The recent rights issues floated on Uganda Stock Exchange have boosted the performance of the bourse, especially investor confidence, even as leading companies intensify efforts to improve market share and future earnings.

Uganda Clays Ltd, the country’s top supplier of building materials and the New Vision Ltd, a government controlled media company have executed successful Rights Issues in recent months which were fairly oversubscribed.

The two rights issue have had the impact of boosting liquidity on the exchange, thereby attracting positive foreign interest. Investor confidence remains high with the counters of Uganda Clays and New Vision registering positive performance.

Leading industry players say the USE is likely to become a favourite avenue for raising capital needed for large investments.

“Despite the numerous regional capital market activities during this time, we were able to surpass the target by a margin of over Ush1 billion ($571,429),” said Njoroge Ng’ang’a, general manager of Dyer and Blair Uganda Ltd, after declaring the results of New Vision’s Rights Issue last month. Dyer and Blair were also the transaction advisors and lead brokers for Uganda Clays’ rights issue.

Despite limited investor awareness about rights issues, both transactions were relatively oversubscribed. Uganda Clays registered oversubscription of Ush1.5 billion ($857,143) out of a targeted Ush10 billion ($5.7 million) during its Rights issue that was concluded in April.

The success was attributed to ever increasing investor confidence in the company which saw its share price grow sharply, leading to a second share split after five months.

The funds were meant for the construction of its second factory in Eastern Uganda which is expected to commence production by the end of this month.

However, 37 per cent of the proceeds were used to clear part of the bank loans acquired for the project, according to the company’s board chairman John Senfuma.

New Vision Ltd’s Rights Issue was oversubscribed by over Ush1 billion ($571,429), against a target of Ush28 billion ($16 million). The funds are intended among others, for the construction of a new factory, print press and expansion into the electronic media.

Unlike Uganda Clays’ Rights Issue which had very little impact on liquidity levels at the USE, trading in New Vision’s Rights registered huge impact with the counter coming second to Stanbic Bank in terms of volume of shares traded though at the expense of other counters.

The intense activity on New Vision’s Rights counter was mainly driven by the desire among some investors to preserve money for more lucrative deals that were anticipated on Uganda Clays and Bank of Baroda counters due to scheduled share splits and government’s decision to offload all its rights shares on the market so as to boost liquidity levels.

The company recorded very low trading in its Rights shares because most investors were keen on holding onto them in order to reap sizeable capital gains in the medium term.

According to the USE, total turnover for the second quarter dropped to Ush13.6 billion ($7.8 million) from Ush36.4 billion ($20.8 million) in the first quarter. Total shares traded dropped to 38.9 million in the second quarter from 67.1 million in the first quarter.

Consequently, rights totalling 20.4 million were traded on the USE, which accounted for nearly half of the trading volumes in the course of their trading period.

Its controlling stake therefore reduced from 80 per cent to 53 per cent, in line with privatisation rules that require the government to retain a majority stake in selected enterprises, including NVL.

It is estimated that 15-20 per cent of New Vision’s rights shares were bought by foreign investors, a development that is expected to boost the level of interest and activity among overseas players towards Uganda’s capital markets.

But some challenges remain. The absence of an electronic trading system on Uganda’s bourse remains a major impediment.

“The paper based system is still a big problem. We would be much more efficient if we had an electronic system of trading in regard to such transactions,’ said Kenneth Kitariko of African Alliance, a stock brokerage and investment fund management firm.