The Nairobi Securities Exchange (NSE) and market analysts are reading from different scripts on whether the investing public and minority shareholders of listed companies should be allowed to participate in big-ticket share sale deals, engineered by anchor shareholders of blue-chip companies seeking to reduce their stakes or entirely liquidate their investments.

This is after Kenya opted to sell 15 percent of its stake in Safaricom Plc to its core shareholder, South Africa’s Vodacom Group, rather than offload the shares through a public offer that would have given the local investors an opportunity to increase their shareholding in the region’s most profitable telco from the current 25 percent.

And recently, British multinational Diageo Plc also announced it had entered into a deal to sell its entire 65 percent stake in East African Breweries Ltd (EABL) to Japanese Asahi Group Holdings Ltd — in a deal estimated at $2.3 billion — instead of selling the shares through a public offer.

Kenya’ National Treasury is selling 15 percent of its stake in Safaricom to Vodacom for around Ksh204.3 billion ($1.58 million), reducing its own shareholding from 35 percent to 20 percent, a deal also involving upfront payments for future dividends of Ksh40.2 billion ($311.62 million), sparking debate over fiscal benefits versus long-term income loss.

These deals have sparked divergent views on whether minority shareholders and the investing public should be considered and given an opportunity to buy into these shares.

According to the NSE, the market has huge untapped local investors looking to invest and be shareholders of listed companies and should be granted an opportunity to buy into these shares offered by anchor shareholders, a move that will go a long way in boosting trading activities , increasing liquidity in the market and generally deepening the local capital markets.

The bourse’s CEO Frank Mwiti says the huge oversubscription in the latest corporate deals on the NSE, including rights issues and corporate bonds, is a testament of the huge untapped local investors looking to invest and be shareholders of listed companies.“Yes, it will go a long way to deepen our local investor base especially for major Kenyan companies. The huge oversubscriptions demonstrate there is huge untapped local investors looking to invest and be shareholders of our listed companies,” he said.“We are working with all capital markets stakeholders to grow and deepen our capital markets anchored by NSE. We see more and more involvement by both domestic and diaspora investors.”According to Mr Mwiti, the bourse is focused on diversifying its product offerings, expanding investor base and creating more listing opportunities for potential issuers.“Our new strategy is focused on making sure we have a vibrant exchange that will bring new listings, expand our listed products (For instance Exchange Traded Fund ( ETFs)and Real Estate Investment Trusts (REITs) and more fixed income issuances such as corporate bonds and commercial paper,” he said.

A cross-section of analysts polled by The EastAfrican, however, hold divergent views on whether the investing public and the minority investors should be considered in the purchase of shares being offloaded by anchor shareholders considering that these are not free float shares (shares available for trading).“Ideally, prioritising local investors could deepen capital markets by boosting domestic ownership. It’s, however, key to note that anchor shareholders often execute large block trades to transfer strategic control swiftly to capable buyers, saving time and money compared to the retail investor route," said Melodie Gatuguta, research associate at Standard Investment Bank (SIB).

Ken Gichinga, chief economist at Mentoria Economics, says allowing local investors to buy into shares held by anchor shareholders will incentivise the market.“We need to incentivise local participation in capital markets. This provides more stability for the markets and reduces the exposure to capital flight by foreign participants,” Mr Gichinga said.

According to Daniel Owuor, an independent financial analyst based in Nairobi, the option is often up to the anchor shareholders and the market can be deepened through issuance of additional tradable shares.”For the period prior to the anchor shareholder signifying their intention to sell, local investors had the opportunity to trade shares in the open market. The market assumption is that any investor has done sufficient analysis to determine the value of the shares to them, as such, they have the option to buy or sell. The anchor investor is, in this case, exercising the same right,” Mr Owuor said.

Churchill Ogutu, economist at IC Asset Managers, said the latest corporate actions speaks of share sales involving illiquid untradable shares and not the free float shares that easily trade.”Markets can be deepened by providing additional tradable assets in the market that is often the prerogative of the regulators to provide incentives/ a conducive environment for listing or issuance of any tradable asset.””These illiquid shares held by anchor shareholders and for long-term serve a purpose in terms of offering light re strategy that the listed company is pursuing, for instance. A significant offloading of that stake to the public may be perceived in negative light,” Mr Ogutu said.“The other aspect is that revenue from these transactions are not accruing to the listed company, but amongst shareholders. So pretty much the shareholders on the selling side of the transaction seizing opportunities of offloading their stake to another shareholder (or new shareholder) and at prices above prevailing market prices, at a premium.”According to Ogutu, the secondary market pricing may react negatively or positively, and prices adjust accordingly or not, but the gains will accrue to the seller (future benefits to the seller) and not the listed company. Hence the preferred option of these share sales between shareholders.”What needs to be done to deepen the local capital markets is newer solid issuances, over secondary initial public offerings (IPOs) of listed issues. Even if we see secondary IPOs, we will end up with the same set of investors snapping up the shares without much deepening of the markets,” he said.

The amendments also lifted the threshold for compulsory acquisition/ sell-out rights for company shareholders involved in a takeover from 50 percent to 90 percent.

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