DSE Says “Look at Me“

Capital Markets

The motto of the Dar es Salaam Stock Exchange (DSE), “Creating Opportunities,“ crystallizes the initial aim of channeling liquidity into nascent capital markets, while fronting an era of privatization.

The DSE, launched in 1996, is regulated by the Capital Markets and Securities Authority (CMSA), a state entity established under the Capital Markets and Securities Act of 1994. It rang its first bell on April 15, 1998, thereby starting an engine of economic growth with the potential to revitalize obsolete state-owned enterprises. Around 18 years later, the stocks of 25 companies are traded by 10 licensed brokers and serviced by three custodian banks, although there is room for improvement here, as these stocks amount to just 25% of GDP as of 2016. As of June 10, 2016, total market capitalization had reached USD9.970 billion. Worthy of plaudits, though, trading revenue from and fees over the past four years has more than tripled. And over the past five years as of 3Q2016, the DSE benchmark index had appreciated by 47.5%.

Selected Innovations

Anticipated future interest and sterling performance a year later prompted the introduction of the Central Depositary System (CDS) to expedite trading. And in 2015, it became the third African bourse after the Johannesburg Stock Exchange (JSE) and the Nairobi Securities Exchange (NSE) to become demutualized, whereby it was no longer limited by guarantee, but by shares. And turning to zeros and ones in 2004 in the wake of its pioneering corporate debt issue of 1999, Treasury Bonds in 2002, and the cross listing of a Kenyan aviation company, the first such foreign activity in 2004, the DSE introduced an Automated Traded System (ATS) plugged into the CDS to accurately match bids with offers. Meanwhile, the DSE has carefully diversified its instruments beyond equities, derivatives, and government and corporate bonds to real estate investment trusts (REITs), with the Watumishi Housing Company (WHC-REIT) becoming the first REIT in East Africa.

Small, yet vital

In 2013, the DSE opened its second tier market, namely the Enterprise Growth Market (EGM), appealing to SMEs with more modest listing requirements. Progress has not been meteoric, with just five takers to date, including YETU Microfinance Bank, Mkombozi Commercial Bank, Maendeleo Commercial Bank, Mwalimu Commercial Bank, and Swala Oil & Gas. This underpins the SDE’s commitment to its ongoing educational drive among Tanzania’s smaller businesses. Innovation is the byword, as confirmed in a TBY interview with DSE CEO Moremi Marwa, who noted that, “We are also thinking of real estate investment trusts and derivatives, rather than commodities,” adding however, that “we need a proper framework, legal regulatory framework, and the infrastructure to accommodate those products in our market.”

Way to go, IPO

IPOs, a benchmark of any bourse, kicked off in 1998 with the first state-owned enterprise, Tanzania Oxygen Limited (DSE:TOL). Seven such enterprises would end up braving the bulls and bears. Second to join the party was Tanzania Breweries Limited (DSE:TBL), followed by Tanzania Cigarette Company (DSE:TCC), presumably to give investors something to do with their other hand. Swissport (DSE:SWIS), Tanzania Portland Cement Company (DSE:TPCC), Tanga Cement Company Limited (DSE:TCCL), and National Microfinance Bank (NMB) were the next state-owned businesses to enter the free market. Private sector pioneers seeking capital for growth included TATEPA, CRDB Bank, DCB Commercial Bank, and Precision Air, which arrived on the DSE in the 1999 to 2011 period. The latest arrival on the DSE was Mucoba Bank (DSE:MUCOBA), the eighth local bank to go public after CRDB, NMB, DCB, Mkombozi, Mwalimu, Maendeleo, and Yetu Microfinance, and which successfully scooped capital in excess of TZS2 billion during its IPO in June 2016. Kenya Airways (DSE:KA), mentioned earlier, is one of seven cross-listed companies on the DSE leveraging broader sub-Saharan exposure, the others being East African Breweries (DSE:EAB), Jubilee Holdings (JHL), Kenya Commercial Bank (DSE:KCB), National media group (DSE:NMG), and Uchumi Supermarket (DSE:USL) from Kenya; and the UK’s Acacia Mining Group (DSE:ACA). Going in the other direction, local player Bank M looked set to list on the DSE by end-year 2016, whereupon it will also cross-list at Kenya’s Nairobi Securities Exchange, becoming the first Tanzanian bank to do so after having purchased a 51% stake in Oriental Commercial Bank.

