Fear of scrutiny keeping firms away from capital markets - expert
Capital markets in Uganda still have low participation, which some experts say, results from ignorance and low valuation. Photo | File
What you need to know:
According to Mr Gibson Nangono, listing as a public company comes with a lot of scrutiny, which some companies are not ready to go through
The fear of scrutiny continues to keep companies away from equity markets yet they are part of the cheapest sources of affordable capital, according to Mr Gibson Nangono, the IM Bank chief business officer.
Speaking at a symposium organised by IM Bank for small and medium enterprises in Kampala last week, Mr Nangono said listing as a public company is akin to living in a glass house, “because people want to know in detail the business they are investing in their savings”.
Therefore, he said, attracting equity partners puts responsibility on the business to do a lot of housekeeping such as being tax compliant, having proper governance structures and updated business projections.
“Looking at the above and knowing our culture as Africans where we keep everything private clearly shows there is a long way to go in terms of getting local firms to appreciate the benefits of capital markets,” Mr Nangono said.
Founded in 1997, the Uganda Securities Exchange has for years struggled to attract listings, boosting of only 18 listed companies, of which nine are local while the rest are cross listings.
Capital markets provide capital for business growth but there has been challenges of attracting companies due in part to ignorance of how equity markets operate and low valuations in terms of operating capital.
However, experts have also tagged the low participation to the fear of scrutiny that comes with being listed on the equity market. Equity markets are also largely dominated by institutional investors with very low participation from individual investors.
Speaking at the same event, Mr Keneth Makanga, the BDO East Africa managing partner, said that because equity partners are long term investors, they will seek to understand the company, especially terms of transparency, with further scrutiny placed on financial records, governance structure and tax compliance.
