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Kenya: Foreign Investors Given 75 Percent Share in Listed Firms
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Business Daily (Nairobi)
28 April 2008
Posted to the web 28 April 2008
Washington Gikunju
Foreign investors can now own up to 75 per cent shares in public listed companies following the reversal of an earlier rule that limited their shareholding threshold in public companies to only 40 per cent.
Finance minister Amos Kimunya had in June last year reduced the threshold for foreign ownership of listed companies to 60 per cent, from 75 per cent, significantly reducing investment opportunities available for foreigners looking to buy into some of the most profitable companies listed at the Nairobi Stock Exchange (NSE).
The new amendment to the capital markets (foreign investor regulations) was made through a legal notice dated March 14, and reverts the shares reserved for locals in NSE listed companies to 25 per cent.
Mr Kimunya's action last year received mixed reactions, with most commentators saying that it could potentially discourage the listing of foreign owned firms at the NSE.
Analysts also said that the limitation of foreign investors' participation at the stock exchange could negatively affect Kenya's ambitions of becoming a region financial services hub.
The amendment had effectively closed blue chip companies such as Barclays Bank with a 69.9 per cent foreign ownership, Unilever Tea Kenya (88.3 per cent), Standard Chartered Kenya (74.8 per cent), Bamburi Cement (71.5 per cent), BAT Kenya (62.4 per cent) and Total Kenya (79.1 per cent) to any new foreign investor participation. Other counters that were above the 60 per cent limit as per the November monthly shareholding schedule obtained from the NSE included the Standard Group (69.6), TPS Eastern Africa (68.6) and BOC Kenya (66.2).
However, it has since emerged that the amendment to the foreign investor regulations limiting foreign ownership to 60 per cent was done erroneously and hence the latest amendment to the rule.
The Capital Markets Authority acting chief executive Stella Kilonzo however says the amendments which were made to the Act did not reflect the finance minister's intentions in his budget speech last year.
Ms Kilonzo says the amendment to the CMA Act was meant to provide for a 40 per cent reservation of shares for local investors during initial public offerings (IPOs), but an error in drafting the amendment ended up limiting the foreign investors' ownership threshold in the already listed companies.
"A number of inconsistencies were noted in the amendments passed last year which introduced uncertainty regarding foreign investment in listed companies in Kenya as well as in the definition of who constitutes an East African Investor," said Ms Kilonzo.
"The revised amendments are therefore to correct these inconsistencies." The need to increase the shares reserved for local investors during IPOs from 25 per cent to 40 per cent came after another amendment to the capital markets Act recognised East African Community member states as locals for purposes of investing in the capital markets.
Also amended in the March 14 legal notice is the definition of local investors to include "individuals" and "body corporates registered under any written law of an East African Community State."
In the amendments passed in June last year, the Act only recognised East African individuals as natural persons, but failed to recognize East African Community partner States or a corporate persons incorporated or registered in any East African Community partner states.
The oversight presented a problem for the Safaricom IPO legal advisory team, who gave their own interpretation of the statute in the Safaricom IPO prospectus: The prospectus identifies East African Community partner states as including Kenya, Uganda, Tanzania, Rwanda and Burundi.
"Citizens of those States and corporate persons incorporated or registered in those States, in which citizens of those States hold one hundred per cent of the beneficial interest should therefore declare their status as local investors and provide supporting evidence," reads the prospectus.
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NSE chief executive Chris Mwebesa says that the amended foreign investor regulations effectively bar public companies from selling any shares to foreigners in excess of the 75 per cent limit, but will not apply retroactively.
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