Stock exchange to be launched with floating of Bralirwa shares
As of this Monday, the Rwandan capital markets, which so far consisted only of a bond market, also includes the first ever stock exchange in the country.
The first shares to be floated are those of Bralirwa, although other large enterprises have also expressed interest to go public. But according to Robert Mathu, the executive director of the Capital Market Advisory Council (CMAC), kicking off the Rwanda Stock Exchange (RSE) with the brewery’s shares is an auspicious start. “We are lucky that the government started with the right assets,” Mathu says.
The move follows Bralirwa’s initial public offer (IPO) which has been hailed as successful given the attention it received from local, regional and international investors. Overall the brewery’s IPO was oversubscribed by 174%, which Finance Minister John Rwangombwa says indicates confidence investors have in the company as well as the country.
“We are satisfied with the way the process went and the response from investors,” Rwangombwa says.
The sale of 25% government shares in Bralirwa (128,570,000 shares) to the public through the IPO valued at US$ 29.5 million, was launched in November 2010 and ran for four weeks. The cost of a share was Frw 136, but Rwangombwa is quick to discard suggestions that the oversubscription meant that Bralirwa’s shares had been undervalued. “The government offered at 20% discount to make the shares attractive to local investors,” Rwangombwa points out.
Overall there were a total of 3,942 subscribers for the IPO, of whom 3,106 (79%) were Rwandans. While the total value of the IPO was US$ 29.5 million, the total subscriptions at its close amounted to US$ 80 million.
According to market experts, the oversubscription of the IPO could easily translate into high demand on the secondary market, although they caution that there is no guarantee. The opening trade price on the stock exchange is Frw 170 per share, a 20% price increase.
“There is a possibility that the primary shareholders will be able to get quick profits because the demand is expected to be high,” Rwangombwa says. “However, it will depend on whether they want to sell – they might forego quick wins for long term gains.”
Andrew Owiny, the lead valuer of the Bralirwa shares, says that just like he expected oversubscription on the Bralirwa IPO, he is also confident that this will drive demand on the secondary market.
“We believe that those who were not allocated shares on the primary market will come back to the secondary market,” Owiny says.
In order to ensure orderly trading on the RSE, CMAC has organized training for brokers. CMAC boss Mathu points out that, given the fact that Rwanda’s system is slightly different from other stock exchanges in EAC, the brokers needed to familiarize themselves with the procedure. “A number of them were new to the system but not new in the business, as some are coming from Kenya and Uganda,” Mathu explains.
All the trading will be done electronically, a system already in use at other EAC stock exchanges. Share certificates will also be offered electronically. But Mathu points out that that is not unique to the RSE, just the adoption of tested methods.
Mainly international interest
The success of the Bralirwa IPO will give the government confidence to go ahead with others: the sale of the government’s 10% stake in MTN and 25% in BK are expected this year.
Yet it seems that for future IPOs, more efforts are required to encourage Rwandans individuals to invest – among the various categories to which shares were allocated, this was the only one which was (slightly) undersubscribed.
Indeed, in the retail sub-pool, Rwanda nationals applied for just above 26 million shares against 27 million shares that had been reserved for them (an allocation of 60%). According to an insider, Rwandan nationals under the retail sub-pool missed their target by Frw 200,000 approximately 1470 shares. Therefore, all of them will receive the shares they applied for.
Retail investors from the East African Community oversubscribed by 29% as the applications exceeded the initial allocation of 35% of the total shares amounting to 44,999,500. Bralirwa staff and distributors were the least oversubscribed by 3% while Rwandan and EAC institutional investors oversubscribed to the IPO by 75% and 159% respectively.
The most oversubscribed allocation was the international pool with subscriptions ballooning to 430% for the 30% of the total shares reserved for them – so these investors will get less than what they had hoped. For example, the international investors will get 20% of what they had subscribed for while EAC institutional investors will get around 60%.
While those investors might thus be disappointed, for the government the big international interest is encouraging. “The level of oversubscription we got is a testament to the attractiveness of Rwanda as an investment destination and proof that the savings and investment culture can take root amongst Rwandans in the near future,” the ministry of finance says in a statement.
CMAC’s Robert Mathu shares this view, and says his agency is looking forward to a vibrant stock exchange. “This clearly indicates that demand for investment is higher than supply of savings,” Mathu explains.
Meanwhile, in addition to the current two cross-listings from Kenyan firms – Kenya Commercial Bank (KCB) and Nation Media Group – CMAC also expects more Kenyan firms, including Equity Bank, KenolKobiland, TPS Serena, to cross-list in the coming months.