ESX Unveils Stringent Listing Requirements

Companies must have 500mln in capital, at least 300 shareholders

Companies looking for a listing on the main board of the upcoming Ethiopian Securities Exchange (ESX) are required to hold at least half a billion birr in capital, according to a newly-published rulebook.

The draft prepared by legal experts at the Exchange introduces two boards (main and growth) where companies are to be listed. The 259-page document stipulates that companies must have been in operation for a minimum of three years prior to listing. It also obligates them to have no less than 300 shareholders and to have declared profits after tax at least once.

Companies are required to float equity valued at no less than 15 percent of their capital to list on the ESX main board, while those with more than two billion birr in capital will be required to float a minimum of 10 percent.

Tilahun Esmael (PhD), CEO of the Exchange, observes that establishing standards and requirements is a key part of the ESX foundation.

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“Whether we like it or not, the capital market will attract investors, and investors are very interested in profitable, reliable, transparent, and liquid security,” said Tilahun.

“Let’s say, for example, that an entity has 10 million birr in capital with great corporate governance and financial reporting. The capital isn’t liquid enough as a small number of investors would swallow it up,” Tilahun told The Reporter. “That’s why we are trying to get on board those with at least half a billion in capital, to ensure participation of many people.”

Companies with a capital of at least 100 million birr will be able to list on the ESX growth board. These companies are expected to have been in operation with 50 shareholders for at least two years, over which time they must have recorded a minimum 20 percent revenue growth. They are required to offer at least 10 percent of capital upon listing.

The CEO says companies listed on the main board are expected to be profitable and reliable.

“It’s difficult to bring a company with no profit, no records and small capital, to the main market,” Tilahun said.

Abdulmenan Mohammed (PhD), a seasoned financial analyst based in London, observes the requirements are tight – maybe a little too tight.

“The listing requirements can be fulfilled mainly by institutions operating in the financial sector, which have a track record of strong capital, public share ownership, profitability, relative transparency, and good corporate governance structures,” said the expert.

He argues the large majority of successful private businesses in Ethiopia are family-owned and characterized by their secrecy.

“They are unfamiliar with sound corporate governance practices and rely on banks for financing,” said Abdulmenan. “I don’t think these companies would be interested in listing.”

The analyst argues the Exchange is unsuitable for small businesses and startups, who would struggle to fulfill the requirements.

“This indicates the ESX will most likely be a platform for transacting the shares of financial institutions, a few state-owned enterprises, foreign companies, and government securities,” Abdulmenan told The Reporter. “The experience of many African countries substantiates this. The majority of security exchanges in Africa have less than 50 listings.”

Prime Minister Abiy Ahmed (PhD) recently confirmed that state-owned giant Ethio telecom would be listed on ESX, offering 10 percent of shares to the public.

The Exchange wrapped up its own share offering this week after raising more than 1.5 billion birr from 48 investors, including 16 of the country’s commercial banks and 12 insurers. Three foreign investors – the Trade and Development Bank (TDB), FSD Africa, and the Nigeria Exchange Group (NGX) – have also acquired stakes in the upcoming capital market.