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  • 1.  
  • 2.
    • Commodities Exchange and Risk Mitigation: Options for Raising Capital
    • A presentation by
    • Mr. Jimnah Mbaru
    • Chairman, Nairobi Stock Exchange
    • Chairman, Dyer & Blair Investment Bank
    • 17 October 2007
  • 3. STRUCTURE OF PRESENTATION
    • Introduction
    • Structure of Nairobi Stock Exchange (NSE)
    • NSE Performance
    • Drivers of NSE
    • Role of Commodities Exchange
    • Options for Raising Capital
    • Conclusion
    • Q&A
  • 4. STRUCTURE OF THE NAIROBI STOCK EXCHANGE (NSE)
    • Established in 1954 as an overseas stock exchange through the London Stock Exchange
    • NSE 20-share index established in 1966 & was managed by Dyer and Blair Ltd.
    • Regulated by the Capital Markets Authority (CMA), which was established in 1989
    • Primary (IPOS) & Secondary (Trading) markets
    • Part of the African Securities Exchange Association (ASEA), which aims to:
      • Establish systematic corporation,
      • Enhance sharing of information
      • Development of harmonized market standards.
  • 5. STRUCTURE OF THE NSE Cont’d
      • 74 government bonds
      • 53 listed companies
      • 6 corporate bonds
      • 7 Licensed Investment Banks
      • 11 Licensed Stockbrokers
      • Market trading done through:
        • 1954 – 1991: Callover System
        • 1991 – Aug 2006: Open Outcry System
        • Since Sept 2006 : Automated Trading System
      • Shares are traded in lots of 100
  • 6. NSE Market Performance (A) Equities Primary Market (Kshs Million) 800.00 1,319.55 276.6 66.00 102.00 2,138.14 Private Sector 13,129.45 776.00 15,225.00 2006 2,280.00 3,080 Sept 2007 -  2,011.00 2,011.00 2005 -  2,450.00 2,450.00 2004 -  -  -  2003 331.21 -  331.21 2002 1,125.00 30.00 1,155.00 2001 378.00 619.63 997.63 2000 -  -  -  1999 1,800.00 -  1,800.00 1998 168.00 1,500.00 1,944.60 1997 3,842.00 1,200.00 5,108.00 1996 22.00 -  124.00 1995 400.00 61.90 2,600.04 1994 62.48 -  62.48 1993 358.00 -  496.10 1992 Privatization/IPO Rights Issue Amount Raised Year
  • 7. NSE Market Performance B) Equities Secondary Market 13 12 7.9 7.3 8.52 3.6 2.9 3.71 5.12 3.74 5.73 3.85 3.43 2.76 Liquidity (%) 5,069 5,646 3,97 2,95 2,738 1,363 1,355 1,913 2,303 2,962 3,115 3,114 3,468 4,559 NSE Index 739 792 463 306 318 112 86.1 101.4 107 129 114.3 98.9 105.5 137 Market Cap. (Kshs Bn) 1,139 1,455 847 625 381 149 115 142 101 112 144 114 62 43 Volume (Mn) 57.6 95 36.5 22.3 15.25 2.92 3.09 3.63 5.15 4.58 6.15 3.9 3.33 3.08 Turnover (Kshs Bn) 07 06 05 04 03 02 01 00 99 98 97 96 95 94  
  • 8. NSE Index Movement (2000-2007)
  • 9. NSE Performance   (C) Bonds Primary/Secondary Market 68.0 66.3 2007   48.6 76.7 2006   13.6 74.4 2005   34.1 91.4 2004   42.0 76.4 2003   33.6 71.2 2002   14.1 72.5 2001   5.88 25.1 2000   6.92 47.4 1999   8.22 47.3 1998   11.5 38.6 1997   0.86 0.86 1996   Secondary Primary       Bonds Issued/Trades (Kshs Bn)        
  • 10. (A) Drivers of NSE: The Economy
      • Vision 2030 geared towards growth
  • 11. (B) Drivers of NSE: Economic Monetary Cycle
  • 12. (C) Drivers of NSE - Technology Effects 1991- Switch from Callover Open Outcry CDS Activation ATS Set-Up
  • 13. (D) Drivers of NSE – Low Interest Rates
    • Low stable interest rates
      • Low cost of funding hence high corporate profitability
  • 14. Explanation to the low interest rates
    • Deficit financing through privatization
  • 15. (E) Other Factors influencing NSE Performance
    • Increased corporate profitability
    • Increased foreign exchange earnings – FDI
    • Diaspora remittances estimated at Kshs 75Bn per annum ($1.2Bn)
    • Increase in amounts held by institutions e.g. pension funds assets of Kshs 224Bn
    • Increase in investment vehicles – unit trusts, mutual funds assets of 20Bn
    • Increase in market participants to over 750,000 investors
      • KENGEN
  • 16. Role of Commodities Exchange
    • Facilitates offsetting commodity transactions without impacting on physical goods until the expiry of a contract
    • Offers
      • Price transparency
      • Effective price discovery
      • Efficient risk management
    • Types
      • Commodities Futures Exchange
      • Spot Exchange
    • Market players
      • Producers, processors, warehouses
      • Buyers, speculators
      • Government, marketing agencies, banks
  • 17. Benefits to;
    • Farmers
      • Price discovery
      • Warehousing services
      • Warehouse receipts as collateral for loans
    • Traders
      • Access to bigger markets
      • Elimination of counterparty risks through guarantees
      • Better pricing because of high number of participants
    • Exporters
      • Quality products through a secured platform
      • Elimination of physical market procurement problems
      • Elimination of procurement agents fees
  • 18. Benefits to;
    • End Users
      • Ability to buy direct at competitive prices
      • Operational comfort - easy to access information
      • The exchange I s a single window system for procurement of various materials
    • The Exchange
      • Fair transparent prices for settlement of contracts
      • Arbitrage opportunities for investors
      • Long-term investors can buy physical commodities stored at warehouses and take advantage of off-season price rises
  • 19. Challenges for Multiple Commodities Exchange in Kenya (MCE)
    • Commodities controlled by Boards - heavily regulated
    • Many small-scale producers- challenge on stability of client base
    • In an environment of struggling institutions – cooperatives
      • Inefficiencies and mismanagement
      • Internal bureaucracies on elective posts and decision making process
    • Conservative approach
    • Partial liberalization of some commodities sectors (coffee)
  • 20. Options for Raising Capital (Players)
    • Private Equity/Capital
      • Private equity fund
      • Syndicated
    • Initial public offer - IPO
        • Demutualized commodities exchange
          • Nairobi Stock Exchange (NSE)
          • Over The Counter (OTC)
        • Listing Requirements
    • Corporate bonds
      • Plain vanilla bonds
  • 21. Options for Raising Capital (Players)
    • Securitization
      • Commodities receipts backed bonds
      • Fees receivables backed bonds
    • Syndicated loans
      • backed by physical commodities (Coffee exchange practice)
  • 22. Role Of Government In Setting Up The Exchange
    • One-off grant to start (Kshs 1 billion)
    • Reforms in the producer sector
    • Exchange income tax exempt until demutualized
    • Provide warehousing (Subsidized)
    • Plan a regulatory body for commodities
  • 23. Conclusion
    • Possible to raise funds through NSE
    • Reforms essential for successful MCE in Kenya
    • MCE way forward
    • Government cooperation and support essential
  • 24.
    • THANK YOU
    Q & A
  • 25. 10th Floor, Loita House, Loita Street P.O. Box 45396-00100 Nairobi, Kenya Tel: +254-2-3240000 Fax: +254-20-3240114 Website: www.dyerandblair.com