Trading obstacles hurt Umeme shares at NSE

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A customer care staff explains about different voltage metres at the Lugogo Umeme Centre in Kampala. Umeme shares began trading at the Nairobi Securities Exchange on December 14, 2012. File Photo. 

By Nicholas Kalungi

Posted  Wednesday, December 19  2012 at  00:00

In Summary

The market systems of both Uganda Security Exchange (USE) and NSE are not inter-connected; thus, cannot facilitate trading for cross-listed companies.

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Kenyans will have to wait a little longer before they can buy Umeme shares directly from the Nairobi Stock Exchange (NSE).

Even though Umeme—the country’s main power distributor— started trading its shares at the NSE secondary market on Friday, media reports reported yesterday that Umeme’s shares had failed to trade for the second consecutive day after entering the market last week.

This is attributed to the fact that the market systems of both the Uganda Security Exchange (USE) and NSE are not inter-connected; thus, cannot facilitate trading for cross-listed companies in the region.

While explaining this matter, Mr Kenneth Kitariko, the African Alliance chief executive officer, said the issue revolves around were the shares are located; how one can access them and later make a transaction.

“What is happening is there is no mechanism to facilitate trade. For a transaction to occur under the current circumstances, one needs to make these electronic shares (viewable on Nairobi counters) physical through getting a certificate from Uganda and then taking it to Kenya,” Mr Kitariko said.

He added: “These shares are originally listed on the USE market. The people in Kenya can electronically view them at the NSE market but cannot buy them.”

Mr Japheth Katto, the executive director of Capital Markets Authority (CMA), acknowledged the presence of both regulatory and infrastructure obstacles.

He, however, said the regional capital markets authorities are committed to fixing some of their problems in the first quarter of 2013.

“There is a regulatory problem that we are working to fix. Companies cross-list but cannot sell shares. Our infrastructure is not inter-connected. It is a complicated matter but we hope that within the first quarter of 2013, we will have a solution to it,” Mr Katto said, adding:“In the long run, we are looking at having one integrated system that will enable all the five markets in the region to communicate together. Provided we can harmonise the systems and have common standards, we would have fixed this problem.”

Challenge of cross-listed counters
Mr Patrick Mutimba, the Makerere University director for investments, said cross-listed counters also face exchange rate challenges which may limit arbitrageurs and hurt trade.

“Arbitrage is where a trader seeks to take a risk less return from concurrently trading two securities in the same sector that indicate a clear case of mispricing. One may do this by selling the overpriced security while buying the underpriced security,” Mr Mutimba said.

He further explained: “The challenge will still be currency considerations since the Ugandan company earns Ugandan shillings while the Kenyan companies earn Kenyan shillings. This difference may be mitigated since all will be using the Automatic Tariff Adjustment by 2013 January.”

Umeme became the first utility company registered within East Africa but outside Kenya to trade its shares at the Nairobi Stock Exchange after its introduction of 1,623,878,005 shares of Umeme Holdings Limited on NSE’s Main Investment Market Segment (MIMS) at a reference price of about Shs 273 (Ksh8.8).

Prior to this, several companies registered in Kenya had cross-listed and are trading at the Uganda, Rwanda and Tanzania bourses but no company from these regional countries had ever cross-listed and traded at NSE.

In Kampala, Umeme’s share continues to trade at Shs275, the same amount it sold its share during the Initial Public Offering period.