Paul Muthaura, CEO, Capital Markets Authority: Interview

How can Kenyan companies be encouraged to use capital markets as a financing option?

MUTHAURA: We have invested time and resources in a joint initiative with the Nairobi Securities Exchange conducting a diagnostic assessment around new listings and the Growth and Enterprise Market Seg-ment (GEMS). We considered things such as eligibility requirements, to discover what the most significant obstacles are. In Kenya it is not so much barriers as it is our underlying culture – many of the companies that would be prime listing candidates are family-run, and they are not necessarily prepared for increased openness and governance. We are beginning to see this change, which is a positive development for the future growth of the market.

In terms of our public awareness and education ini-tiatives, we are broadening our partnerships with key private sector organisations in the country. Through these partnerships, we organise seminars for the prime listing candidates amongst their ranks, inform-ing them about the listing process and explaining to them what steps are required. The Nairobi Securities Exchange is also taking a more active role in  support-ing and tightening the supervision of nominated advi-sors that are effectively the connection between the bourse and potential GEMS candidates.

We see these actions as really playing a role in cata-lysing more companies to come to market, and we are quite confident that we will see a few listings in early in 2016, if the macroeconomic fundamentals hold.

What is the potential for real estate investment trusts (REITs) in the Kenyan market?

MUTHAURA: The first Kenyan REIT launched in October 2015, and it saw positive uptake and easily exceeded its minimum targets. We really see REITs as one of the high-growth areas in terms of new prod-ucts. There is a Kenyan obsession with real estate, and thus, the creation of a product that can introduce liquidity and greater transparency, as well as democ-ratise ownership, was very significant for the market.

This new release also opened up a conversation between the CMA and other regulators, such as the Retirement Benefits Authority (RBA), to ensure that our investment guidelines are better aligned. The news that the REITs would be treated as a listed equity by classification – as opposed to real estate, which is considered illiquid – was received enthusiastically by the pensions sector, and it significantly broadened the scope of investors interested in the REIT.

Going forward, with the benefit of those clarifica-tions, we are likely to see development REITs come next. If anything, these are much more relevant to the Kenyan economy. Compared to income REITs, which are based on income-generating property, develop-ment REITs provide a transparent structure for rais-ing public capital for construction and development making them much more interesting considering all of the projects that are occurring across the country. We see providing greater public market financing as a great tool to bring down the cost of capital, and thus the cost of development, in this country.

To what extent do you see pension funds becom-ing more important market players?

MUTHAURA: As a result of the introduction of the REIT, there has been a running discussion between the CMA, the RBA and the Insurance Regulatory Authority around bringing in a bit more room and flexibility to the current investment guidelines. We have already seen positive results from REITs, and are optimistic about the release of the first exchange-traded funds, which could potentially launch in the first quarter of 2016. These advances will be followed by some new securitised listed products that will go into the next budget cycle. We are in broad agreement that the investment guidelines should be reviewed to ensure we are effectively taking advantage of pension funds.