Small and medium-sized enterprises face challenges such as poor record keeping and the non-availability of reliable information when seeking applications for listing at the Enterprise Growth Market of the Dar es Salaam Stock Exchange. BusinessWeek reporter Ludger Kasumuni interviewed Mr Gasper Njuu, the chief executive officer at the EGM Advisors Ltd at the EGM segment of the Dar es Salaam Stock Exchange, who gives details on the segment’s activities
What are the major steps or procedures to be taken when a company wants to get listed at EGM?
The first step is that there must be a pre-determined capital financing needs. This could be towards expanding the business, introducing new product, acquiring a new line of business, modernising a factory and so forth. The second one, the board of directors and the existing shareholders must approve the financing needs, raising the capital by way of issuing shares to the public through an initial public offering or IPO and ultimately list the shares on the DSE’s EGM segment. The board must also approve the appointment of a nominated advisor, or Nomad, to lead the company throughout the process of the IPO and even after shares are listed on the EGM segment of DSE. Under the second step, Nomad will then recommend to the company a number of professionals that are required to form the IPO process team. The professionals must be independent. That means they should have no direct business or ownership relationship with the company intending to sell shares to the public. Such professionals are the lead legal counsel, reporting accountant, company valuer, licensed sponsoring stock broker, lead receiving bank, receiving agents and share registrar.
The third step is that an IPO team led by the Nomad will compile the necessary information required for preparation of the prospectus, a document that contains historical and future information of the company. During the next steps the prospectus is then approved by the management of the company, the board and the existing shareholders and the Nomad on behalf of the company submits the prospectus to the Capital Markets and Securities Authority and DSE for their review and approval. In case they raise any comments the Nomad will liaise with the company and the IPO team to address the comments. The next step is that once the prospectus is approved the IPO is ready for launching followed by sale of shares to the public. The next step includes selling shares through IPO is then closed, followed by compilation of data, reconciliation and allotment of sold shares is done and approved by the board of the company. During the ninth step the Nomad on behalf of the company submits to DSE and CMSA an application to list the shares on DSE’s EGM segment. Once shares are listed the trading of such shares commences immediately on the secondary market.
Under the tenth step, proceeds from funds raised through IPO are released by the lead receiving bank for the company use or as described in the prospectus. Funds are released after settling any applicable refunds to the investors/buyers of the shares and fees to the IPO professional team.
What are the major challenges that companies willing to list must first work on?
The first challenge is the availability of all required information. The information must be prepared in a professional way because buyers of the shares will rely on such information to make their decision on whether to buy the shares or not. Any SME intending to raise capital from the public and have shares listed on the EGM segment of DSE must overcome the known challenge of record keeping. Secondly, a client must be ready and willing to open up the company for public scrutiny. Once shares are listed there’re governance requirements in terms of reporting, transparency, accountability, compliance and separation of functions/responsibilities from shareholders, directors and management. Thirdly, there is a need to understand that offering the company to be owned by the public will not necessarily lead to a loss of total control of the company. The fourth issue is to overcome the challenge of continuing to use the traditional known means of raising capital through borrowing or own savings.
In a nutshell, how do you predict 2015 as far as firms listed on the EGM are concerned?
The EGM segment of DSE has so far listed three companies: Maendeleo Bank, Swala Oil and Gas and Mkombozi Bank. Shares for these companies were well subscribed during the IPO which is a good indication that there is a good potential for more companies to be listed. There are a number of companies that have shown interest in having their shares listed on the EGM segment and these companies are already working with a number of nominated advisors to go through that process. It is therefore fair to predict that more companies will be listed on the EGM segment during this year and beyond.
What are the benchmarks behind your assumptions and why?
The assumption is based on the performance of the first three IPOs that were well subscribed. There is also a good number of companies that have expressed interest and engaged Nomads that are now working on guiding and advising these companies on the entire process of having their shares listed on the EGM segment of the DSE.
Can a large company list on the EGM? Why
The regulations and guidelines to either list on EGM or MIM are provided by Capital Markets and Securities Authority, the regulator for the capital markets. All the information is available to the public on its websites www.cmsa-tz.org and www.dse.co.tz
However, it’s worth mentioning that the EGM segment is meant for companies that have no track record in terms of financial performance, profitability, small capital needs and corporate governance structures.
