allAfrica.com: Kenya: Too Much Hype Over IPOs in the Market (Page 1 of 2)

The increasing frequency and size of IPOs have led people to believe so much in shares that they will ignore many other opportunities that exist in the capital market - where those looking for capital for their businesses hope to meet those looking for areas to invest in.

Financial managers say that after the conclusion of the Safaricom IPO, investors are likely to find other instruments besides shares more attractive after the month of June when refunds from the sale are expected to be given thereby providing liquidity that can drive demand up.

The analysts further point out that there is already a reality check on the property market. Evidence is slowly coming in to the effect that the real estate sector is experiencing a glut and that property prices can only fall. The number of house plans submitted to the Nairobi City Council has fallen and total value of funds banks have put into the sector is falling. For some investors, it is time to begin looking for alternatives.

And such instruments as unit trusts - which are funds pooled from a number of investors with a view to maximising the returns through a single management - are increasingly being launched by fund managers and investment banks.

Treasury bonds and bills are similar but the former is of longer period while the latter is for up to six months with both issued by the government at a fixed-income rate.

The other instrument in the capital market is commercial paper which is very similar to an overdraft but is in this case issued by any company looking for funds for a duration of up to one year. The returns on the fixed income instruments is typically above seven per cent but has a maximum of mostly 10 per cent or thereabouts.

The bonds that have recently traded were at a return of mainly 10 per cent, which approaches the 9.4 per cent for commercial paper on offer. That is to say that an investor putting in a worth of say Sh10,000 in a bond could hope to earn an extra Sh1,000 per year or Sh9,400 for commercial paper. But the situation is still complicated for unit trusts because there is little investor education about the product. Many investors appear still hesitant to enter the scheme as they do not have enough information about them. Some would want to be sure that it is not the same thing as a pyramid scheme.

Many of the firms that have entered the business of pooling investors' funds in unit trusts have done so in the belief that many people who don't have enough time to follow developments at the capital market can entrust them with that role.

"We are able to free the investor from being bothered with what is happening at the capital market or having to do the analysis for themselves every day," says Mr Isaac Njuguna, head of investment at Zimele Asset Management.

He said that their unit trust had received many enquiries and commitments indicating that it had accumulated a fund of over Sh500 million in just about a year.

One factor that has helped Zimele increase the size of the trust at a fast rate is the low level of the minimum investible amount put at Sh5,000.

Suntra Investment Bank has just launched its unit and sees it as a fast-growing investment method. It has put the minimum investment at Sh100,000. Mr James Murigu, the managing director of Suntra, believes that unit trust is the way to go because of the vagaries of the stock market and the fact that an investor leaves professionals to be in charge of his portfolio.

Old Mutual Asset Management reduced its minimum investment cash to Sh200,000 from half a million last year. Even with that reduction, it is still perceived as a rich man's fund and not for the small-time investor who can hardly raise more than Sh50,000.

This fact was dramatically demonstrated when AccessKenya put the minimum subscription fee for the IPO at the Sh50,000, and the number of investors who were able to apply reduced by a factor of 10 compared to the 250,000 shareholders who eventually came to own KenGen shares where an investor only needed to put in Sh5,950 to get some allocation.

Despite the fact that opportunities exist for individuals to invest in the money and other markets, very few have taken the initiative. A key major reason is that only those of high networth have the financial outlay for such investments.

For example, the minimum investment for a corporate bond - through which a company or organisation borrows from the public (including institutions and individuals) and gives holders of the paper a promise to pay with some interest typically pegged to the government borrowing instruments - is one million shillings. With most investors still unable to invest more than Sh50,000, such figures might be considered too huge for them.

The same goes for commercial paper - used in a similar manner to an overdraft from bank - where the minimum investment is Sh1 million. In Capital Markets Authority (CMA) data for year 2006, for example, individuals only took about 4.43 per cent of the stock of eight CP issues outstanding in that year.

web allafrica.com	Enter your search terms	Submit search form
OR subscribers use AllAfrica's premium search engine


Use our pull-down menus to find more stories