Capital Markets: Primed to Facilitate Investment

1. Capital Markets:Primed to Facilitate Investment By Kamunyu Njoroge: Manager, Investor Education & Public Awareness Capital Markets Authority

2. PRESENTATION OUTLINE • MARKETS POSITIONED TO FACILITATE FINANCING • TRIED AND TESTED MARKET CAPACITY • ROLE OF CAPITAL MARKETS ENSHRINED WITHIN THE VISION • LEADING EDGE REFORMS TO SUPPORT THE VISION • PRODUCTS RESPONSIVE TO NEEDS • OUR DIASPORA INITIATIVES • GATEWAY TO THE REGION PRESENTATION OUTLINE

3. Set up in 1989 through Act of Parliament Cap 485A Laws of Kenya • Regulates the development of orderly, fair and efficient capital markets in Kenya • Licenses and oversees over 100 market intermediaries and approved institutions INSTITUTION PROFILE

5. EQUITIES MARKETS SUPPORTING GROWTH Largest Equities Exchange in East and Central Africa • Nairobi Securities Exchange has 59 out of the 92 listed companies in the East African region • Nairobi Securities Exchange is the fourth largest market (after South Africa, Egypt and Nigeria) in terms of market capitalization at USD 12.5 billion (as at June 2012) • The Settlement Cycle is at T+3 matching an international standard yet to be implemented by even South Africa • Despite 2011 being a bearish year for securities markets globally NSE has rebounded in 2012 and being the 3rd best performing market Globally, after Venezuela and Egypt (index annualized returns, year to date 16%) • Growth and Enterprise Market Segment introduced for SME’s providing Private Equity exit and broadening access to capital

6. THRIVING BOND MARKETS Largest and most developed Bonds market in East and Central African region • Nairobi Securities Exchange has listed 68 Treasury Bonds and 19 corporate bonds. • Nairobi Securities Exchange was the second largest African market (after South Africa) in terms bond turnover as a % of GDP in 2011 at 19% • Fully automated trading and clearing with T+3 Settlement Cycle • The yield curve extends up to a 30 year bond

7. TRACK RECORD OF PERFORMANCE • Over the last 15 years, the capital market has raised over Kshs 1.3 trillion (BP9.9 billion) through bonds and equities; • Kshs 514 billion (BP3.9 billion )has been raised in the last 3 years notwithstanding the effects of global financial crisis in 2008/09; • The value of listed securities (debt and equity) currently at Kshs 1.7 trillion (BP13 billion), nearly 50% of Kenya’s GDP

8. ESTABLISHED MARKET DEPTH • Equities: Safaricom IPO (Telcoms) Kshs. 250 billion (2008) • Debt: KENGEN Bond (Power Generation) Kshs. 25 Billion (2009) Issuances despite impact of recent international market instability: • Over Kshs. 32 Billion raised in the capital markets from IPOs, Rights Issues & Public Offers (2010 – 2012)

9. CONDUCIVE POLICY ENVIRONMENT • Interest income from infrastructure & social services bonds with at least a maturity of 3 years is tax exempt; • Stamp duty is exempt for purposes of transferring assets for issuing Asset Backed Securities (ABS) • Interest earned by Asset Backed Securities is tax exempt; • Income on investment in a venture company earned within the first ten years tax exempt; • Investment income of a pooled fund tax exempt; • No capital gains tax on securities

10. THE CHALLENGE TO THE CAPITAL MARKETS UNDER VISION 2030 • Under Vision 2030, the capital market is expected to play a critical role in achieving the growth targets through: • Mobilizing savings and investments in productive enterprise; • Facilitating long term infrastructure financing; • Diversification of financing for SMEs; • Backbone of the transformation of Nairobi into an International Financial Centre (IFC); • Linchpin of regional integration initiatives towards a regional market;