DSE in the Spotlight

3Q2016 was a watershed moment for Tanzania’s capital markets. Reflecting a familiar trend among emerging market bourses, on May 16, 2016 the DSE embarked upon its own IPO, tempting investors with 15 million ordinary shares priced at TZS500 per share. And come they did, as the event, garnering bids worth USD16.4 million, was close to fivefold oversubscribed. Moreover, it confirmed solid commitment to operating at the highest level of good corporate practices and international scrutiny. And although the shares had been prudently priced at just 3.7x the bourse’s 2015 earnings, upon its maiden trading day, the stock price skyrocketed 100%.


Naturally enough, like other bourses on the continent, the DSE has braved headwinds of late. As Moremi Marwa put it, “African countries have been affected by reduced economic activity in China,” once a major market for their commodities. “They need copper, iron, timber, and agricultural products, and yet those markets have slumbered (in addition to which) we were affected by the weakness of African currencies against hard currencies, especially dollars; for example, in 2015 the Tanzanian Shilling lost almost 20%,” he concluded.
Nonetheless, the DSE’s market capitalization has risen at a formidable clip of 110% per year over the past five years, scaling the TZ20 trillion mark at TZS21 trillion in 2016, from short of TZS6 trillion back in 2010. Liquidity, meanwhile, has climbed by 56% annually since 2010, to an average turnover of over TZS800 billion. According to the DSE’s September 2016 quarterly report, market liquidity in 3Q2016 rose 11% QoQ, from TZS102billion to TZS113 billion, while market capitalization (Mcap) had climbed 4% from TZS7,912 billion as of end-June 2016 to TZS8,103 billion by September 30 2016, not least due to the bourse’s own IPO. As a result, the benchmark DSE Index also appreciated 4% from 3,706.15 points as of June to 3,855.90 points as of September 30, 2016. The DSE All Share Index (DSEI), however, shed 4.75 points to 2,477.24 points for the quarter from 2,481.99 QoQ. In valuation terms, the PE Ratio for domestic listed companies had declined by 13.18 times as of September 2016, compared with the trailing figure of 14.12 times as at end-Q216. The quarterly trailing weighted average dividend yield has seen a slender decline to 4.8% from 4.7%. In terms of quarterly investor breakdown, for 3Q16 foreign investor presence in equity trading fell on the buy side from 93.39% to 79.46%. The sale side print more than doubled to 66% compared to 27%QoQ.

The Name’s Bond

The total amount of corporate bonds issued since the DSE opened its doors has exceeded TZS477 billion, with growth in the amount of government bonds trading in the secondary market of close to 94% since 2011. In 3Q2016 bond turnover with a face value of TZS123 billion registered a quarterly transaction value of TZS96 billion, down from a face value of TZS192 billion and transaction value of TZS150 billion. In another momentous transaction, Tanzania’s first retail bond, heavily oversubscribed, was that of National Microfinance Bank (NMB). Managing Director & CEO Ineke Bussemaker explained in an interview that, “We wanted to raise TZS20 billion, and yet the bond was so successful it raised over TZS41 billion (being) oversubscribed by more than 100%.” And while around “50% came through existing customers, who we wanted to lock into a longer, three-year return at 13% (…), the other 50% came from the market and new customers.” Of note, too, with interest having registered from the country over in cold hard cash, it seems the lure of the bourse may be spreading. Thus encouraged by the experience, Bussemaker concluded that, “This retail bond has shown that there is room to grow in the domestic capital market (and indeed that) we might do another retail bond during the course of 2017.”

The DSE, facing external pressures shared elsewhere, in a chicken-and-egg dilemma, is pushing to increase liquidity, and thereby its inherent appeal to investors. Its own listing this year has gone a long way toward making it an appealing address and a springboard for regional exposure.

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