The Capital Markets Authority (CMA) in Kenya has delayed the approval of a financial instrument that would allow Kenyan investors to access the ongoing Dangote Petroleum shares sale. The instrument, known as global depository receipts (GDRs), is being promoted by Renaissance Capital, an investment bank. The CMA requires that certain undisclosed pending issues be cleared before granting approval to market Dangote's Initial Public Offering (IPO) locally.
The Dangote IPO, which is Africa's largest ever, was approved and issued in Lagos and cannot be marketed and sold in Kenya. However, through GDRs, Kenyan investors can buy shares at Sh49 a piece and trade the certificates at the Nairobi Securities Exchange (NSE). The GDRs represent ownership of a specific number of shares in a foreign company, allowing investors to trade on stock exchanges outside the issuer's home market.
Renaissance Capital was expecting to receive the CMA nod on a specific date, allowing it to sell the shares between October 5 and October 13, matching the close of the IPO in Nigeria. However, the CMA's chief executive officer, Wyckliffe Shamia, stated that the approval process would take a few days. 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.
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. 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). 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.
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 Nigerian Stock Exchange (NGX) in Lagos. The sponsoring broker and custodian bank will receive dividends accruing from the purchased shares and distribute them to GDR holders.
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).
The chief executive officer of Renaissance Capital Kenya, Stanley Kariuki, stated that GDRs have been chosen as the most efficient vehicle to bring the Dangote shares to the public. Kariuki also mentioned that the main aim is to make sure that before and after the IPO, investors will be able to have visibility. Aliko Dangote plans to deploy proceeds from the IPO to fund the expansion of his Lagos refinery and may consider cross-listing the company's shares on the Nairobi bourse in the future.
Key points
- The CMA's delay in approving the GDRs may risk delaying the local sale of Dangote Petroleum shares in Kenya.
- The GDRs will allow Kenyan investors to buy Dangote shares at a lower minimum subscription of Sh490.
- The IPO seeks to raise Sh207.5 billion through the sale of 4.1 billion ordinary shares.
