At the close of 2006, many investors in East Africa frantically signed cheques, applying for the Stanbic Bank Uganda IPO. Priced at Ush70 per share and all fundamentals looking right, this IPO was set for oversubscription. As anticipated, the IPO was oversubscribed by over 200percent due to non-resident participation.

This was the biggest IPO ever in the Uganda Securities Exchange (USE). On January 25^th 2007 when the share hit the floor market, it maintained an upwards trend. At the moment, trading at Ush.155.00, most of the investors in Kenya who participated in this IPO count their Stanbic Bank shares as the best performing in their equity portfolios.

Soon, the Tanzania government will be offloading their 21percent stake in the National Microfinance Bank (NMB) through an IPO. This is anticipated to become the biggest ever IPO in Tanzanian history. With the bank’s fundamentals looking right, there has been a lot of interest in its nascent stocks market. If this IPO will be open to non-residents (in this case all East Africans) an oversubscription will be inevitable. Another big IPO is from Safaricom Ltd, a Kenyan leading mobile phone services company expected to come before the end of 2007.

East Africans are ready to venture outside the confinement of their individual countries securities markets. But as we wait patiently for this to be done, some salient set backs that came into focus during the Stanbic IPO need to be addressed.

The Issues 

First, there was a currency difference which necessitated conversions from one East African currency to the other. During the Stanbic IPO Ksh.1 was going for about Ush.25. Kenyans who subscribed for the minimum 10,000 shares at this time only needed about Ksh.28,000 (not factoring in the brokers commission). Investors who subscribed more than the minimum shares they were allocated had to contend with a lower amount as refund. Due to the strong Kenyan shilling, the exchange rate at the refund date had moved to Ksh1 = Ush.26.

Secondly, the issue of share certificates in Uganda created a problem to Kenyan investors. In Kenya trading of stocks involves an electronic CDS account as opposed to physical share certificates. Share certificates make it slow and cumbersome to trade. Some of the investors who participated in the Stanbic IPO are yet to receive their share certificates.

The pricing of the IPO in different brokerage firms was also an issue. Some brokerage firms such as Dyer & Blair priced the Stanbic Uganda shares at Ksh.3.00. This was higher than the set Ush.70/Ksh2.8 per share. Apart from pricing, most brokers and agents in Kenya had set minimum amounts of shares for their clients to buy. This not only made it difficult for some investors to participate in the IPO but also had most of their money tied up in refunds. 

Compared to the Nairobi Stocks Exchange (NSE), the USE and the Dar es Salaam Stocks Exchange (DSE) are far less developed and illiquid. This presents a problem when investors wishing to dispose their shares have to wait for more than a month due to long verification process at the registrar. Furthermore, an investor has to sell at the market price since fixing the sale limit makes it difficult to sell.

Possible Solution  

Most of these problems can be easily eliminated by harmonizing and putting proper regulations in place. The USE can introduce CDS accounts in the trading of the bourse. This will tremendously reduce the transactional periods and ease the liquidity of their securities markets.

The exchange rate during such IPOs can be fixed at least for the entire transactions involving it, that is, at the subscription and refund stages. This will help investors avoid losses associated with the fluctuation of the exchange rates.

Such important, issues have to be addressed to ease cross border trading in the three East African securities markets.