Private Equity (PE) firms are shunning the Nairobi Securities Exchange (NSE) as an option for exiting their investments in Kenya and the region due to liquidity concerns and a burdensome listing process, a survey shows.
The 2024 Deloitte Africa Private Equity Confidence Survey shows that 56 percent of PE firms preferred secondary sales to their peers while 32 percent favoured to sell to strategic investors or exit partially.
Sales to peers and strategic investors have tended to attract higher valuations, deeming them the best exit strategies for PE firms.
“Liquidity concerns in East African exchanges and onerous listing processes have raised questions about the feasibility of initial public offers (IPOs) as a viable exit route,” the survey observes.
The NSE has not seen any listing from a PE fund in the recent past even as it struggles to register a new lPOs.
Kenya's last IPO was in 2015 when property investment fund ILAM Fahari I-Reit was listed on the NSE after raising Sh3.6 billion.
The apathy by PE firms for Kenya’s public markets, however, contrasts with the fact that the country remains a hotbed for PE deals in the region driven by the government’s push to privatise key firms in sectors such as energy, hospitality, and manufacturing.
Kenya is touted to be East Africa’s top investment destination for private equity firms in the next 12 months, according to the Deloitte survey.
About 28 percent of polled PE funds noted that they would be focusing on the country in the next year ahead of neighbours; Tanzania and Uganda, tied at 22 percent.
Ethiopia and Rwanda meanwhile close out the top five destinations for PE funds in the region.
The 2023 Deal Makers Africa annual report shows that Kenya recorded Sh77.3 billion ($600.3 million) in PE investments represented by 95 deals beating continental rivals such as Nigeria and Ghana.
The aim of the government to privatise part of State-owned enterprises (SOEs) through the NSE is, however, expected to improve the attraction of the bourse as an exit avenue.
“Despite the onerous bureaucratic process, legal hurdles, and divergent public sentiment, this signals a strategic intent aimed at creating a more dynamic and private-led economy.
The public institutions on offer are from a range of sectors including energy, manufacturing, financial services, and hospitality, presenting an opportunity for investment from diverse PE sources,” noted Kevin Kimotho, the East Africa Private Equity Leader at Deloitte.
Some of the State-owned firms that the government wants to offer to private investors include the 33.83 percent stake in Kenya Hotel Properties Limited, which owns the building that was previously managed by the Intercontinental Hotel Group in Nairobi.
The Privatisation Authority also requested consultants to guide the sale of government stakes in five top Kenya Development Corporation-controlled hotels, including the Kenya Safari Lodges, Mt Elgon Lodge Limited, Golf Hotel Limited, Sunset Hotel, and Kabarnet Hotel.
The government is also eyeing for buyers for its 43.77 percent stake in Kenya Wines Agencies Limited. It also wants to sell the Development Bank of Kenya and Consolidated Bank of Kenya.
The 2023 Capital Markets (Public Offers, Listings, and Disclosures Regulations) are also expected to boost the viability of IPOs as exit routes for PE funds.
This will allow micro, small, and medium enterprises to raise debt and equity capital without the requirements of a profitability track record.
The regulations revised the ‘one-size-fits-all’ capital raising and listing standards where issuers were required to meet highly prescriptive pre-listing quantitative requirements.
