Ethiopian securities exchange raises targeted $11m capital

The recently established Ethiopian Securities Exchange (ESX) has realized that its initial capital raised the target of $11.07 million (Ksh1.45 billion) needed to fund the start of operations.

The exchange said the cash raise was oversubscribed by more than two times, receiving offers of $26.6 million (Ksh3.49 billion) in new capital, although it did not state the amount it was taking up from the offers.

The exchange tapped the capital from 48 domestic and foreign commercial investors, having held roadshows in Addis Ababa, Nairobi, and London to market the cash raise.

The Ethiopian finance ministry, EIH, and FSD Africa signed a cooperation agreement in May 2022 to set up the stock exchange.

The exchange was subsequently established in October 2023 as a public-private partnership, where 25 percent is held by the government’s strategic investment arm, Ethiopian Investment Holdings (EIH), and its subsidiaries, such as Ethiotelecom and the Commercial Bank of Ethiopia.

The remaining 75 percent is earmarked for private sector investors, led by Nairobi-based FSD Africa, the Trade and Development Bank (TDB), and the Nigeria Exchange Group (NGX).

Others include 16 domestic private commercial banks, 12 private insurance companies, and 17 other private domestic investors.

“Strategic foreign investments by TDB, FSD Africa, and NGX Group are particularly important in allowing the transfer of technical know-how and best practices as well as other areas of long-term strategic value that we will explore,” the exchange said in a statement.

Ethiopia is currently the biggest African economy without a stock exchange, but it has earmarked the establishment of the bourse as a key plank in its efforts to open up its economy to foreign investment and as a platform for the privatisation of state-owned enterprises.

The Ethiopian finance ministry, EIH, and FSD Africa signed a cooperation agreement in May 2022 to set up the stock exchange.

The initial listing target at launch, according to FSD Africa, would be 50 companies, mainly from the financial services sector.

Last month, Ethiopia Capital Markets Authority Director-General Dr. Brook Taye told The East African newspaper that Ethiopia Telecom has been identified as the first equities listing target for the new market when it rolls out operations, with a plan to offload a 10 percent stake in the state-owned telco.

“We have received their prospectus, and we are reviewing it. There are five other state-owned enterprises for which we have done an IPO readiness assessment, and it’s very encouraging,” said Dr. Taye.

“When we ring the bell at the exchange for the first time, it probably will be a fixed income raise.”

Despite expectations that the exchange will be up and running in the course of this year, there remains some significant work to be done to prepare the underlying market support structures, including trading infrastructure.

ESX said that it has published its draft Exchange Rulebook for public consultation and has also completed the technical evaluation for the selection of its technology provider.

A rulebook normally provides investors and issuers with a compilation of the trading and listing regulations to facilitate smoother market operations.

The Ethiopian market also lacks intermediaries such as stockbrokers and investment banks, custodians, and fund managers, who are key for the effective operation of an exchange. The country has, however, completed the acquisition of a central securities depository.