1
CS. Nicholas Letting’
Chairman
Institute of Certified Public Secretaries
Of Kenya (ICPSK)
December 17-19, 2015
The 43rd National Convention of Company Secretaries
Institute of Company Secretaries of India
New Delhi, India
Outline of Presentation
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
ICPSK
About ICPSK
Introduction
Nairobi Securities Exchange
Products and Services at NSE
Listing Incentives
Listing Requirements in Kenya
Eligibility Requirements for Public Offering of Shares and
Listing
Continuing Obligations
Highlights on corporate governance regulations
Capital Markets Authority
Statutory Objectives of CMA
Regulatory Model
Investigative Powers of CMA
Enforcement Powers of CMA
Conclusion
2
About ICPSK
• The Certified Public Secretaries of Kenya Act 1988 (Cap
534) established the Institute of Certified Public
Secretaries of Kenya (ICPSK) and the Registration of
Certified Public Secretaries Board (RCPSB).
• The membership of the Institute has continued to grow
since the inception of the Institute and now stands at
3,000 members.
• The mandate of the Institute is to promote good
governance in both private and public Institution. Key
among the recent achievements include development
of:
 Code of Governance for Private Organizations
 Code of Governance for State Corporations
 Governance Audit Framework
ICPSK
3
Introduction
•
•
•
In Kenya, the Capital Markets are regulated by
the Capital Markets Authority (CMA) which is
established under Capital Markets Act
(Chapter 485A, Laws of Kenya) (“the Act”).
The Nairobi Securities Exchange (NSE) is the
only Securities Exchange in country.
All listed Companies on the NSE are required
to engage services of a Company Secretary
who must be a member of ICPSK.
ICPSK
4
The NSE
5
Direct Financing
LOCAL AND
INTERNATIONAL
P.E FIRMS AND
INSTITUTIONAL
INVESTORS
COMPANIES
LISTED ON
THE NSE
CMA
(Regulator)
Regulation
Equity
Investments
RETAIL
INVESTORS
Share
Immobilization
Savings
through The
Capital
Markets
NAIROBI
SECURITIES
EXCHANGE
CDSC:
CENTRAL
DEPOSITORY
ADVISORS:
IB/Nominated
Advisors/Brokers/Lawye
rs/ Accountants/
Financing through
capital markets
Share
Immobilization
NEW
PROJECTS
Products and Services at NSE
1. Shares
2. Bonds
3. NSE Real Estate Investment
Trusts Market Segment;
4. NSE Derivatives Market;
5. Exchange Traded Funds.
ICPSK
6
7
Listing Incentives
INVESTOR
COMPANY
STAMP DUTY
Exemption of stamp duty and
VAT on the transfer of listed
securities
No stamp duty payable on
share capital or increase in
share capital of a company
listed on the exchange
TAX INCENTIVES
Kenyans and members of the
EAC pay a withholding tax of
5% on dividends. Foreigners:
7.5%
•40% issued share capital
listed – tax rate 20%(5yrs)
•30% issued share capital
listed – tax rate 25%(5
years)
•20% issued share capital
listed – tax rate 27%(3
years)
LEGAL COSTS
Legal and other incidental
costs relating to introduction
is corporate tax deductible.
8
Listing Incentives contd.
INVESTOR
IPO COSTS
Tax deductible.
Therefore leaving more
value to shareholder
Capital Gains Tax
Suspended for listed
companies
ESOPS
COMPANY
Tax deductible
CIS set up by employers
on behalf of employees
to invest in listed shares
is exempts from income
tax
Listing Requirements in Kenya
•
•
9
The NSE offers Company’s an option to
either list on:
 The Main Investment Market Segment
(MIMS),
 The
Alternative Investment Market
Segment (AIMS) or
 The Growth Enterprise Market Segment
(GEMS).
Each of the above category has its own
listing requirements.
