“Understanding Capital
Market In Rwanda”
CIMERWATUESDAY 6TH APRIL 2010
CAPITAL MARKET ADVISORY COUNCIL
Presented byOlivier Kamanzi
Dep. Executive Director, CMAC
OUTLINE
INTRODUCTION
FINANCIAL SYSTEM
WHAT IS CAPITAL MARKET
HOW DOES THE CAPITAL MARKET WORKS ?
PRIMARY MARKET
SECONDARY MARKET
WHAT IS ROTC MARKET / RWANDA STOCK EXCHANGE
WHAT ONE CAN BUY OR SELL ON CAPITAL MARKET ?
MEMBERS OF ROTC & COMMISSIONS AND FEES
BENEFITS TO INVEST & LISTING ON ROTC MARKET
WHAT IS AN INVESTMENT, WHY INVEST, AND WHO IS AN INVESTOR?
MONITORING YOUR INVESTMENT AND WHEN CAN YOU START INVESTING?
HOW TO OPEN AN ACCOUNT AND TRADING
RISKS INVOLVED INVESTING IN CAPITAL MARKET
HOW AM I PROTECTED ?
CMAC OPPORTUNITIES AND ADVANTAGES
CMAC MILESTONES ACHIED
INTRODUCTION CMAC BACKGROUNG
The Capital Market Advisory Council (CMAC) was established by the Prime Minister’s order No. 01/03 of 28/03/2007 with the purpose of guiding the development of the capital market in Rwanda. The Council is under the supervision of the Ministry of Finance and Economic Planning
CMAC VISION
To be a key contributor to Rwanda becoming a competitive financial center regional and globally.
MISSION
To nurture wealth by facilitating the development of an orderly, fair, transparent and efficient capital market
CORE VALUES
Good Governance, Knowledge, Creativity and Innovation
FINANCIAL SYSTEM IN RWANDA VISION 2020
The Financial Sector identified as crucial geared towards stimulating the economic growth of Rwanda
FINANCIAL SYSTEM ARCHITECTURE
MONEY MARKET – Regulated by BNR
CAPITAL MARKET – Self regulated
INSURANCE – Regulated by BNR
PENSIONS – Regulated by BNR
MICRO-FINANCES – Regulated by BNR
NATIONAL PAYMENT SYSTEM – Regulated by BNR
WHAT IS CAPITAL MARKET
A market for SAVINGS and INVESTMENTS. Brings savers and investors together.
Market for long term funds required to finance long term projects.
Section of the financial sector that mobilizes savings and channels them to the most productive sectors of the economy.
If investment is going to increase the wealth of a nation, it must be channeled into productive businesses.
ROLE OF CAPITAL MARKET IN THE ECONOMY
Allocation of savings resources at the most efficient prices
2. Corporate governancei. transparency through disclosureii. higher standards of accounting
3. Risk sharing through wide share ownership4. Promote ease of access to finance as
different users of capital can choose among different methods i.e.-commercial paper- shares-bonds-government bonds-municipal bonds
ROLE OF CAPITAL MARKET IN THE ECONOMY
1. Allocation of savings resources at the most efficient prices
2. Corporate governance
a. Transparency through disclosure
b. Higher standards of accounting
3. Risk sharing through wide share ownership
4. Promote ease of access to finance as different users of capital can choose among different methods i.e.
a. Commercial paperb. sharesc. Bonds – Government and Corporate d. Municipal bonds
ROLE OF CAPITAL MARKET IN THE ECONOMY
5. Promote growth of financial services to accelerate growth
a. Insuranceb. Pensionsc. Collective investment schemesd. Funds Management and administratione. Bankingf. Real estate & propertyg. Infrastructure development
6. Privatization
7. Widening ownership of business and spreading the risks and wealth of a nation among the households.
ROLE OF CAPITAL MARKET IN THE ECONOMY
8. Savings from diasporas. Easy to use capital market to tap nationals savings earned in foreign countries.
9. Attract FDI as capital market provide an exit window
10.Diversification from traditional economic activities like agriculture
11.Savings culture through public education in investments
12.Encouraging self reliance
HOW DOES THE CAPITAL MARKET WORKS?
3 Components: Issuers, Investors, and Intermediaries Organized markets where buyers and sellers (Investors or
the public) meet A stock exchange or an OTC market has professional
intermediaries. Capital markets has two levels;
A. Primary Market: to raise new capital
B. Secondary Market: day to day trading of already listed securities.
Capital markets rely on;
Rules and regulations
Physical infrastructure Companies disclose all useful information about their
businesses
TRANSACTION FLOW – PRIMARY MARKET
Issuer is admitted to list on the OTC
Offer closes and announced and allotment follows
Public investors subscribe to securities during the offer period
Issuer states the offer period and offers securities to the
public
Issuer applies to list securities on the OTC market
Issuer prepares draft prospectus or information memorandum
Issuer appoints advisors sponsors / agents
Issuer offersDecides to raise capital
SECONDARY MARKET
Buyer client
Member
Stockbroker
(Buyer)
CMAC
OTC
Trading facilities
Registration
Member
Stockbroker
(Seller)
Seller Client
Market Report
Market where transactions are negotiated between a buyer and a seller.
How does the Rwanda OTC market operate?
A dual trading process
Members trade securities directly with investors and among themselves
Open outcry trading sessions are conducted at the trading floor of the OTC market.
WHAT IS AN OTC MARKET
ROTC MARKET PERFORMANCE
The primary debt market raised a total of Rwf.15.2 billion. On secondary market a total of Rwf 643 million worth of bonds were traded in 52 transactions.
