Wooing strategic investors to make exits through the equity market presents one of the key frontiers for future growth of capital markets in Kenya.
Outgoing Capital Markets Authority (CMA) Chief Executive Paul Muthaura regrets the fact that the Nairobi Securities Exchange (NSE) has missed out on the tide of a vibrant private transactions environment over the last decade as the market grapples with a dearth of new listings.
“In East and Central Africa, Kenya is the largest destination for private equity. All those companies are investing with the clear plan of exiting within five or 10 years. They know they will have to exit at some point. It is unfortunate, however, that only very few of them are exiting through the market,” he said.
Mr Muthaura, who leaves office on December 31, however, said Kenya would need a cultural shift as far as equity market investor risk appetite is concerned if it is to see strategic investors make exits through the NSE upon maximising returns.
“Strategic investors will tell you that when they engage players in the market, they get the indication that risk appetite and ability to price for the potential of the company rather than its current net assets is low and therefore the valuations we are likely to get at the market are too low.”
In September 2017, Emerging Capital Partners (ECP) off-loaded its stake in operator of coffee house chain, Java, through a $100 million sale to Dubai-based Abraaj Group, presenting a classic case of an exit made through a private sale to from one private equity fund to another.