Uchumi contacts RSE as local firms shy away

Uchumi supermarket is set to become the third regional entity after Nation Media Group and Kenya Commercial Bank to float its shares on the Rwanda Stock Exchange (RSE).Its management headed by the Group CEO, Jonathan Ciano, held advanced talks with RSE regulators last week, and a formal application to cross-list on RSE is expected in coming weeks, according to both Uchumi and RSE officials. It will also take less than two months before they officially cross-list on the local bourse, the officials added.“When Uchumi announced last year that they planned to go regional, I was asked whether they would be coming but I did not know. The most I could say was that since the issue was approved by the annual general meeting, it is an intention and definitely they will come,” Robert Mathu, the Executive Director of Rwanda Capital Market Authority (RCMA), said.“We are very happy because our intention is to grow our capital market in terms of products. One of our growth strategies is to increase the number of cross listings.”Uchumi, however, experienced tight financial hardships in the past, a history which may affect its reception in the growing capital market atmosphere of Rwanda.Due to a loss-making streak experienced in the past decade, Uchumi was placed under receivership in 2006, and it was later de-listed from the Nairobi Stock Exchange (NSE).These should not worry interested Rwandan shareholders as the company has since bounced back to profitability, according to Ciano.“Between 2005 and 2006, Uchumi owed Ksh2b to suppliers, banks and employees. When I reopened Uchumi in July 2006, we experienced a turn-around, which has benefited the institution’s stability,” he said.“We now have 3,000 employees up from 600 and we got three medals from the tax authorities for being exemplary tax-payers. We have also increased our branches from 14 to 29, entered the Tanzania market and turned the company to profitability and this is now the fifth year we are profitable. We also declared $1m dividends last year and have paid all our debts.”Due to the turnaround, Uchumi was readmitted to the Nairobi Stock Exchange in 2011 and its share price multiplied from Ksh9 to an average of Ksh21. Ciano said 100 million shares will be up for grabs. He, however, did not disclose how much Uchumi wanted to gain from the IPO, stating that, “the market price will determine how much the company will raise.”The company also plans to open four branches in Rwanda.Little interest from local firmsThough several regional firms have expressed desire to cross-list on RSE, local companies have not shown interest, leaving Bralirwa and Bank of Kigali as the only flag bearers.Whereas Mathu attributes this lack of interest to the fact that the capital market is a new phenomenon in Rwanda, he also believes that many local companies lack the structures demanded by the capital market.“The key challenge faced by local companies is their state of preparedness. The capital market is a new market in Rwanda but you also find that the governance structures demanded by the capital market are of higher standards,” Mathu said.“They have to meet the minimum requirements of the corporate governance code such as the type and number of directors as well as capital size. But many local businesses are family-owned and are traditionally used to dealing with one lawyer and one accountant for many years, so going public becomes a challenge.” To address this challenge, Mathu said a new window through which SMEs can join the capital market will soon be launched on the bourse.Why cross-listed firms have low business Trading on the RSE has for the past few years been dominated by the two local companies, Bank of Kigali and Bralirwa.On the other hand, the cross-listed companies, Kenya Commercial Bank (KCB) and Nation Media Group (NMG), shares trade slowly.Celeste Rwabukumba, the co-ordinator of RSE attributes this to low awareness, as well as challenges in the clearing and settlement mechanisms between regional markets.“People think that because KCB Rwanda made a loss last year, then it is not wise to buy their shares. But they are not aware that it is listed here as the whole KCB Group, which made billions in profits and is in the top three banks in Kenya. The entire KCB floated in Nairobi is the same as what is here,” Rwabukumba explained in an interview with Business Times.He said local investors find Nation Media Group (NMG) shares expensive, a factor that has made the firm unattractive, he noted.“NMG share price on the Nairobi Stock Exchange are about Rwf1,900 compared to about Rwf1,200 on the RSE. KCB shares are at Rwf169, but the same share costs about Rwf300 on the NSE,” he explained.Founded in 2011, RSE is Rwanda’s principal stock exchange operated under the jurisdiction of RCMA.