What is the state of the local capital markets? At five years, is the Rwanda Stock Exchange ready to be the platform of choice for firms and governments to raise development capital? And what became of the much-talked about municipal bonds and alternative market segment at the local bourse? Business Times’ Stephen Nuwagira, Appolonia Uwanziga & Anitha Kirezi caught up with Robert Mathu, the Capital Market Authority chief, on April 2 to discuss these and other issues concerning the local and regional stock market sectors. 

Over the past two years, government increased the drive aimed at attracting Rwandans to use the local bourse as an investment vehicle and an avenue for firms to raise affordable development finance through public offerings. Though few firms have come to the Rwanda Stock Exchange, the government has been able to attract a cross-section of Rwandans, including Umurenge SACCOs, to invest in its quarterly Treasury bond issues.

The TB issuances have all been oversubscribed boosting government efforts to raise funds for infrastructure development and support the capital market, as well as demonstrate that the bourse presents businesses immense opportunities to mobilise funds.

It is, therefore, timely that as regional exchanges prepare to harmonise operations, the Rwanda Stock Exchange is working hard to start automated trading.

Robert Mathu, the local Capital Market Authority (CMA) boss, says the bourse would switch from the current manual trading platform to an automated platform "in the next couple of months”. This will be a huge move for the Rwanda Stock Exchange (RSE) whose central deposit (e-share file) is the only automated infrastructure. "We are looking to automate our trading platform, but we have automated settlement. Only the trading platform is still manual as of now.”

The Nairobi Stock Exchange, the Uganda Securities Exchange and the Dar es Salaam Stock Exchange all have automated trading platforms. The local exchange is just over five years old, having started in January 2011, but its central depository (e-share file) was fully automated from the beginning. Mathu says the initiative is part of the strategies to make the RSE efficient and more competitive in the region. RSE move however calls for more skills development among stakeholders, especially dealers and brokers who are involved in daily trading activities at the bourse. Mathu says the regulator is working on more initiatives to spur the growth of the local stock market, and help diversify its product offerings.

"We want to use the nature of our laws to make Rwanda the platform of choice for local and regional firms to raise long-term development finance. Already, we have diverse products to choose from, not only Treasury Bonds or shares, including asset backed bonds, and REITs (Real Estate Investment Trusts). He says already three REITs are discussing with CMA on possibility of listing on the alternative market.

He adds that after putting in place the Rwanda National Investment Trust (RNIT) last year, they are hopeful the trust will launch the first fund this year. There are currently seven firms listed on the RSE, three local firms – Bank of Kigali, Bralirwa, and Crystal Telecom – and four cross-listed counters, NMG, Uchumi Supermarkets, KCB, and Equity Bank.

EAC exchanges’ integration good for local money market sector

Commenting on the ongoing EAC exchanges infrastructure integration initiatives, Mathu says harmonisation is very important to ease movement of capital and skills, and "will definitely benefit Rwanda’s young stock exchange.”

Integration is also essential to raise capital for regional projects, like the oil pipeline and the standard railway gauge (being undertaken by the Northern Corridor member states – Rwanda, Uganda, and Kenya, he notes.

Presently, all the five EAC exchanges are working on a project to harmonise regional exchanges’ infrastructure, which is expected to create more interest among East Africans to trade and invest in shares and other financial instruments.

When it implemented, investors will be able to buy shares from any exchange across the EAC. It will also make clearing and settlement of transactions across the region easier and more efficient, Mathu says.

First SME to list

Meanwhile, the regulator says the first SME could finally issue an IPO to list on the alternative market segment by the end of the year. Mathu says the firm was expected to submit its application by last Friday.

"We have been having discussions with three companies, but one firm from the transport and communications sector is ready…in fact we have been expecting them to bring their documents today (last Thursday). We are still waiting (on Friday) and are optimistic they will come.”

