MTN Rwanda’s listing on the Rwanda’s Stock Exchange (RSE) last week capped an exciting 12 months for Rwanda’s capital markets despite the uncertain economic times brought on by the Covid-19 pandemic. What are capital markets? Capital markets are financial market in which capital is raised by selling shares, bonds, treasury bills, and other long-term investments to investors. The Last 12 months In the last one year, the majority of stock exchanges in the region have witnessed few new offerings as most companies adopted a wait-and-see approach. Also, several East African stock exchanges especially the Nairobi Stock Exchange have experienced massive losses as a result of heavy dumping of their listed shares by investors. During the same period, the Rwanda’s capital markets has remained resilient. Remarkably, it has also seen the entry of several new players which is a great for the RSE as it marks 10 years since its inception in 2011 and will further boost Rwanda’s positioning as an emerging financial hub in the region. In May 2020 the South African company, RH Bophelo Ltd became the first non-East African company to cross-list on the RSE. Cross-listing is the listing of a companys shares on a different stock exchange than its primary and original stock exchange. All the other cross-listed companies on the RSE are Kenyan; Uchumi Supermarket, Nation Media Group, Equity Bank and KCB. CIMERWA became the first company to list by introduction on the RSE in August, 2020. MTN Rwanda has since become the second. In this context, a listing by introduction means that no new shares were offered for sale. Rather the companies listed already existing shares. In the case of CIMERWA the listing enabled the minority shareholders to trade their shares on the RSE. While MTN Rwanda’s listing enabled Crystal Telecom Ltd (CTL)shareholders to own shares directly in MTN. All previously listed Rwandan companies that is, BRARILWA, CTL, Bank of Kigali and I&M Bank Rwanda have listed their shares on the RSE through Initial Public Offerings (IPOs). Unlike the listing by introduction, in a typical IPO, a company offers new shares for sale on the stock exchange. The principal aim is normally to raise capital from public investors. I&M also had rights issue in September, 2020. A rights issue allows the company to raise capital through selling the new shares to its existing shareholders. In October, 2020 BK Capital launched Aguka Trust Fund. The Fund invests and manage funds on behalf of investors and later distribute interest payments to them regularly. The government of Rwandan has also continued issuing treasury bills and bonds. For ordinary Rwandans all the above offer more opportunities to invest their money. Owners of shares in the listed companies derive dividend income from their shares. While owners of units in a trust fund, treasury bills and bonds receive interest payments. In order to incentivize Rwandans to invest in the capital markets, the dividend tax for shares a listed company is only 5% unlike unlisted companies which are taxed at 15%. Also, in case the shares appreciate in value, the owners can sell them and make a profit which is not subject to any capital gains tax unlike shares in unlisted companies which is subject to a capital gains tax of 5%. Interest payments to investors from a unit trust fund and government treasury bills and bonds are not taxed. Like many of its counterparts in the regions, one of Rwanda capital market’s biggest challenge has been liquidity. This is partly due to the fact there is low demand. The low demand is a consequence of a number of factors. The persons who can drive the demand are retail investors ie ordinary Rwandan investors since institutional investors tend to hold the shares long term. However, due to low savings many Rwandans have less income to invest and this reduces the demand for the shares. Also, the level of financial literacy about the capital markets is still not yet where it should be ideally, though it is much better than it used to be at the inception of the RSE 10 years ago. Moreover, with 10 listed companies on the RSE, the pool for investors to choose from is a bit limited. Clearly, more efforts need to be made to sensitize the public about the capital markets. The good news is the RSE is in the process of linking to the rest of other East African Stock Exchanges. This will enable Rwandan investors to have a wider market to sell their shares, a larger pool of companies to invest in and speed up the transaction process when trading in shares of listed companies from other East African countries. Also, the RSE has been conducting an investment clinic aimed at identifying Small and Medium Enterprises (SMEs) with potential for raising capital and deliver technical assistance to support them in preparing for the market. With these interventions, the future for Rwanda’s capital markets looks promising. The views expressed in this article are of the author and do not constitute legal advice. Please seek professional advice in relation to any particular matter you may have. The writer is a Partner at Trust Law Chambers where he heads the Capital Markets and Banking and Finance practice. rbalenzi@trustchambers.rw Follow on Twitter @Richard Balenzi
