Rwanda; capital markets in 2012

Deepening to be key aspect of new 5 year plan for  Rwanda’s capital markets

With the end of the year, regulators at   Rwanda’s capital markets looks up to the marketís general  5 year growth curve   with a mixture of joy and deep reflection of how to manage  the next 5 years.

The joy aspect  comes when one looks at how skeptics have since  been proven wrong ever since the capital markets came into existence in Rwanda.

That was way back in 2007.Skeptics thought that the move was bound to be a non starter. Fast forward to the end of the year 2012.I am seated with Robert Mathu Executive Director of Capital Markets Authority(CMA) the market regulator  for an exclusive interview focused on looking  at the year 2012.Mathu starts off our discussion by  saying that the year registered three  important  milestones.

The success of the second domestic Initial Public Offer ( IPO) of Bank of Kigali (BK)  is one of the key highlights of this year. The other is continued efforts in activities of public education while another important highlight is the publication of the legislative framework  for governing activities of the capital markets, Mathu says.

The regulatory frameworks are required in order to implement the capital markets law something that should be able to provide an appropriate legal environment. The legal framework is the corner stone  of the operations of an efficient capital markets.

I am happy to say that so far 12 pieces of legislation was passed by parliament to provide this sort of guidance. Rwanda’s capital markets  regulations are highly harmonized with those  in the region due in part to the integration agenda. In other words it can be said that Rwanda’s capital market regulations   are mainly  guided by East Africa Community’s Common Market Protocol on capital markets.

Rwanda has looked at the best practices in order to harmonize with the region and coming from a clean slate in terms of developing a legal framework gives the local  capital market  a particularly unique  advantage since it does not suffer historical legacies  as is the case with other EAC capital markets.

Mathu adds that Rwanda Stock Exchange (RSE) has done pretty well for  young market.  Just close to the year RSE will be launching an index which will give performance  of instruments being traded  in a snap shot.

Our next point of discussion centered around the performance of the two local stocks Bralirwa and Bank of Kigali(BK).Mr Mathu’s  response  to my specific question based on some of  the perceptions from certain members of the RSE  about the performance of BK stocks  is guarded due in part to the fact that he is the chief regulator meaning no taking of sides.

However,the point of caution from  Robert Mathu is clear. That  as the chief regulator of the market  he counsels that  the public should not directly compare both stocks. One is a brewery and the other is a bank. When one talks about BK it is the biggest bank in Rwanda. BK operates in a very competitive market.

The market fundamentals for both stocks are totally different. However that does not mean that BK is not doing well. It is doing very well ,Mathu observes.

Mathu says that people should not forget the fact that at one particular moment,  Bralirwa stocks had taken a nose dive something that  is now   very different right now since the stocks are now rallying past Rwf 600. Stock markets require patience  since we are talking about raising long term  capital.

The maturity of Bralirwa stocks over time is a case in point. In the same breath,  the investing public should be patient with BK just the same way Bralirwa took time for it to mature, Mathu reflects. Mathu adds that the money invested  in RSE  is meant to stay in the market for long so that one can get a comfortable return.

One can say that those who are not feeling that BK has not performed  well are merely speculators. These are people who thought that they could come in and make a quick buck. People do that but the stock market is not about that.

My next question was about what other players in the market  considered  to be a huge disappointment as the year ended  with  lack of new listings as was originally expected.

There was anticipation which is still there. We faced a situation whereby we expected the BCR  IPO  as a case in point  but this particular bank was involved in a transaction that changed its ownership something that prompted the delay although  I can say that the IPO is still on course.

Regarding new cross listings, the feeling at the CMA is that  such activities  is taken as something that attracts  low business not only at the RSE  but in other bourses as well.

The underlying fact is that different markets are at different stages of growth.  In order to drive more business within the cross listed stocks, CMA thinks that more focus and energy should be directed towards  integration  of Rwanda’s  depository system with  those operated by other bourses in the rest of the region.

Once the depositories  start talking to one another transactions will be smoother and we shall see increased transactions across the regions. My next question turned to the CMA University Challenge the contest by CMA meant to take public education on capital markets to the countryís tertiary institutions. It was taken very smoothly and we are planning for another fresh contest next year. Knowing pretty well that I had  exhausted the major  issues of the year 2012 , I now turned to the CMA action plans for the next 5 years.ìWe are looking at more listings of say one company per year. More bonds are expected so that we can deepen the market.

We also expect to have a yield curve while expectations are high that a fund management industry will emerge, Mathu revealed.
Within the next 5 years Mathu added that all the outstanding laws and regulations are expected to be  sorted out in order to support the operations of the capital markets.

Another new focus as part of the public engagement  exercise will be to closely involve the private sector with intentions of interesting them to use the capital markets to raise long term funds. The programme  will focus more on what Mr Mathu referred to as a targeted campaign directed at certain potential companies.

We can use the list of top 100 SMEs  in Rwanda to interest them to use the capital markets to raise funds since there are many ways of doing that be it issuing shares or floating a bond. Already CMA has launched a report on how SMEs in Rwanda can raise long term capital. Mr Mathu’s parting short was somehow philosophical. Beyond  the uncertainities of the global economic environment I feel that Africa’s capital markets is coming of age and Rwanda is part of this process of growth.

Africa’s capital markets is starting to be more relevant vehicle for  funding huge infrastructure and related needs as the continent pushes on with its growth agenda. That way,  Africa’s stock markets will be able to make what amounts to  quite a  significant contribution to Africaís overall growth story.

Rwandan stock market update

Locally listed stocks

Bralirwa shares  whose IPO was subscribed at a level of 276 percent mostly by international investors has seen its share price  rising  by over 280 percent  to close at Rwf 420 by end of September 2012.Prior to going to press Bralirwa was rallying close to Rwf 600 mark.

Bank of Kigali(BK)  the second domestic company to go public  whose  IPO was subscribed at a level of 285 percent is now selling just prior to the close of the year at Rwf 130 up from Rwf 125 at  its IPO.

In addition to the two domestic companies, the RSE has attracted two cross listed securities from the region. These are the KCB a regional bank and Nation Media Group both cross listed from the Nairobi Securities Exchange, Kenya.
Bond Market
Since inception the Government has listed bonds worth more than Rwf 27 billion.
Equity market
The RSE equities market up to September 2012 recorded a total turnover of Rwf 34.19 billion (USD 56.98million) from 199.7 million shares traded. Domestic stocks (Bralirwa  and BK) accounted for more than 99 percent of the total turnover and volume.
Market capitalization
On 30th September 2012, the RSE market capitalization stood at Rwf 945.6 billion (1.57 billion USD).
Source: RSE