Experts have named some of the factors as lack of funds for start-up businesses to meet primary costs for consultancy, legal services and nominated advisors (Nomad) as well as regulations conflict between Bank of Tanzania (BoT) and capital markets.
EGM is a new segment, which has been introduced in the country’s capital markets designed to facilitate mobilisation of capital by companies that do not meet the eligibility criteria for listing on the main investment market segment.
This market segment (EGM) is also designed to help start-up companies with good business plans but lacking capital, to raise funds for their initialisation as well as implementation of their plans.
Ivyen Nsemwa from the Dar es Salaam-based Arch-financial Advisors said recently in Dar es Salaam that it has been hard for small and medium enterprises (SMEs) to enter the new market segment.
“Apart from lack of funds and regulation contradictions, it is hard for SMEs to underwrite as no one is interested to underwrite a start-up company. Also prospectus evaluation in the capital markets is high for such companies; the fees are too costly,” he said.
“Swala Company wanted to raise capital through the EGM segment but from their own assessment, they realised that it wasn’t easy for them to get into the market, and therefore they couldn’t proceed with preparations to enter the said market,” he added.
Without going into details, he opines that there is a general lack of appetite for investors to put their money in a start-up company.
George Fumbuka from Core Stock Brokers lamented on the lack of transparency surrounding EGM. “The issue of where to get money is the problem; the regime requires a company to have a banking history yet these are just starting businesses and they have come to seek capital as long as they have a good business plan,” he said.
According to stipulated conditions for issuance and listing under EGM, a company must be incorporated as a public company under the Companies Act; there is no minimum capital requirement, no minimum track record required and no minimum profitability requirement.
And if the company has no track record, promoters will not be allowed to exit for three years of listing, the company must appoint and retain a Nomad and it must have five years business plan as well as an independent technical feasibility report prepared by the Nomad and the minimum number of shareholders should be 300.
Other conditions are that the public shareholding should be at least 20 per cent of the issued shares and the company should prepare a prospectus for approval by the Capital Market and Security Authority (CMSA).
A start-up company is also required to publish an abridged prospectus in the press, it must have an Audit Committee as per the guidelines on corporate governance; and the Memoranda and Articles of Association should provide for good corporate governance observance.
Therefore, a start-up company that has met the initial listing conditions is required to adhere to the procedure for listing which include appointing a team of consultants to prepare the company for public issuance of securities and the listing of these securities on the stock exchange.
Also an issuer is required to appoint a Nomad to nurture the company from the initial idea of raising capital via EGM until de-listing from EGM (end of listing on EGM) (if any) or the company graduates to the main investment market segment listing.
Furthermore, the issuer must submit to CMSA and DSE the application of a Nomad for approval of both institutions. It should also prepare a prospectus for the purposes of public offer and listing as required by CMS Prospectus Regulations as well as furnishing a letter of undertaking that the company will comply with DSE continuous listing obligations.
EGM was launched in 2013 as equity market specifically intended for start-ups, SMEs to enable them to access the capital markets.
Up till now, only four companies have been listed, a move termed as an achievement since in the same period zero companies have been listed through the main investments market segment (MIMS).
Therefore, the country’s equity market has two market segments namely the MIMs which is for well established companies having among others a track record of existence and profitability; and the EGM for start-ups, small and medium size companies.