He reveals that the CMA is currently sensitising and engaging Private Sector Federation members belonging to Golden Circles with a view of attracting them to list companies on the main or alternative markets of the Rwanda Stock Exchange. The Golden Circles is composed of leaders from the top companies from all the sectors of the economy.

"It is through these interactions that CMA was able to identify three firms interested in coming to the bourse, including the SME from the transport and communications sector that is expected to issue an IPO by the end of the year,” Mathu says. He says CMA is working hard to ensure the firm comes to the market to create confidence among other SMEs to list on the alternative market segment of the bourse.

Mathu notes that many local SMEs are reluctant to come to the stock market because they still fear disclosure laws because they are family-owned. He says the law calls for firms willing to list to institute management changes first, appointing at least one external director who is not a family member, and put their books in order. He adds that many SMEs are used to doing business in secrecy, especially when it comes to tax matters.

"The public must be aware of what they are going to invest in, that is why disclosure is a must to guide investors.”

Wait for municipal bonds

However, those who have been hoping to invest in municipal bonds will have to wait for a little bit longer for the first infrastructure bond from local governments. Mathu says the districts, especially the three City of Kigali districts – Gasabo, Kicukiro and Nyarugenge – are not ready. He says CMA, the Ministry of Local Government, and stakeholders, like IFC, are working with the local authorities to build their capacity to understand how to manage bonds in case they qualify to issue them. Government approved the law on municipal bonds about two years ago to pave way for infrastructure bond issuances to ease resource constraints faced by districts. All local governments depend on government funding to undertake infrastructure projects, among others.

Mathu explains that for districts to issue bonds they have to first identify viable infrastructure projects, streamline their financial management structures, and build the capacity of staff who will manage the bonds. They also need to show the potential of the project, how it will add value like job-creation.

The districts also have to be rated and assigned a credit rating by a recognised firm, which is yet to be done.

The CMA chief says the Local Government Ministry is in the process of selecting a credit rating company, noting that they will first ‘shadow rate’ the local governments and select those that will perform well for credit rating, and later prepare them for bond issuance.

Approved in March, 2014, the law on municipal bonds issuance aimed at creating more avenues where districts could raise capital through municipal bonds issues to implement infrastructure projects, like feeder roads, communal water and markets, instead of relying only on government funding for such developments.

Global slowdown could affect RSE in long-run

Meanwhile, Mathu says the current poor performance being experienced in the global economy could affect the local bourse, arguing that some of the investors in firms listed on RSE as offshore, might therefore react by ‘moving out’ if the local currency depreciates.

However, he says the regulator has safeguards for some of the shocks that help buttress trading and smoothen them. He says though markets in developing nations are not readily affected by events in the global economic arena, they are eventually hurt if the shocks persist.

Mathu says though Rwanda’s capital market is still young, it presents optimism and has been doing well. The local bourse capitalisation is more than twice as much as the national budget for this financial year at Rwf2.8 trillion as of Friday last week.

Management change delays I&M Bank listing 

On I&M Bank announced listing, the CMA chief says the process was stayed due to significant management change at the bank. "It was important for the new CEO to first study the listing before going public. However, I can confidently say I&M Bank will come to the market this year...though I cannot give specific dates,” he says. He notes that the process of getting transaction and legal advisers is ongoing, adding that a committee to manage the process has already been instituted by the Ministry of Finance. When they are ready, they will inform us, he adds. Government has 19.8 per cent shares in the bank that wants to divest through a public IPO, which was initially slated for October last year.

Why list on RSE?

Mathu says the bourse provides avenue for local and regional firms to raise long-term development capital that is not costly. He argues that most of the products provided by the commercial banks are short-term, making these loans expensive, which affects the borrower’s ability to expand. He says the challenges being faced by the hotel industry could have been a result of borrowing expensive short-term loans from banks, which they are now finding hard to repay. "If a firm meets listing requirements, they can come to the market and raise finance they need to expand and even pay off the bank.”

business@newtimes.co.rw