Unpacking local firms’ indifference to listing

NEO SENOKO

MASERU – Since the introduction of the Maseru Securities Market (MSM) in Lesotho back in 2014, no company has been listed on the stock exchange apart from a few that have shown some interest and whose listing processes are underway.

While company listing is seen as a perfect opportunity for companies to ease fundraising and gaining capital, local companies are virtually hesitant to grab the opportunity to grow their companies.

MSM is an initiative of the government of Lesotho which is executed by the Central Bank of Lesotho (CBL) to facilitate centralised trading of financial securities in the country.

It is part of wider financial sector reforms aimed at improving the financial sector in the country and encouraging wider share ownership of previously privatised and majority of companies in Lesotho while facilitating raising of medium to long term capital.

The market was established by law in 2014 through the publication of Capital Markets Regulations of 2014. These regulations and other regulatory instruments provide for the operation of a market that is fair, orderly, secure and transparent.

The question is why companies are reluctant to align themselves with the MSM when it comes with some mouth-watering and increased credibility for the company.

The Central Bank of Lesotho outlined in an interview with Public Eye this week no company is listed but there is a growing interest from other players.

Local analysts, however, have expressed mixed fillings with regards to the slow pace towards company listing. Some are saying CBL should do more in terms creating public awareness to sensitise people about the initiative.

Other views are that government should also be actively involved and move towards listing companies which they have shares in.

These, analysts say, will boost confidence within the business community in general.

In an interview with Public Eye, CBL revealed listing is important in several ways.

The bank said listing offers the opportunity for a company to raise capital to fund new projects, undertake expansions and new acquisitions while providing an ability to raise additional funds to access large pools of capital for growth.

“It gives the company increased credibility with the public as it also increases your company’s external and internal profile. It can enhance the view that investors, shareholders and other stakeholders have of your company, its ambitions and the way in which it meets its obligations and adheres to regulatory requirements.”

“The value of the company’s shares will be enhanced if demand is greater than supply,” CBL said in an interview with Public Eye this week.

According to the CBL, listing better enables the company to obtain other forms of finance such as bank loans since banks will be comforted by the fact that the company’s financial information and actions will be subject to the exchange and public scrutiny.

These could have a positive effect on the company’s overall performance.

Despite the benefits, a local analyst has different views on the matter.

Renowned local analyst and senior partner and chartered accountant at PKF Lesotho, Sam Mphaka revealed in an interview with Public Eye on Wednesday that one of the main challenges is that there are no listing rules in the country.

Another challenge is that the business community still does not understand the whole process and its benefits since it’s a new phenomenon in the country.

“The main problem is that there are no listing rules in the country with regard to listing requirements. We tried to work hand in hand with the CBL in the past in terms of formulating the listing rules but they could not adhere to that offer. They have been very hesitant in that regard.

“So, since it is still a new thing, members of the business community in Lesotho do not understand it at all. They do not understand what it means to raise finance through listing in a stock exchange.

“Basotho only understand that to raise finance one has to go to a bank. It is important to for CBL therefore to make people aware that they can borrow and sell some of their shares through the stock exchange,” Mphaka said in an interview with Public Eye.

Another challenge Mphaka said is that local businesses do not have proper financial information.

“Many companies in Lesotho do not have records; financial literacy is lacking in the country. They only do them for banks and Lesotho Revenue Authority purposes. Apart from that they are not interested which is a big challenge in running and developing their businesses,” he added.

Listing with MSM, CBL revealed, will give the company a wider shareholder base and broaden its exposure while its products will be known to a wider group of potential customers.

It also stimulates liquidity, giving shareholders the opportunity to transact in the shares of the company, sharing risks as well as benefiting from any increase in the organisation.

Some of the requirements for listing with MSM include that companies should have reasonable profit for the last two fiscal years and not be subject to any bankruptcy or re-organisation proceedings.

A company should also have its securities freely transferable and eligible for electronic settlement and should also have the public holding of about 20 percent of the number of shares in issue.

Former Minister of Finance Dr Timothy Thahane said in an interview that government should also play a big role when it comes to levelling the playing field for companies to be listed with MSM.

“To get companies to be listed we have to begin by having strong companies on board in order to build confidence among other medium and developing companies.

“And I think government should be in a position to get companies which they have shares in to be listed, particularly those that are making profit as one of the requirement for listing.

“If you have big companies on board, it gives hope and confidence for other companies to join the party. Apart from that, I think we should learn from other countries on how they have managed to deal with the issue instead of jumping onto these things. We should get people who have enough experience to help us,” Thahane noted in an interview with Public Eye on Wednesday this week.

He added companies should have public accounts so that interested people can realised that a company is making profits which would make it easier for people to participate and buy shares knowing that they will get returns.

Company listing also improves corporate governance and practice in that it brings transparency and efficiency in the overall operations of the company.

The board and management team of the company is accountable towards its shareholders.