Just what happened to the privatisation plan on NSE?

The Nairobi Securities Exchange (NSE) wants the newly constituted Privatisation Commission to quickly restart the privatisation programme.

Kiprono Kittony, the NSE chair, has called on the Privatisation Commission to restart the programme. The commission has been without a board since June 2019.

Privatisation has had the largest impact on the NSE. The listing of Kenya Airways and Safaricom shares through an Initial Public Offering (IPO) during privatisation were particularly pivotal for the NSE. Small wonder the anxiety for privatisation to resume.

There are three key issues that must be addressed for any successful privatisation through NSE. First, what happened to the State companies that were sold through an IPO, but later collapsed or were renationalised? These include Kenya Airways, Mumias Sugar and Uchumi Supermarkets. Uchumi and Mumias are no longer even operational, while Kenya Airways is on life support through massive State cash injections.

Kenyans have lost billions in investment in the deals. Nobody has bothered to explain what happened. Nobody has been held accountable for the mismanagement and collapse of the companies. Unless the government addresses the concerns and ensure full accountability, the most likely outcome of another attempt at privatisation via an IPO will be disastrous. Kenyans will shun it. Once bitten, twice shy!

Secondly, something is not adding up at the commission. Consider this— the commission has not completed a single transaction in the 14 years it has been in existence.

In contrast, its precursor, the Executive Secretariat and Technical Unit (ESTU), either fully or partially privatised most of the 207 so-called non-strategic parastatals that were fully commercial in its 10-year period of existence between 1992 and 2002.

Indeed, most of the groundwork for the restructuring and commercialisation of the operations of the so-called strategic parastatals such as Kenya Railways were undertaken by this entity. Questions abound. Is the Privatisation Commission properly constituted? Has the eagerly awaited Privatisation Law become its Achilles heel? Is privatisation itself as a concept dead? Should the commission just be disbanded and privatisation rethought? Food for thought!

Thirdly, for Kittony, the NSE needs a complete makeover and a revamp. It is pale shadow of the vibrant entity that welcomed such listings as Kenya Airways, Safaricom, Co-operative Bank, and other high-profile equities in quick succession. Since 2012, only one company has listed on the NSE, if we discount NSE listing its own shares.

In contrast, between 2006 and 2011, there were eight major IPOs which raked in hundreds of billions of shillings. NSE has suffered a series of devastating scandals when several brokerages went down with investor’s funds. The market was further shaken by the collapse of several listed companies. 

NSE seems to have taken the view that people forgot and moved on. They have not. There is a crisis of confidence in the NSE. Worse, investors’ focus is now on five counters—Safaracom, East African Breweries, KCB, Co-operative and Equity banks. These control 75 per cent of deals in the market. The other 60 companies share the 25 per cent balance. This talks volumes of the confidence investors have in the offerings at NSE.

Further, NSE has done little to address the long-standing perception that it is just another old boys’ club, with little connection to the rest of the economy. NSE has demonstrated again and again its capacity to raise any amount of capital. One can only conclude, therefore, that companies are shunning the NSE route. NSE needs to do a frank introspection and take the very painful measures required to restore shattered public confidence.

NSE must clean house. After that, it can start the slow process of rebuilding the confidence of both the investing public as well as the prospective listing companies. Once this confidence is restored, even the government will want to join the party. Nobody will need to invite it.

— gathukara@gmail.com