The Nairobi Securities Exchange (NSE) has experienced a significant drought in Initial Public Offerings (IPOs), with the last IPO recorded in 2015 when Stanlib Investments launched Fahari-Ireit, raising Kshs 3.6 billion against a target of Kshs 12.5 billion. Since then, the market has mainly seen listings by introduction, such as the 2022 listing of LAPTRUST Imara Income Real Estate Investment Trust, which did not raise public funds. As of January 2023, NSE had 66 listed securities with a total market capitalization of Kshs 1.9 trillion, dominated by a few large-cap stocks like Safaricom, banks, and foreign corporates, representing over 93% of the market. The NSE operates under four main market segments—Main Investment, Alternative Investment, Growth Enterprise, and Fixed Income Securities—each tailored for different sizes and types of companies, with specific listing requirements regarding capital, assets, shareholder spread, and profitability.
Several structural and market challenges have contributed to the low number of new listings. Kenya’s market is relatively shallow, offering limited instruments and liquidity, which discourages potential IPOs. Regulatory rigidity under the 2002 Capital Markets Regulations Act and perceived high listing costs have also been barriers, alongside competition from thriving private equity funding that provides easier access to capital. Other factors include the dominance of small- and medium-sized enterprises that may lack the size or profitability to attract public investment, fears of losing control among family-owned businesses, and the overreliance on bank financing rather than capital markets for growth. These challenges have collectively prevented Kenya from meeting the targets set in its Capital Markets Master Plan, leaving the bourse less efficient and less attractive to investors.
To revitalize the NSE and break the IPO drought, Cytonn recommends a range of reforms. Key measures include modernizing restrictive regulations, fast-tracking the privatization of state-owned enterprises, improving tax incentives for new listings, and simplifying listing procedures. Promoting investment in SMEs, enhancing market transparency, and creating a culture of stock market participation are also essential. Lessons from the Johannesburg Securities Exchange demonstrate that liquidity, diversification, and regulatory transparency are crucial for attracting IPOs. Implementing these recommendations could broaden market participation, reduce concentration risk, increase liquidity, and foster a more vibrant, inclusive, and efficient capital market in Kenya.