Local companies ought to emulate KCB

Kenya Commercial Bank (KCB) has officially applied to cross-list two million shares on the Rwanda Over The Counter (OTC) market. If the Capital Market Advisory Council (CMAC) board approves the application, KCB will be the first company to have its shares listed on the Rwanda bourse. Government has in the past promised to float shares it owns in some of its parastatals, in order to support the development of a fully-fledged stock exchange in the country but also to implement its privatisation strategy. However, the promises have not materialised as yet. KCB cross-listing speaks volumes about the confidence entrusted in the Rwandan investors, but it is also a big challenge to local companies which are still hesitant about raising capital through the stock market. Definitely KCB cross-listing is not for raising fresh capital for the company, but the benefits of cross-listing are very significant. Publicly listed companies are said to be typically worth more than similar companies that are privately held. This is mainly because companies quoted/listed on the stock exchange make their annual reports public, which reduces the level of misgivings around performance, hence increasing the value of the business in the public eye. Through other continuous disclosures to the stock exchange regulators, the visibility of the company is increases. In terms of liquidity—the ability to easily buy and sell the shares, investors are always willing to pay a premium for liquidity. This means that the stock exchange acts as an exit window for investors who want to sell off their shares. Public companies offer motivation to management and employees through the use of incentives like stock options and stock bonuses. Such incentives offer equity-based awards and ownership, allowing management and employers to buy shares into them.Besides raising capital from the public, listed companies have the ability to access many alternative sources of capital at better rates. In case of issuing a corporate bond to access the public debt market, it becomes easier for public companies than to companies without a listing. And going public generally improves a company’s debt to equity ratio, which may enable it to borrow on better terms in the future. Studies show that companies that have gone public are able to borrow more cheaply after their Initial Public Offering (IPO). Banks are always willing to lend to a company increases after its flotation. Besides there are some tax incentive for listed companies. Ends