ICPSK
Eligibility Requirements for Public Offering
of Shares and Listing
Requirement
MIMS
AIMS
GEMS
Incorporation
status
Must be a public
company limited
by shares and
registered under
the Companies
Act
Must be a public
company
limited by shares
and registered
under the
Companies Act
Must be a public
company
limited by shares
and registered
under the
Companies Act
Minimum
Kshs 50 million
Authorized and
fully paid up
share capital
Kshs 20 million
Kshs 10 million
Net Assets
before the
offer
Kshs 20 million
Not less than
100,000 shares in
issue
Kshs 100 million
10
Cont’ Eligibility Requirements
Requirement
MIMS
AIMS
GEMS
Free
Shares to be listed
transferability must be freely
of shares
transferable
Shares to be listed
must be freely
transferable
Shares to
be listed
must be
freely
transferable
Availability
and reliability
of financial
records
Must have audited
financial statements
in compliance with
IFRS which are no
more than four
months old
Must have audited
financial statements
in compliance with
IFRS which are no
more than four
months old
-
Accounts must have
been prepared on a
going concern basis
and should not have
emphasis of matter
or qualification
Accounts must have
been prepared on a
going concern basis
and should not have
emphasis of matter
or qualification
-
Cont’ Eligibility Requirements
Requirement
MIMS
AIMS
GEMS
Competence
and suitability
of directors
and
management
As at date of
application and two
years prior, no
director shall have
any petition under
bankruptcy, any
criminal
proceedings, any
ruling that has
prevented them
from being directors
As at date of
application and two
years prior, no
director shall have
any petition under
bankruptcy, any
criminal
proceedings, any
ruling that has
prevented them
from being directors
As at date of
application and
two years prior, no
director shall have
any petition under
bankruptcy, any
criminal
proceedings, any
ruling that has
prevented them
from being
directors
Issuer must have at
least a third of the
Board as nonexecutive directors.
Issuer must have at
least a third of the
Board as nonexecutive directors.
Must have a
minimum of five
directors, with a
least a third of the
Board as nonexecutive directors
Cont’ Eligibility Requirements
Requirement
MIMS
AIMS
GEMS
Competence
and suitability
of directors
and
management
Must have suitable
senior
management with
relevant
experience for at
least one year
before listing
Must have
suitable senior
management
with relevant
experience for
at least one year
before listing
A third of the directors
must have completed
the Directors Induction
Program before listing
and the rest must
complete the same
within six months after
listing.
Must not have
committed serious
offences so that it
may be
inappropriate for
them to manage a
listed company
Must not have
committed
serious offences
so that it may
be inappropriate
for them to
manage a listed
company
Must not have
committed serious
offences so that it may
be inappropriate for
them to manage a listed
company
Retain senior
management for
at least one year
Retain senior
management
for at least one
year
Retain senior
management for at least
one year
Cont’ Eligibility Requirements
Requirement
MIMS
AIMS
GEMS
Dividend Policy
The issuer must have The issuer must have a
a clear future
clear future dividend
dividend policy.
policy.
-
Track record,
profitability and
future
prospects
Must have declared
profits after tax in at
least three of the
last five years
Must have been in
existence in the same
line of business for a
minimum of two years
one of which should
reflect a profit with
good growth potential.
-
Solvency and
adequacy of
working capital
Issuers should not be
insolvent and have
adequate working
capital
Issuers should not be
insolvent and have
adequate working
capital
Issuers should
not be
insolvent and
have
adequate
working
capital
Cont’ Eligibility Requirements
Requirement
MIMS
AIMS
GEMS
Share
ownership
structure
Following the IPO, at
least 20% of the
shares must be held
by not less than 1,000
shareholders
excluding employees
of the issuer
Following the IPO, at
least 20% of the
shares must be held
by not less than 100
shareholders
excluding
employees of the
issuer
The Issuer must
ensure at least
15% of the issued
shares are
available for trade
by the public.
Certificate of
comfort
If issuer is licensed by
any regulator the
Authority shall obtain
a certificate of no
objection from the
relevant regulators.
If issuer is licensed
by any regulator the
Authority shall
obtain a certificate
of no objection from
the relevant
regulators.
