The Capital Markets Authority (CMA) has delayed approval of a financial instrument that will allow Kenyan investors access to the ongoing Dangote Petroleum shares sale for as little as Sh490 via the Nairobi Securities Exchange (NSE).
CMA reckons that promoters of the instrument, which is technically known as global depository receipts (GDRs), must clear undisclosed pending issues before getting approval to market Dangote’s Initial Public Offering (IPO) locally and list a copy of the shares at the NSE.
The regulator says it requires a “few days” to work on the approval, risking delay in the local sale of the shares of the Lagos refinery, which is owned by Aliko Dangote.
Investment bank Renaissance Capital, which is behind the Dangote GDRs, was expecting to get the CMA nod today and allow it to sell the shares between October 5 and October 13, matching the close of the IPO in Nigeria.
The GDRs are a bank certificate that represents ownership of a specific number of shares in a foreign company, allowing investors to trade on stock exchanges outside the issuer’s home market.
Dangote IPO, which is Africa’s biggest ever, was approved and issued in Lagos, and cannot be marketed and sold in Kenya.
Under GDRs, which will represent the underlying Dangote shares being listed in the Nigerian Stock Exchange (NGX), Kenyan investors can buy the share at Sh49 a piece and trade the certificates at the Nairobi bourse.
“We have received an application (for Dangote GDR) which is under consideration. Once all issues have been addressed, the requisite approval shall be granted and thereafter listing will take place. This could take a few days from now,” Wyckliffe Shamia, chief executive officer at CMA, told the Business Daily.
Stanbic Bank will serve as the custodian in the deal, directly purchasing the Dangote shares, which will then be packaged as GDRs for local investors who will be able to buy and sell the receipts on the NSE.
Without the GDR, ordinary Kenyan investors were struggling to buy shares in Africa’s largest IPO because it was not a locally approved issue, and the alternatives were costly.
Presently, local investors can only buy Dangote shares through Kenyan stockbrokers with partnerships with brokerages in Nigeria and are required to meet a higher minimum subscription of up to Sh259,5200 ($2000).
“Local investors could invest through authorised agents in Nigeria or local players who are working with those in Nigeria,” says Mr Shamia.
“In this case (with GDRs), the local players are advised to seek consent from CMA if they get involved in marketing this issue.”
The IPO seeks to raise Sh207.5 billion and runs between September 14 and October 13 with the sale of 4.1 billion ordinary shares, equivalent to just about 3.4 percent shareholding of the Dangote Petroleum Refinery. GDRs work like derivatives by mirroring the change in price of the underlying asset.
In this case, the price movement of the NSE-listed instrument will match that of Dangote shares as traded on the NGX in Lagos.
The sponsoring broker and custodian bank will receive dividends accruing from the purchased shares and distribute them to GDR holders in the same way as unit trust schemes distribute gains to unit holders.
Investors in GDRs may, however, face higher administrative fees relative to buying shares at the NSE and potential liquidity risks in the event supply and demand fail to match.
Upon approval of the transaction by the CMA and the NSE, Dangote will deposit shares with the Nigerian custodian bank (Stanbic Bank), after which the lender will confirm the deposit with its Kenyan peer.
Stanbic Bank Kenya will subsequently issue GDRs, which are derivatives of the Dangote shares in its custody.
After being listed on the NSE, the depository units will be settled in Kenyan shillings through the ordinary Central Depository and Settlement System (CDSC), which supports the trading of other listed shares.
The sponsoring broker says GDRs have been chosen as the most efficient vehicle to bring the Dangote shares to the public, as the cross-listing of the company remains off the cards until a future date.
“With GDRs, you get transparency on costs, pricing and trading. Our main aim is to make sure that before and after the IPO, investors will be able to have visibility,” Stanley Kariuki, the chief executive officer of Renaissance Capital Kenya, said earlier.
“The second factor informing our choice for the deposit receipts is that all people can participate in the offer, irrespective of the investment class.”
Dangote, who will deploy proceeds from the IPO to fund the expansion of his Lagos refinery, says he expects to subsequently cross-list the company’s shares on the Nairobi bourse as he further mulls a local listing of the Lamu East African refinery whose groundbreaking happened on Wednesday.