BCR 10 years, 9% coupon, Corporate Bonds
FXD1, 8%, 2 year, Treasury Bonds
FXD2, 8% 2 year, Treasury Bonds
FX3, 8.25%, 3 year Treasury Bonds
Cross listing of KCB: Turnover of Rwf 12million from 63,000 shares traded since 18th June 2009
The Rwanda Stock Exchange was
established in 2005. It is a dormant
company yet to be activated. It will be
expected to run the trading operations
of the Rwanda OTC Market.
RWANDA STOCK EXCHANGE
Treasury Bonds
Corporate Bonds
Security Maturity Coupon Rate
%
Closing price
08/5/08 Rwf
YTM
%
Prev. Price 07/5/08
Rwf.
Bid
Offer (Ask)
Sales Rwf
FXD1/2008/2yr 14/01/2010 8.00 100.250 6.912 100.00 - 102.00 5M
FXD3/2008/3yr 31/01/2011 8.25 - - - - - -
Bond Rate (TB) Maturity Closing price31/1/08
Previous price31/1/08
Bid Offer (Ask) SalesRwf
BCR2yr
FXD1/2008+ 1.00%
2017 102.2500 102.2500 - - -
UNDERSTANDING THE MARKET REPORT
Shares and bonds
WHAT IS A BOND? A bond is a debt.
WHAT IS A SHARE / EQUITY? A share is a unit of ownership Participate in the affairs Your voting rights at the General meetings A dividend income
WHAT CAN ONE BUY ON ROTC MARKET?
7 members
Three categories of membership:
Stockbrokers, Dealers, and Sponsors
MEMBERS OF THE RWANDA OTC MARKET?
Helps investors to either buy or sell securities
Acts as the middleman or intermediary between investors
Gives advice to investors
To qualify as a broker
Minimum education skills and professional qualifications
WHO IS A STOCKBROKER OR BROKER/DEALER?
The current brokerage fees are: Bonds (debt): First Rwf 5m……………1/8%
Above Rwf 5m ………………..……negotiable
Shares (equities): First Rwf 100,000...1.5%
Above Rwf 100,000…………………………….. negotiable
HOW MUCH COMMISSIONS OR FEES DO STOCKBROKERS OR B/D CHARGE?
Savings
Income
Wealth or Capital gain
Securities as Collateral
Liquidity
BENEFITS TO INVESTORS?
Access capital Discover the value of its business Raise a company’s visibility and enhance its
status with customers and suppliers at home and overseas
Have better bargaining position with financiers Enhance management practices Foster employee motivation Benefits from Capital Market incentives Use of shares as currency Listed securities are easily acceptable as
collateral against loans from financial institutions.
BENEFITS TO ISSUERS OR LISTING ON OTC MARKET?
Payday Postponing your consumption today savings
WHAT IS AN INVESTMENT?
WHY INVEST?
Creating wealth It is impossible to create wealth without
investing Secure the future Comfortable retirement Investment is a time-honored practice for
increasing your wealth
Anyone with
Investment objective
Time horizon for his investment
Risk torelance
Expectation of return and money to invest
WHO IS INVESTOR?
Actively follow or monitor his investment
Developments within the company you invested in
The stock market
The economy as a whole
Reading the business pages of the newspapers and listening to local FM station and TV
MONITORING YOUR INVESTMENT?
NOW!!!
WHEN CAN YOU START INVESTING?
Open an account with a brokerage house Making contact with a broker of your choice Personal particulars
HOW TO OPEN AN ACCOUNT?
TRADING ?
Trading arrangement
Only through authorized Members (Stock brokers)
Trading is open to the general public
Business risks
Behavioral risk / Counterparty risk
Poor or fraudulent
Market risks / Systemic risk
Price fluctuation(worldwide)
Perceived risk / Fear
RISKS INVOLVED INVESTING IN CAPITAL MARKETS ?
CMAC ensures that only competent and credible professionals are licensed to serve the market.
CMAC supervises all members of ROTC to ensure compliance with regulatory requirements
CMAC ensures that prospectuses of issuers have adequate disclosure for decision making
CMAC ensures that there are periodic reports and all price sensitive information are released once they are available
National public education and awareness campaigns create well informed investors
Developing a legal framework.
HOW AM I PROTECTED?
Stockbrokers; Investment advisors; Registrars; Fiscal agents; Custodians; Data vendors; Credit Rating agencies; Investment banks; Venture Capital companies; Investment clubs; Investment research houses; Financial analysts and
journalists; Financial Publications; Discount Houses (Treasury
bills on Rwanda OTC market); Fund managers and Asset managers; Hedge funds. Etc…
CAPITAL MARKET OPPORTUNITIES?
Viability of projects determined by demand and supply.
Liquidity and projects pricing is made possible through public participation
Availability of information by investing publicly.
CAPITAL MARKET ADVANTAGES?
ROTC Market fully functioning (primary and secondary market)
7 Active Members Legal Framework: Draft Law on Capital Market Authority, Draft
Law Regulating Capital Market in Rwanda, Law Regulating Collective Investment Schemes – approved by the Cabinet
Policy Proposals Privatization of Government Shares through the capital
market Fiscal and None Fiscal Incentives: set of incentives and
recommendations aimed at stimulating the investment environment for the development of the capital market in Rwanda
CMAC Strategic Plan – 5 years National Public Education and Awareness Program Capacity Building – Training program for Market Participant
and Staff New Listing Integration into East Africa Capital Market – Member of
EASRA & EASEA
CMAC MILESTONES ACHIEVED?
MURAKOZE
CYANE