Listed shares
to be
immobilized.
-
-
All issued shares
must be deposited
at a central
depository
Continuing Obligations
After they have been listed, Companies are
required to:
• the shareholders are aware of the major
developments in the company
• Help shareholders to make informed
decisions regarding their investment in the
company
• comply with the continuous obligations
• Immediately disclose any development
that will lead to change in the financial
position of the company or movement of its
share prices
Continuing obligations
• Issue cautionary statements where the
happening of an event could lead to
material movements in prices
• Inform NSE and CMA on announcement of
dividends within 24 hours following the
board resolution
• Pay Dividends declared within ninety days
from date of books closure for interim
dividends or ninety days after shareholder
approval for final dividends
Continuing obligations
• All interim and audited accounts to be
prepared in accordance with IFRS
• Interim reports to be prepared and
published within two months while audited
to be prepared and published within four
months
• Every issuer to notify the exchange and the
CMA within 24 hours after the approval of
the accounts by its board of directors
• Every issuer to hold an AGM within six
months after the end of the financial year
Continuing obligations
• Make a public announcement where there
are any changes relating to its capital
structure
• File with CMA the shareholding structure
indicating the top shareholders of the
companies and significant changes in
shareholding in the company
• Issue a 21 day notice for a shareholders
meeting
• Always comply with the corporate
governance regulations
Highlights on corporate governance
regulations
• Every issuer must establish an audit
committee of the board
• Directors not to hold more than five
directorship positions in listed companies at
the same time
• A chairman of a company not to hold more
than two such positions in the listed
companies at the same time
• Company secretaries to be members of ICPSK
• Chief Finance officers or heads of finance to be
members if ICPAK
• An auditor of a listed company should be a
member of ICPAK
The CMA
•
•
21
CMA is Charged with the prime responsibility
of developing and regulating a fair, orderly
efficient and transparent Capital Markets
In that regard, it facilitates capital formation
and therefore needs to balance between
needs of business to raise capital and the
needs of the investors to be protected when
they provide capital
ICPSK
Statutory Objectives of CMA
 Development
22
of all aspects of the capital
markets.
 Facilitate existence of a nationwide system
of stock market and brokerage services to
enable wider participation of the public.
 Facilitate use of electronic commerce for
capital markets
 Creation, maintenance and regulation of an
orderly, fair and efficient securities market
 Operation of compensation fund to protect
investors from financial loss due to failure of
a licensee.
 Protection of Investor Interests.
Regulatory Model
•
•
•
23
In its regulatory role, CMA uses a disclosure
based approach where it sets down minimum
disclosure obligations to ensure that the investor
has adequate information to make an informed
decision.
In this approach, CMA as a regulator does not
take any responsibility for the investment
decision.
To ensure that the disclosed information is
reliable, liability is imposed for the disclosure of
false or misleading information.
ICPSK
CAPITAL MARKET PRODUCT STRUCTURE IN
KENYA
Equity markets
(EMs)
Debt market
(DMs)
24
Derivatives markets
(DVs)
 Already in the market
•
Not yet launched
 In the pipeline
MARKET LICENSEES
Licensed/Approved institutions
1.
2.
Securities Exchange (NSE)
Central Securities Depositories(CDSC)
3.
4.
Investment Banks
Stock Brokers
5.
6
7.
8.
9.
10.
11.
12.
13.
14.
15.
REIT managers
REITs Trustees
Investment Advisers
Fund managers
Collective investment schemes
Authorized Depositories
Credit Rating Agencies
Venture Capital Companies
Dealer
ESOPs
Authorized securities dealer
Total
25
*30Th September 2015
1
1
14
9
7
3
17
25
20
14
3
1
2
11
1
129
STATE OF THE KENYAN CAPITAL MARKETS AS AT 2015
OCTOBER- PERFORMANCE
26
• The NSE20 share index as at November 2015 stood at 4017 points
down from 5,212 index point in January 2015.
• Reflection of a number of macroeconomic factors.
