21 July 2007

Kenya: NSE in Major Shake Up of 20-Share Index Companies

Nairobi — The Nairobi Stock Exchange (NSE) has dropped six companies from its 20 share index constituent stocks and included new ones to reflect changes in market fundamentals since May 2003 when the index was last reviewed. NIC Bank, BOC Gases, Unilever, Kakuzi, Uchumi Supermarkets, Williamson Tea have all been dropped. They have been replaced by ICDC Investments, KenGen, Mumias Sugar, Rea Vipingo, Cooper Motors Corporation (CMC), Express Ltd picked in their places. The newly constituted index becomes operational effective August 1.

NSE chairman Mr Jimnah Mbaru said the new companies have been picked in line with the exchange's guidelines on requirements for inclusion in the index.

Plans are also underway to introduce an NSE-All share index whose calculation will be based on share price and volume movements of all listed companies.

The trading pattern of companies that were dropped had changed fundamentally since the last review. As such, they were not eligible to remain as constituent counters.

Parameters for inclusion include the requirement that the constituent companies must have been listed at the stock market for at least one year.

Such companies must also have a minimum market capitalisation of Sh50 million, at least 20 per cent of its shares must be freely available for trading at the NSE and must also have a significant daily turnover.

Market capitalisation is most important criteria

Market capitalisation, however, remains the most important criteria for inclusion in the index in line with international best practice.

In the industrial sector, energy generator KenGen replaces British Oxygen Company (BOC) Gases that has been suspended from trading for the last one year pending outcome of its buy out negotiations with Carbacid Kenya ltd.

Mumias Sugar also enters the industrial sector, replacing Unilever Tea from the agricultural sector, raising the number of constituent companies in the industrial sector to eight.

NIC Bank, which was picked in the last review, was replaced by ICDC Investments, which the NSE board felt was more representative of the financial sector given its diversified portfolio of investments.

The Agricultural sector gets two new companies: Sasini Tea and Coffee and Rea Vipingo. Kakuzi, which was the only representative in the sector, has been dropped.

CMC replaces Uchumi Supermarkets in the commercial sector. Uchumi's shares have not traded for the last one year since the company was put under receivership. Express Ltd replaces Williamson Tea in the Alternative Investments Market segment.

Aligning index to market fundamentals

The review of the index is aimed at aligning it to the market fundamentals and was last reviewed in 2003 when NIC Bank replaced East African Packaging.

The method for calculating the average daily share prices (volume weighted average prices) has also been reviewed to include price and volume movements in all the three hours of trading at the bourse.

Previously, the average share prices were calculated based on the last one hour of trading and sometimes failed to capture some bulk trades that occurred during the first two hours of trading.

Mbaru also announced the licensing of three market data vendors and called on other interested companies to submit their bids for consideration.

The three are Eight Ltd, Media Corp and Knowing Ltd.

The vendors will be licensed to trade in real time data from the exchange at an introductory fee of Sh170,000 ($2,500) per month.

NSE is also considering the licensing of at least four local TV stations to air live trading sessions from the floor of the stock exchange. These are KTN, Nation TV, CNBC and Citizen TV.

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