11. REFORM AND DEVELOPMENT AGENDA TO ENSURE ATTAINMENT OF THE VISION • Implementation of framework of Demutualization of the Nairobi Securities Exchange - Demutualization regulations expected to be gazetted in first quarter of 2012 • Framework for product development through effective oversight of empowered SRO’s • Driver for Derivatives market development • Basis for Bond Market reforms • Modernisation of market infrastructure and practices– -Automated Trading and Depository System since 2006 (equity) and 2009 (Debt). - State of art Surveillance System launched in June 2012

12. REFORM TO SUPPORT THE VISION • Introduction of Legal and Regulatory Framework in line with IOSCO Principles and international best practice • Ongoing implementation of Risk Based Supervision by the Capital Markets Authority: - Profiling and assessment of licensees already being implemented - Financial Resources Regulations under public exposure (June/July 2012) - Full implementation FY 2012/2013 • CMA is a Full Signatory of the IOSCO Multilateral MOU to play role in combating cross border market misconduct

13. DEEPENING PRODUCT RANGE • Introduction of Real Estate Investment Trust vehicles to leverage booming property industry - Framework was on public exposure June – July 2012 • Introducing Traditional REIT products for income generating rental properties • Introducing unique Development REIT products to fund construction and development • Tax neutrality and incentives under consideration by government

14. DEEPENING PRODUCT RANGE • Introduction of Listing Platform for SME and Venture Companies • Growth and Enterprise Market Segment (GEMS) • Modeled on TMX Venture Exchange, the JSE ALTEX and the London Stock Exchange AIMS market • Provides a prime avenue for exit for growing Private Equity and Venture Capital investment industry • Opportunity for entrepreneurs to diversify ownership and realize investment

15. DEEPENING PRODUCT RANGE • Target to become the continents hub for Islamic Capital Markets Products • Engaging with Banking and Insurance supervisors to offer full scope of Islamic financial products • Prime instruments to invest in the real economy: • Infrastructure financing • Real estate financing

16. UNEXPLOITED OPPORTUNITIES • Asset Backed Securities • Mortgage Backed Securities • Futures and Derivatives • Islamic products ( Islamic Mutual Funds, Sukuks) • Municipal bonds • Futures and Options • Swaps • Currency Dealing • Arbitrage

17. CAPITAL MARKETS SERVICES • Transaction Advisory services; • Stockbrokerage and Investment Banking; • Futures trading; • Asset Management; • Investment Advisory services; • Nominated Advisors (for Growth Enterprises); • Credit rating; • Underwriting; • Guarantees; • Capacity building (Certification Product for market intermediaries);

18. DIASPORA INITIATIVES • Participation in Diaspora forums and various investment conferences across the globe • Partnership with Ministry of Foreign Affairs Diaspora Division, to provide informational brochures on capital markets in Kenya throughout its embassy network, • Partnership Ministry of Foreign Affairs Diaspora Division to link the Authority’s website to the Ministry’s and Embassy’s website • Services and products targeted for the Diaspora; includes Diaspora Unit Trust and Online Trading • Working with Central Bank to make it easier for remittance and Diaspora investments in Kenya

19. KENYA: A KEY DESTINATION FOR CAPITAL • Gateway to a Population of 140 million people within the East African region and 400 million within East central and Southern Africa COMESA region’ • Regional hub for a combined GDP of USD 70 Billion for the East African region • Abundant natural resources/wildlife • Point of access to the resource rich newly independent South Sudan and DR Congo • Key member of the EAC custom union and a common market • Participation in Diaspora forums and various investment conferences across the globe

20. For Further Information, Please Contact:CAPITAL MARKETS AUHORITYUpper Hill, Longonot Road, Off Kilimanjaro AvenueEmbankment Plaza, P.O Box 74800 – 00200, Nairobi KenyaTel: +254 20 2264900/ 2710789/ 2710775 Fax: +254 20 2228254Website: www.cma.or.ke, Email: corporate@cma.or.ke

21. THANK YOU