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How to Raise Capital
SME Hand Book
What is the Alternative
Investment Market Segment?
The Alternative Investment Market Segment (AIMS) of the Uganda
Securities Exchange is a platform through which Small & Medium Enterprise
(SME) companies can access capital through the capital markets. The AIMS
is built on a simplified listing framework with less stringent requirements
than the Main Investment Market Segment (MIMS).
In order for a company to raise
capital by issuing securities to
the general public and provide the
investors with a mechanism to sell the
securities that they have purchased,
the company or the securities must
be listed on the Uganda Securities
Exchange (USE). Listing on the USE
is governed by the Listing Rules of
the Exchange, the provisions of the
Capital Markets Authority Act, Cap
84 Laws of Uganda 2000, the Capital
Markets (Prospectus Requirements)
Regulations, 1999 and the Companies
Act, Cap 110 Laws of Uganda 2000.
This brochure seeks to help MSME/
SME understand the Listing Process,
Benefits and Rules of raising capital
on the USE. The simplified Rules
provide a quick reference point but
in no way do they substitute the full
text of the USE Listing Rules. Any
person seeking a listing of a security
must refer to and comply with the
provisions of the Listing Rules.
SME Hand Book
1
Some banks have expressed difficulty in
serving the SME market. The difficulty lies in the
high risk levels and transaction costs associated with
lending SME companies.
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How to Raise Capital
Why Go Public
Deciding to go public provides a wide range of benefits for your company,
therefore the choices a company makes are very important.
Going public is an opportunity for a
company to have access to capital for
future growth. A company may choose
to list on the AIMS/SME segment in
order to:
• Access capital for growth, both at
the time of initial public offering
(IPO) and later through additional
issues.
• Cultivate employee motivation
through employee incentives like
share options and employee share
schemes
• Improve governance and
management practices
• Attain objective and transparent
market valuation of the company.
• Better credit ratings with
financiers
• Raise the profile and level of
awareness of the company and its
products with customers, suppliers
and competitors.
Ways through which a company can
raise capital in the Capital markets
• Equity: A company may raise
capital through issuing shares to
the public.
• Bonds: A company may raise
capital through debt instruments
e.g. corporate bonds.
Two Segments exist under equity
section, namely the Main Investment
Market Segment (MIMS) and the
Alternative Investment Market
Segment (AIMS) also known as the
SME Segment.
The AIMS/SME segment is a market
segment designed for small and
medium enterprises to access
affordable long-term capital and
secure equity participation of
both institutional and individual
investors. The segment is geared for
companies wishing to take advantage
of the opportunities and advantages
associated with raising capital
through the capital markets.
SME Hand Book
3
Benefits of Joining
the AIMS/SME Segment
The reasons for listing on the AIMS/SME segment vary among the
companies based on the company’s stage of development, age, size and
type of business. Being listed provides both the company and investors
with a number of benefits which include among others:
Enterprise Benefit
• Attract new investors and open up
new investment avenues
• Enhance company prestige and
status
• Improved Corporate Governance
standards and maximizing
shareholders’ value
• Visibility of company brand
through regular publication of
market data via stock market
reports and press media
• Help restructure a company’s
balance sheet
Investor and Shareholder Benefits
• Objective market valuation of
shares through the price discovery
mechanism
• Opportunity to invest in profitable
companies
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How to Raise Capital
• Improved liquidity of underlying
shares
• Exist mechanism to divest and
when the investor may wish
Financial Benefits
• Cheaper alternative to raise capital
• Improved credit rating for company Employee Benefits
• Boost employee motivation &
loyalty
• Enhance a sense of ownership
• Streamlined management
structures
Supporting the SMEs
to Raise Capital on the USE
The USE ensures that your company accesses all the information and
support it needs to make the right decision for your business. The USE
will provide support and guidance both before and after you join the
AIMS market.
Prior to Joining
The USE will provide your company
with the necessary training to help in
deciding whether raising capital on
the USE is right for your enterprise.
This training will help you understand
the benefits that your enterprise can
derive from raising finance through
the capital markets.
We will help you understand the prelisting and post-listing obligations of
an enterprise seeking to raise capital
on the SME Segment of the USE.
After Joining
The USE will be available to address
any questions and concerns that you
may have with regard to any post
listing concerns that may arise.
Publications & Mailings
The USE Daily Market Report and
periodic publications will keep you
abreast of the key developments on
the AIMS/SME Segment.
