Why companies should consider listing on the Uganda Securities Exchange

by Business Times
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Listing on the Uganda Securities Exchange (USE) is a significant milestone for a company, representing a transition from a privately held entity to a publicly traded one.

The USE is a cornerstone in the development of Uganda’s capital market.

When a company lists on a stock exchange, it makes a portion of its shares available to the public for the first time, through a process known as an Initial Public Offering (IPO). This allows the company to raise capital by selling a part of its ownership to investors, who can then buy and sell these shares on the open market.

In Uganda, the process of listing a company’s shares is facilitated by the Uganda Securities Exchange (USE), which operates under the regulatory oversight of the Capital Markets Authority (CMA), ensuring that all transactions are conducted in a transparent and secure manner, and in accordance with established rules and guidelines.

Listing on the Uganda Securities Exchange is a transformative step that opens up new avenues for growth and development.

However, many companies which appear to be prime candidates for listing on the Uganda Securities Exchange are opting out of this opportunity. A total of 19 companies have listed, with Airtel being the most recent addition to the USE roster.

They listed companies included; Airtel Uganda, Bank of Baroda, BAT Uganda, Centum Investment, DFCU, East African Breweries, Equity Group, Jubilee Holdings, KCB Group, Kenya Airways, MTN Uganda, Nation Media Group, New Vision Printing and Publishing, NIC Holdings, Quality Chemical Industries, Stanbic Bank Uganda, Uchumi Supermarkets, Uganda Clays, and Umeme.

Listing on the stock exchange offers several advantages, including the ability to raise substantial funds for the company and a swift and notable enhancement of its financial standing, leading to improved stability and growth prospects.

Through an Initial Public Offering, companies can issue new shares to the public, generating funds needed for expansion, research and development, or debt repayment. Subsequent offerings, such as follow-on public offerings (FPOs) and rights issues, provide additional avenues to raise capital. This access to capital is critical for supporting growth strategies and enhancing operational capabilities.

For instance, in November last year, Airtel Uganda listed 4.36 billion shares on the Uganda Securities Exchange, following an initial public offering that drew 4,614 investors and resulted in 54.45 percent of the offered eight billion shares being acquired.

This listing attracted the highest number of retail investors (4,600) in the history of the local exchange, despite traditionally low interest from this group due to insufficient awareness and limited financial capacity to make significant investments in listed companies.

Listing on the Uganda Securities Exchange greatly amplifies a company’s visibility and bolsters its credibility. Transitioning to a publicly traded status elevates the company’s profile, making it more prominent and recognizable to a wider audience, including customers, suppliers, and potential business partners.

This enhanced visibility can result in a larger market share and the opening of doors to strategic partnerships and alliances. Moreover, the stringent regulatory and disclosure requirements imposed on listed companies play a crucial role in building and maintaining investor confidence and market trust. These rigorous standards ensure that the company operates transparently and adheres to high governance practices, further solidifying its reputation in the marketplace.

Companies that list on the Uganda Securities Exchange must comply with rigorous corporate governance standards. This compliance encompasses establishing a well-structured board of directors, ensuring regular and thorough financial disclosures, and strictly following best practices in corporate governance. Such heightened standards of governance improve both accountability and transparency, which are essential for making informed and effective decisions.

Enhanced governance practices can significantly boost overall performance. Furthermore, the regulatory oversight mandated for listed companies ensures that they operate within a well-defined framework designed to safeguard the interests of all stakeholders, including investors, employees, customers, and the broader community. This regulatory environment helps to foster a culture of integrity and trust within the company, contributing to its long-term stability and success.

Additionally, listing on the Uganda Securities Exchange plays a significant role in promoting broader economic development by invigorating the local capital markets. This process not only encourages other companies to consider going public, thereby enhancing the depth and liquidity of the market, but also sets a precedent that attracts a diverse array of investors. The resulting expansion of the capital market is crucial for maintaining economic stability and fostering growth. By providing a solid and reliable platform for both investment and savings, the development of the capital market facilitates the efficient allocation of resources, promotes financial inclusion, and stimulates economic activities across various sectors.

The listing of Airtel on Uganda Securities Exchange elevated Uganda’s total market capitalization to an impressive Shs11 trillion which represents a significant 6 percent of the country’s Gross Domestic Product (GDP).

This valuation underscores the growing importance and influence of the capital markets within Uganda’s economy.

It highlights the increasing role that publicly traded companies play in the financial landscape, contributing to the nation’s economic health and reflecting the potential for future growth and investment opportunities within the country. Such a substantial market capitalization is a testament to the robustness of Uganda’s capital market and its capacity to attract and retain investment.

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