months of the end of the interim period in the
  financial year and shall notify the Securities
  Exchange and the Authority. Where an Issuer has
  subsidiaries, the said report shall be based on
  the group accounts.

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Disclosure of Periodic Financial Information

• Annual Financial Statements
• Every Issuer of securities to the public shall
  prepare an annual report containing audited
  annual financial statements within 4 months of
  the close of its financial year. A complete set
  of financial statements includes
• Balance sheet
• Income statement
• A statement showing either all changes in equity
  or changes in equity other than those arising
  from capital transactions with owners and
  distributions to owners
• Cash flow statements and
• Accounting policies and explanatory notes.
  
  

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Communication with Shareholders

• Convening Meetings
• Shareholder meetings shall be convened at least
  21 clear days before such meeting is held.
  Notices shall specify the place, date, hour and
  agenda of the meeting.
• the issuer will ensure that all the necessary
  facilities and information are available to
  enable holders of its securities to exercise
  their rights. In particular it shall
• inform securities holders, meetings which they
  are entitled to attend
• Where applicable, enable them to exercise their
  voting rights and
• publish notices or distribute circulars giving
  information on
• the allocation and payment of dividends and
  interest
• the issue of new securities, including
  arrangements for the allotment,
  subscription, renunciation, conversion or
  exchange of the securities and
• redemption or repayment of the securities.

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Communication with Shareholders

• Convening Meetings
• If a circular is issued to the holders of any
  particular class of security, the issuer shall
  issue a copy or summary of the same to the
  holders of all other listed securities.
• the issuer shall forward to the Securities
  Exchange and the Authority copies of
• all circulars, notices, reports, announcements or
  other documents at the same time as they are
  issued and
• all resolutions passed by the Issuer other than
  resolutions concerning ordinary business at an
  AGM without delay after the relevant general
  meeting.

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Audit Committee and Corporate Governance

• Every issuer shall establish an Audit Committee
  and comply with guidelines on corporate
  governance issued by the Authority.
• There should also be public disclosure in respect
  of any management or business agreements entered
  into between the Issuer and its local or foreign
  associated and related companies, which may
  result in a conflict-of-interest situation.