SME Hand Book
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Many SMEs still rely on internally generated
funds, loans from family or friends and other informal
lenders. These funds may often be very expensive or
may not be available in a sustained manner thereby
limiting the SMEs’ capacity to grow.
What are the Requirements for
Listing on the AIMS/SME Segment
The listing requirements for the AIMS/SME segment are simplified compared
to the Main Investment Market Segment.
Enterprises looking to raise capital on
the AIMS/SME segment are required
to have attained a certain size, in
terms of net assets, a sound business
plan, and meet the requirements for
listing. Some of these requirements
are similar for all market segments
while others are specific to the AIMS/
SME Segment.
to the public. In addition, the laws
of the country of incorporation
must allow the issuer to engage in
the proposed issue. The purpose of
this provision is to ensure that the
securities issued to the public are
governed under the Laws of Uganda.
General Requirements
Transferability: The securities for
which listing is sought should be paid
up and freely transferable.
Status of the Securities: The
Company’s laws of incorporation
must authorize the Issuer to issue
the securities proposed to be issued
Undertakings: The Company should
undertake to the Exchange in writing
by resolution that it shall comply with
the listing Rules of the Exchange.
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How to Raise Capital
Financial Information: The financial
statements should be drawn up in
accordance with the national laws of
the Issuer and shall be prepared and
independently audited in accordance
with International Accounting Standards.
Directors: The directors and senior
management of the Issuer should
collectively have appropriate expertise
and experience for the management of
the Issuer’s business.
CMA Approval: The securities for
which listing is sought should have
been approved in writing by the
Capital Markets Authority (CMA). The
approval of CMA is based on the CMA
Act and regulations ensuring that
the prospectus or the information
memorandum complies with the
requirements of the CMA.
SME Hand Book
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Listing Requirements Specific to AIMS/SME
The AIMS segment provides an avenue to Small & Medium Enterprises
to raise capital. For a company to be considered for listing under this
segment, it must comply with the following requirements:
• The Company must be a public company limited by shares under the
Companies Act, Cap 110.
• The minimum authorized, issued and fully paid-up capital of the
Company must be at least Ug. Shs 200,000,000/= (Two hundred million
Uganda Shillings Only).
• The net assets of the Company must be valued at a minimum of at least
Ug. Shs 400,000,000/= (Four hundred million Uganda Shillings Only)
prior to raising capital.
• The Company must submit a business plan with a clear indication of its
prospects.
• Where a company opts to raise capital through equity, the minimum
number of shareholders immediately following the closure of the initial
public offering shall be one hundred.
• The Company should have published audited accounts for at least two
years.
Other requirements include:
• The Company must have suitably qualified senior management for at
least one year prior to the application to raise capital, none of whom
has committed an offence considered inappropriate for the management
of a Company.
• No director of the Issuer should have in the preceding two years
been adjudged bankrupt, had any winding up proceedings pending or
threatened against it (in the case of a company), been convicted of a
felony within ten years prior to the application, or been temporarily or
permanently prohibited by a lawful order from acting as director of a
public company.
• The controlling shareholders should make an undertaking to the
Exchange to hold onto their shares for a period of at least 24 months
following approval of the application for listing.
• At least one third of the Board of Directors should consist of
independent non-executive directors.
• The Company must comply with detailed disclosure requirements for the
AIMS/SME segment as specified in Appendix 2 of the Listing Rules.
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How to Raise Capital
Advisors Involved in Raising
Capital & the Listing Process
To bring a private company to the
stage where it qualifies to raise capital
& list on the USE requires the coordinated efforts of a number of skilled
professionals, each of whom brings
to the “Flotation Team” his unique
skills and expertise. The team works
together to prepare the Prospectus and
Information Memorandum.
A Sponsoring Broker
The sponsoring broker plays a
crucial role in co-ordinating the
flotation team and advising the
company on various aspects of the
issue.
i Initial Appraisal: An
important initial view will be
required from the sponsoring
stockbroker on the suitability
of a particular company for
flotation and on the optimum
timing of the flotation.
ii The prospectus: It is essential
that the prospectus contains
the details concerning the
company in a format which is
suitable for appreciation by the
potential investor and which
meets the requirements of the
Ugandan law and the USE.
iii Exposure to potential
investors: The sponsoring
broker will assess the best
method of marketing a
particular company’s securities
and to liaise with the issuer
and other professionals on
presentations to potential
investors. The sponsoring
broker distributes to all its
clients and likely investors a
comprehensive report on the
issue, together with a copy of
the prospectus. The investing
public normally direct their
inquiries on the issue to the
sponsoring broker.
iv Pricing: The sponsoring broker
has the unique insight into
the price which the market
finds acceptable and therefore
has a prime role to play in the
decision on the appropriate
price at which the securities
may be sold.
