Capital Markets

The Capital Market in Uganda is regulated by the Capital Markets Authority (CMA). The Authority was set up by the CMA Statute No. 1 of March 1996 as an autonomous body under the Ministry of Finance, Planning and Economic Development. CMA is responsible for supervising the securities markets including licensing formal exchanges, dealers, asset managers and collective investment schemes.

By June 2007, the CMA had licensed 1 Stock Exchange (Uganda Securities Exchange), 18 Investment Advisors, 4 Fund Managers, 5 Broker/Dealers, 11 Government Bonds; 2, 3, 5 and 10 year bonds, 1 Corporate Bond, Uganda Telecom Ltd and Collective Investment Schemes (CIS) comprising 1 Asset Manager and 3 Funds.

The capital market is a recent development in Uganda and has not fully developed the depth needed to service the capital needs of the country. Local issues are minimal and liquidity is low. Trading and settlements in the USE are not yet performed electronically although the USE is keen to implement electronic trading and settlement. Market growth in the sub sector is envisaged to come from regional integration and further cross-listings. Uganda, Kenya, and Tanzania already have harmonised rules and regulations with the aim of having a regional capital market by 2009 as envisaged by the East African Development Strategy. Rwanda and Burundi which are new entrants in the EAC are also engaged in the integration process.

The securities market has continued to register positive progress in the turnover and listings. Cross listing of companies has also attested to the capability of the Securities Exchange to mobilize resources in the three East African countries and beyond. The companies currently listed on the USE include not only local listings but Cross border listings which are a new initiative in the East African Market. There are currently 9 companies listed on Uganda’s Security Exchange. 6 of them are local listings (DFCU, Stanbic Bank, New Vision, Uganda Clays Bank of Baroda, British American Tobacco, while the 3 are cross listings (East African Breweries Ltd, Kenya Airways Ltd and Jubilee Holdings Limited Table below shows market activity in USE over the last three Financial Years (FYs).

How to join the Industry

Capital markets industry in Uganda can be joined by either of the following ways; issuing company shares to the public, listing your company on the Uganda Securities Exchange, issuing commercial paper, issuing a Bond and obtaining a broker/dealer, investment advisor, fund manager, unit trust manager or unit trust trustee license.

Investment Advisor – To obtain an investment advisor license from CMA, the applicant is required to pay an annual licensing fee of Ushs 1.5 million and an application fee of Ushs 500,000/=.

Fund manager license, Investment Advisor and Fund Management License– An annual licensing fee of Ushs.1.5 million, and an application fee of Ushs 500,000/= is required. In addition the level of shareholders funds should not fall below Ushs 150 million at anytime during the license period. Other documents required include; Articles & Memorandum of Association, Business Plan and information on experience of applicant/directors.

Broker/Dealer License – An applicant for a license is required to have a net capital of UShs 15 million, pay a deposit fee of UShs 5 million (refundable), a license application fee of UShs 500,000 and a license fee of UShs 1.5 million.

Corporate bonds and commercial paper – Guidelines for issuing corporate bonds and commercial paper are summarised in the Table below

Guidelines for issuing corporate bonds and commercial paper

	Requirements
Offer document	The issuer should submit to CMA a prospectus or information memorandum which complies with all the requirements for issue of securities under the Capital Markets (prospectus Requirements) Regulation 1996 as amended, and on approval, publish the said a prospectus or information memorandum
Minimum paid up share capital and reserves	Ugx 1 billion (it shall be maintained at that level during the period the commercial paper remains outstanding
Profitability	Profits in 2 of the last 3 years
Total indebtedness including new issue	Minimum 400% of net worth or gearing ratio of 4:1
Weighted average of funds from operations to total debt	40% of the three accounting periods preceding the value
Minimum size of issue	Ugx 500 million
Minimum size of lots	Ugx 100,000
Accountants report covering the last 3 financial years	Disclose the following: – Earnings before interest and tax (EBIT) interest cover – Funds from operation to total debt (%) – Free cash flow to total short term obligations – Net profit margin – Post tax return before financing on capital employed – Long term debt to capital employed ration – Total debt to equity ration – Any other information that CMA may deem necessary
Cash flow projection	For the next 12 months
Continuous disclosure	– Issuer should disclose to CMA any information that affects its credit worth. – Half yearly mandated and annual audited financial statements during the period of the bond to be submitted to CMA and published in a local daily newspaper with national circulation.
Guaranteed bonds	Guarantor should submit to CMA A no objection from Bank of Uganda where guarantor is a financial institution A no objection from the Uganda Insurance Commission where guarantor is an insurance company Financial capability statement certified by the issuers auditors Financial capability report from credible credit rating agency where guarantors is a foreign company
Public announcement	Issuer to make a public announcement in electronic and print media with nationwide circulation at least one week before the issue opens
Appointment of advisors	Issuer should appoint: – Advisors for the issue – Placing agents – Receiving bank – Payment and settlement agents – Approved registrar – trustee
Fees	0.1% of the issue fee prescribed in the CMA (prospectus Requirements) Regulations 1996 as amended.

Source: Capital Markets Authority

Listing on the stock exchange – The official list of the Uganda Securities Exchange (USE) is categorized into three different market segments, each having different eligibility and listing criteria. The three market segments are; Main Investment Market Segment (MIMS), Alternative Investment Market Segment (AIMS) and Fixed Income Securities Market Segment (FISMS). MIMS is the main quotation market segment with stringent eligibility, disclosure and listing requirements. Information on listing on the Fixed Income Securities Market Segment, MIMS and AIMS can be accessed on http://www.cmauganda.co.ug

Investment Opportunities in the Capital Markets Industry

The main instruments currently traded in Uganda’s capital market and on the Uganda Securities Exchange are Equities, Corporate and Government Bonds Government Bonds, Collective Investment Schemes (Unit trusts and open ended investment companies (These are new products which were launched in 2004). Given that capital markets are an emerging and vibrant sector in the economy, the following opportunities exist as an avenue for investment in the sub sector.

Brokerage, sales and tracking services firms with international experience and network;

Fund management;
Investment Advisors and Asset Managers to mobilizes capital (savings) for the market;
Discount houses for making a market and securities thereby developing a secondary market for those securities;
Underwriting of securities;
Establishing of Investment banks;
Operating of Collective Investment Schemes.

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