Rwanda Focus (Kigali)

27 January 2013

Rwanda: BK, Bralirwa Shares Dominate Sluggish Stock Exchange

Ask Celestine Rwabukumba which one of the two companies whose shares are currently the most sought after on the Rwanda Stock Exchange (RSE)--Bank of Kigali or Bralirwa--he would advise you to invest in, the coordinator of RSE will say "buy both."

Reason? Both companies are doing very well on the market and a shrewd investor, with enough cash to invest, would certainly want to reap from the two.

There is however, more to it. Even though Rwabukumba will not say, it is common knowledge that the two companies are market leaders in their line of business with Bralirwa being the biggest beer brewer and beverage company while Bank of Kigali (BK) is the largest commercial bank by total assets and market share. So the prospects are quite good.

In financially literate markets, this and more good news from the companies such as very healthy balance sheets would indeed drive their share prices to sky-high.

This has not happened but the little and steady appetite for BK and Bralirwa shares is a sign of growing financial literacy. BK recently announced net profit of Frw8.9 billion for the 9 months of 2012 but had little impact on the price of its shares. Rwabukumba rightly blames this on lack of sophistication where investors don't look at fundamentals, but make decisions based on perceptions.

Last year saw about 103.5 million shares traded in 1,633 deals dominated by BK and Bralirwa. The bank toped trading with 71,642, 200 shares traded followed by Bralirwa with 31,841,700.

There was no activity at the cross-listed Nation Media Group (NMG's) counter without a single share exchanging hands all through the year while the share price staying unchanged at Frw 1,200 to date.

KCB, a leading commercial bank in the region and listed on the Nairobi Stock Exchange and Uganda Stock Exchange attracted minimal trading on the local bourse with just 13,000 shares changing hands. This is a sign of a generally low appetite for shares in cross-listed companies on the RSE.

The reasons for this situation emanate from a combination of factors such as lack of basic knowledge about financial markets and poor settlement infrastructure that does not allow easy cross-border transactions. For example, for a local investor in Kigali to buy shares of KCB or NMG, there has to be a willing seller in Nairobi. The buyer will have to use the usual money transfer mechanisms via banks with all the exchange rate or conversion losses involved.

According to Rwabukumba, the answer to this is an electronic system to interlink the stock markets and make it possible for a Rwandan to buy KCB shares in Kigali and be able to sell them any time in Nairobi or Kampala online.

Financial illiteracy

Yet even some modest achievements in past two years RSE has existed, it is not yet time to celebrate as intense public education is need to create awareness about capital markets.

"People still don't understand financial markets. So, public education has to intensify," said Rwabukumba. This lack of awareness is not only limited to the public that has not known the advantages of investing in listed companies, but cuts across the business community that is yet to appreciate capital markets as cheaper sources of finance.

Those who own businesses know only one source of capital, commercial bank loans. Listing shares, selling commercial paper or issuing corporate bonds are not options businesses here want to use. However, as bank loans become expensive, it is time for businesses to start looking at capital markets for finance capital.

Robert Mathu, the executive director Capital Markets Authority (CMA)--the regulator--says work is on to ease the process of listing on the RSE for small and medium enterprises that form the bulk of Rwanda's business sector.

CMA is planning to create "an alternative investment market" that will not require SMEs to adhere to the more strict and stringent requirements of listing on the RSE. "There are other avenues, such as issuing of bonds, through which SMEs can borrow. They don't have to be listed [on the Rwanda Stock Exchange]," Mathu said during a recent public event.

In order to bring in more products onto the market, SME must be encouraged to borrow from the capital markets. "Given the numbers of SMEs and their capital needs, there is enormous potential for increased capital market activity through SME capital-raising effort," Mathu added.

Yet it is not all about having more listed companies that will make the capital markets vibrant. Deeper public awareness is still lacking and this is impacting negatively on the growth of capital markets.

With a total turnover of about Frw18.2 billion, the RSE with only 4 listed companies; BK, Bralirwa, NMG and KCB closed 2012 on a positive note with total market capitalization of about Frw 11 trillion.

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