Regional financial services firm, Equity Group Holdings, cross-listed on the Rwanda Stock Exchange (RSE) last week, bringing the profitable company’s stocks closer to Rwandan investors.
The bank is the fourth cross-listed company to float its shares on the local bourse, after Uchumi Supermarkets, which cross-listed in 2013, Kenya Commercial Bank Group and the Nation Media Group that cross-listed in 2009 and 2010, respectively.
Apart from Uchumi that sold stocks occasionally, the shares of the other two cross-listed Kenyan firms barely traded any shares last year.
The poor run of cross-listed firms has been going on for a couple of years now. Industry experts attributed the decline of the RSE All Share Index last year partly to the poor performance of the cross-listed counters.
With such a faint picture, so should we expect Equity to break this ‘jinx’?
Celestin Rwabukumba, the RSE chief executive officer, attributes the inactivity of cross-listed counters largely to the fact that the firms had not done their Initial Public Offerings (IPOs) in Rwanda. That’s why local investors usually prefer shares of the domestic firms, Bralirwa and Bank of Kigali.
“Some would-be investors think cross-listed counters do not bring new shares and, thus ignore them,” he said.
However, Equity Bank started off on a good note compared to other cross-listed firms, selling 25,000 shares worth Rwf10.6 million on the first day. The counter sold 20,100 shares worth Rwf8.5 million on its second day of trading on Friday. It was, however, quiet yesterday. The counter opened at Rwf415 and closed at Rwf425 on Thursday; and was unchanged on Friday and yesterday at Rwf425.
Rwabukumba said the wrong perception, compounds the previous challenge involving transfer of shares between Rwanda and Kenya’s central depository systems (CSD) whenever people wanted to sell their shares across the RSE and Nairobi Securities Exchange (NSE).
“That time, we had to transport the stocks physically whenever someone needed to trade them from a different country, where the stocks are cross-listed.
However, we later developed a mechanism whereby a shareholder in Nairobi, for example, can instruct a stock broker in Kigali to trade their shares through the RSE,” he said.
With the linking of central depositories across the region, shares are now transferred between the CSD accounts in a space of five minutes, down from two weeks before, according to Rwabukumba.
He noted that what is needed now is creating more awareness among Rwandans to attract more retail investors, a situation that would increase RSE’s liquidity.
“Today, the market has around 40,000 accounts, of which, only 11,000 are active. This alone cannot make the market active, especially for the cross-listed securities,” he explained.
He said RSE, the Ministry of Finance and National Bank of Rwanda have launched initiatives to encourage more people to invest in shares.
However, Davis Gathaara, the managing director of Baraka Capital, a brokerage firm at the RSE, differs, arguing that the companies cross-list on the RSE to boost their brand in the local market, and “not necessarily to encourage trading”.
He also noted that there was need to change the mindset of local investors, saying they hold stock which makes the stock market less active.
He if one puts up shares for sale, sometimes there are no buyers.
He added that the challenge of low activity on the exchange is caused also caused by people who hold stocks on the Nairobi Stock Exchange, saying they prefer to selling their shares there rather than going through the process of opening CSD accounts in Kigali and changing their currency from Kenya shillings to the franc.
“Until we have a common currency in the region, like the CFA in West Africa, where there are more cross-listed stocks, it will not be easy for cross-listed firm to trade,” he said.
“Who knows, we may be shocked by Equity… But it is hard because we need to have many shareholders in the country to sell, but the majority are in Nairobi,” Gathaara said.
Maurice Toroitich, the managing director of KCB Bank Rwanda, said there should be a mechanism to increase liquidity at the RSE to boost activity on the cross-listed counters.
“This can be done by automation and harmonisation of registries and depositories of the regional exchanges,” he said.
Toroitich said the settlement process of cross-listed shares was time-consuming because the shares’ registrars are not here.
“The settlement process is supposed to be T+2 (a settlement system, where transactions are settled two days after buying or selling)…It takes longer than this because the share certificate has to be sent to the registrar in Kenya first so that he transfers the shares before the settlement can take place. This is why a lot of people prefer going to Nairobi to trade because it is much easier,” he noted.
Toroitich also pointed out that many stock buyers in Rwanda buy shares and hold them rather than sell, making the liquidity levels at the bourse to remain low.
“Brokers should give investors different options rather than advise them to invest in the local stocks only…Low activity on cross-listed firms’ counter is not about some shares being preferred over the other. Besides, having several companies in your portfolio helps you maximise on your return,” he explained.
Rwabukumba said when all the regional stock exchanges are linked in July, people will be able to trade shares across the region without any hindrance. The exercise will also involve linking the settlement processes to ease payments. This gives cross-listed companies, like Equity Bank, hope that the future holds some promise.