• Market capitalization stood at 1,930.81 bln in October 2015 while
equity turnover as at October 2015 stood at Kshs. 181.12 billion.
• The NSE index return as at the end of 2014 was 5113. NSE was best
performing market in Africa and third best globally in 2013 with an
index return of 44%.
• As at October 2015 the bond turnover was at 263.71 billion.
Annual bond turnover in 2014 was. 506.05 billion, as compared to
Kshs 452.5 billion annual bond turnover figures in 2013.
• As at October 2015 equity turnover stood at Kshs. 181.12billion.
Annual equity turnover in 2014 was 215.7 billion, as compared to
Kshs 155.7 billion annual equity turnover figures in 2013.
27
2,600.00
Market Capitalization Levels Jan 2014 to November 2015
2,500.00
Market capitalization
2,400.00
2,300.00
2,200.00
2,100.00
2,000.00
1,900.00
1,800.00
Date/Year
28
NSE 20 share index Trends Jan 2014-October 2015
Market Capitalization Levels
5,600.00
5,200.00
4,800.00
4,400.00
4,000.00
Date/Year
29
FUND RAISING CAPACITY OF THE MARKET
• Kshs 3.4 trillion raised through Kenyan
capital markets in the last 10 years: bonds
and equities
• Over Ksh 550 billion raised in the last 6
years notwithstanding the global financial
crisis
• Eurobond
success
demonstrates
absorptive capacity outside Kenyan
borders-highest
subscription
level
in
Africa’s history (500%)
30
ABSORPTION CAPACITY
Bonds
31
2015* 2014
2013
2012
2011
2010
2009
2008
2007
2006
263.71 506.1
453.7 194.5
228.6
373.5
316.9
98.9
146.9
130.3
-
-
-
-
-
4.32
Additio
nal
Offers
-
-
-
TOTAL
2578.72
4.32
Equity
-
(POs)
-
1.23
0.7
-
-
-
1.93
Equity
4.79
0
0
5.1
0
0
271.4
10.5
35.6
(IPOs)
Total
327.39
263.71
510.8
453.7 195.7
233.7
*As at October 2015
**Bonds figures are for total received
374.2
316.9
370.3
157.4
170.2
2,782.99
32
THE PILLAR BEHIND THE CAPITAL MARKETS
STRATEGIC DIRECTION IN KENYA
“THE CAPITAL MARKETS MASTER PLAN”
Summing up the overarching aspiration
33
•
Deep capital markets that support domestic
economic development under Vision 2030
•
The gateway for regional and international
capital flows into and from Middle Africa
34
35
IMPLEMENTATION ROADMAP
Approval by CMA
Board and
Exposure
to the public
CMA
Approval and
Launch of the
Master Plan
Cabinet Secretary,
National Treasury
Implementation of
recommendations
CMA
Relevant
government
agencies
Relevant market
institutions and
participants
Monitor progress
Update
Master Plan
Report
progress
Implementatio
n Committee
and Industry
Working
Groups
36
• CMMP National Steering Committee
•
•
•
•
•
•
•
•
CS, National Treasury – Chairman
CS, Ministry of Agriculture, Livestock and Fisheries;
CS, Mining;
CEO, Capital Markets Authority;
Governor, Central Bank of Kenya;
Attorney General;
CEO Communications Commission of Kenya;
Secretary, NESC
37
• CMMP Implementation Committee
•
•
•
•
•
•
•
•
CEO, Capital Markets Authority - Chairman;
Rep. National Treasury;
Rep. Central Bank of Kenya;
Rep. Vision 2030;
Rep. Development Partners;
Rep. Academia;
Corporate Governance Practitioner
Rep. Industry
38
• 4 CMMP Working Groups
•
•
•
•
Government Institutions:
NSE, CDSC, market practitioners
Academia
Industry associations (Fund Management, CIS, KASIB, Lease
Finance and other markets participants)
• The WGs are:
•
•
•
•
Supporting the domestic economy
Financial markets
Legal and Regulatory
Regional and International
39
• Launch of the plan – 21st Nov. 2014
• Appointment of the CMMP Implementation Committee
(CMMPIC) – January 2015
• Constitution of the Working Groups – February 2015
• Launch of WG 2 – March 2015
• Gazettement of the National CMMP Steering Committee
– March 2015
• Meetings of CMMPIC – from April 2015
• Various stakeholder engagements
• Inaugural National Steering Implementation Committee
meeting held in October 2015.
