Capital Markets Presentation for Listing and IPO

The Capital Market Authority, as a matter of policy, disclaims responsibility for any private publication or statement by any of its employees or agents. The Capital Markets Authority takes no responsibility for any consequences arising from decisions taken on the basis of the contents of this presentation. For more information or clarification, please refer to our regulations on the same which are available at our website: www.cma.or.ke

Benefits of Raising Capital Through Listing PRESENTATION OUTLINE Market Performance Equity Financing Debt Financing Benefits of Raising Capital Through Listing Factors to Consider in Raising Capital Why the Capital Markets The Listing Process and experience Key Considerations for Public Offer/Rights Issue Bonds and Commercial Paper

State of Kenyan Capital Markets Performance as at Dec 2016 The Nairobi Securities Exchange 20 share index as at December 2016 stood at 3,186 points down from 4,175 index point in January 2016. Market performance was therefore relatively lower, this can be attributed to the interest rate capping among other macroeconomic factors As at December 2016 the annual Bond turnover was 434.02 billion compared to December 2015 where the annual bond turnover was 305.10billion. Annual bond turnover in 2014 was. 506.05 billion. As at 2016 equity turnover was 147.34 billion compared to December 2015 when it stood at Kshs. 209.38billion. Annual equity turnover in 2014 was 215.7  billion.

NSE 20 trend

Bond and Equity Turnover Trends

Bond and Equity Turnover Trends

Equity financing

Equity Financing Advantages Disadvantages Dividend ( not mandatory) Goals of investors are fully aligned with founders: – Company success – Capital gains Large volume available Long time horizon Capital Gains Tax Cheap publicity Corporate Governance Liquidity Advantages Loss of ownership; eventual loss of control. Founder now reports to Board of Directors; this is an emotional issue for many founders. Focus on exit strategy: Equity investors expect sale, merger, or IPO Disadvantages

Debt financing

Advantages Disadvantages Debt financing Other people’s money! No loss of ownership. Term limit Tax shield advantage Advantages Debt service: Lenders want a little bit back every month. Often a bad match for startup’s cash flow. Only willing to lend when you don’t need it! Lenders care about repayment, not about the success of your business. Disadvantages

Benefits of raising capital through Listing Raising cheap long term capital Separation of ownership and management Succession planning & growth Enjoy Public support and accessibility Daily and free publicity Corporate Governance

Factors to Consider in Raising Capital Market awareness Brand recognition Sound structuring of instrument (if debt issue) Credit Rating and Guarantees / Collateral Timing of going to market / Pricing Choice of entity Strong balance sheet Promising future revenue projections Financial advisory team - disclosures and investor protection mechanisms

Why the Capital Markets Separation between owners and managers Enhances Corporate image/governance Structured financing Can determine the features of the money raised Long term financing available Tax allowances & exemptions

Did you Know? USD 34 billion Last 10 years Over USD 5.7 billion in the last 6 years Eurobond 500% subscription USD 34 billion Last 10 years JOH-KYA001-20060204-JvW-P1

Performance by market capitalization

Equity Turnover as at December 2016

NSE Listing Segments and Requirements Snapshot

NSE Listing Segments and Requirements

Listing Process Action by Issuer Offer Preparation Placement & Closure Issuer Board Approval AGM for Shareholders’ Approval Due diligence-legal, financial Equity valuation and share price calculation Prepare Offer Documents Information Memorandum (IM) Provisional Allotment Letters (PALs) PR and Roadshows Launch & Offer Opening Period Closure of offer & Receipt of funds Processing & allotment Announcement of result & refunds Listing on NSE

The Listing Experience

Key Considerations for a Public Offer/Rights Issue The public or rights offer has to be approved by the shareholders The 6-month volume weighted average share price for Rights Issue with discount Equity valuation that reflects a value that fundamentals can support The transaction will be subject to regulatory requirements by Industry Regulator, CMA, and NSE It is important to consider timing the market when there are few competing issues and when liquidity is high Shareholders Approval Price Determinants Regulatory Considerations Timing for the Issue

Eligibility criteria for a bond or commercial paper issue (CMA guidelines) Min issued & paid up Ksh 50 million Ksh100 million before listing Audited financial statements for the financial year (where proposed date of offer is less than 3 months to the financial year end). Interim financial statements for at least 6 months (where < 9 months have elapsed) IFRS/ IAS compliant financial statements At least one third of the Board of Directors should be independent Issuer must have declared positive net profit for at least 2 of the last 3 financial results At least Ksh 50 million Total Debt/Net Asset ≤ 400% Funds from Operations/Total Debt ≥ 40% Where the issuer does not meet the criteria, they must involve a guarantor Share Capital Net Assets Availability and reliability of financial records Directors independence Profitable historical track record Size of Issue Debt ratios Guarantee requirements

Corporate Bond Programme Action by Issuer Offer Preparation Placement & Closure Issuer Board Approval Due diligence-legal, financial Prepare Offer Documents Information Memorandum (IM) Pricing Supplement Application forms CMA & NSE Approvals of offer documents Printing & distribution of IM PR and Roadshows Launch & Offer Opening Period Closure of offer processing & allotment Announcement of result & Settlement (Receipt of funds) Listing on NSE