40
Upscaling the scope of Risk Based Supervision;
Demutualization and Self Listing of the NSE;
Approval of NSE as a Derivatives Exchange;
Review of the Legal Framework in line with IOSCO
principles;
• Development of a harmonized legal and regulatory
framework for the EAC capital markets;
• Introduction of international certification standards in
Kenya’s capital markets industry;
•
•
•
•
• Module One of Certification completed in collaboration
with CISI. CMA pilot staff and trainers completed exam. Full
implementation to begin in January 2016
• Overhaul of the Corporate Governance Framework and
Development of a Stewardship code.
41
• Securities settlement through Central Bank
of Kenya;
• First REIT approved in October 2015;
• Final policy guidance note on Exchange
Traded Funds Issued;
• Joint Financial Sector Regulators Project
Management Office (PMO) for the
development of Islamic Finance Markets
in Kenya.
42
• The introduction of fiscal incentives to
support the roll out of REITS and ABS;
• Reduction of the NSE trading participant
admission fees from Ksh250 million to Ksh25
million to lower barriers to market access;
• Initiatives to enhance market liquidity
through Securities Lending and Borrowing,
Margin Trading, and Short-Selling;
All introduced in the Finance Act (No. 14 of
2015),
43
• Authority
continues to implement a multi-tier
Investor Education and Public Awareness Strategy
that includes among others, several County
engagements:
• 17 Counties have already been covered with various
target groups such as gender, youth, issuers,
intermediaries learning institutions
• Finalized a policy paper on County securitization;
• CMA institutional capacity development ongoing.
Investigative Powers of CMA
44
Investigative powers includes:
 To investigate upon request or in its own motion
 To request and direct submission of information
 To summon witness and suspects
 To take statements under oath or affirmation
 To enter, search and seizure
 To Trace assets of persons found to have engaged
in fraudulent dealings in securities
 To order caveats pending investigation
 To appoint an auditor to undertake a specific audit
Enforcement Powers of CMA
45
Enforcement powers includes:
 Levy financial penalties
 Order a person to remedy or mitigate the effect of
the breach, make restitution or compensation
 Publish findings of malfeasance by any person
 Issue a public reprimand
 Suspend trading of the shares of the listed
company for a specified period
Enforcement Powers of CMA
46
Issue restrictions on the use of a license
 Recover an amount equivalent to twice the
amount of the benefit accruing to the person in
respect of the breach
 Revocation of the license
 Issue Directives like cease and desist
 Disqualification of a person from appointment as
Director of a licensee, listed company or securities
exchange
 To intervene in the management of a licensee
through appointment of statutory managers
 Remove any officer/employee of the Licensee
 Power to prosecute upon request to the DPP

Enforcement Powers of CMA
47
Issue restrictions on the use of a license
 Recover an amount equivalent to twice the
amount of the benefit accruing to the person in
respect of the breach
 Revocation of the license
 Issue Directives like cease and desist
 Disqualification of a person from appointment as
Director of a licensee, listed company or securities
exchange
 To intervene in the management of a licensee
through appointment of statutory managers
 Remove any officer/employee of the Licensee
 Power to prosecute upon request to the DPP

Conclusion
ICPSK
48
49
Institute of Certified Public Secretaries of Kenya
(ICPSK)
CPS Governance Centre,
Kilimanjaro Road, Off Mara Road,
Upper Hill
P.O. Box 46935 00100,Nairobi.
Tel.: +254 20 3597840/2 / +254 734603173, +254
770159631
E-mail: info@icpsk.com
Website: www.icpsk.com
ICPSK