SME Hand Book
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B Transaction Advisors
Transaction Advisors play a
crucial role in the period prior
to the flotation and after. As
experts in the field of finance and
investments, Transaction Advisors
will in consultation with company
senior management and other
experts do the following:
i Identify capital requirements
and composition
ii Draw the corporate financial
and investment strategy
iii Steer the drafting of the issue
prospectus
iv Advise the pricing and timing
of the issue
v Assist in the distribution of the
prospectus and marketing of
the Company
vi Perhaps the most important
role of the Transaction
Advisors is the underwriting or
arranging for the underwriting
of an issue. By underwriting,
the Transaction Advisors
demonstrates its support and
confidence in the company
which the investing public
takes note of.
viiPlays an important role in the
allotment process including
refunds.
C. The Auditors
The auditors of the company
are normally appointed to the
Flotation Team as the reporting
accountants to the issue. They
play a key role at all stages of the
pre-listing period including the
following:
i The Accountant’s Report: This
10 How to Raise Capital
is an essential part of the
prospectus and covers such
areas as the basic structure of
the Company, the accounting
policies, the earnings of the
Company over the previous
three/five years, where
applicable, the Company’s
assets and liabilities and other
financial details.
ii The Prospectus: The
accountants must ensure that
all the financial information
in the prospectus is recorded
accurately and in strict
accordance with the facts and
the law.
iii Tax: The accountants will be
consulted frequently on the tax
implications of the Company,
particularly if a restructuring
of the Company is necessary
prior to listing. The importance
and value of this contribution
by the accountants to the
flotation cannot be overestimated.
iv General: The auditors will often
have significant input into
the more general areas of the
prospectus as well as on such
matters as employee share
option schemes and accounting
policies.
D. The Advocates
The firm of advocates acting
for the company advises on the
re-organisations that arise when
a company transfers to public
status, including such matters as
changes to the memorandum and
articles, share capital, registration
A substantial portion of the SME sector may
not have the security required for conventional
collateral based bank lending, nor high enough returns
to attract formal venture capitalists and other risk
investors.
as a public company and so on.
They will normally input into the
prospectus and confirm on title to
properties and any litigation and
material contracts outstanding.
E. The Public Relations and
Advertising Agents
Depending on the public profile
of the company planning entry
to the market, a campaign to
increase public awareness about
the company and its upcoming
Issue, needs to be conducted
throughout the period up to
flotation. Advertisements in the
different media may form a part
of this campaign. One of the
most important contributions to
be made by the advertising and
marketing agents is the successful
marketing of the Issue.
F. Valuation Reports
Reports by professional valuers
on the company’s properties and
other fixed assets such as plant
and machinery and also reports by
other specialists must be included
in the prospectus.
SME Hand Book
11
Glossary
AIMS
Bond
Broker
Capital
Capital Market
CMA
Debt
Equity
Issue
MIMS
SME
Acronym for Alternative Investment Market Segment.
A certificate evidencing a debt on which the Company or Issuer promises to pay the holder a
specified amount of interest based on the coupon rate, for a specified length of time, and to
repay the loan on its maturity.
General term for an investment broker-dealer or a duly registered individual who is an
employee of a licensed securities broker-dealer that is registered to trade in securities in the
capacity of an agent or principal.
The term has two distinct but related meanings. To an economist, it means machinery,
factories and inventory required to produce other products. To an investor, it may mean the
total of financial assets invested in securities, a home and other fixed assets, plus cash.
Financial markets where debt and equity securities trade. Capital markets include organized
exchanges as well as private placement sources of debt and equity.
Acronym for Capital Market Authority.
Money borrowed from lenders for a variety of purposes. The borrower typically pays interest
for the use of the money and is obligated to repay it at a set date.
Ownership interest in a corporation’s stock that represents a claim on its earnings and
assets.
Any of a company’s securities; the act of distributing such securities.
Acronym for Main Investment Market Segment.
Acronym for Small & Medium Enterprise.
List of the Licensed Member Firms
African Alliance (Uganda) Ltd
Workers’ House, 6th Floor Plot 1
Pilkington Road
Tel: +256 414 235 577
Fax: +256 414 235 575
E-mail:securities@africanalliance.
co.ug
Baroda Capital Markets (U) Ltd.
P.O. Box 7197 Kampala
Tel: +256 414 233 680/3
Fax: +256 414 258 263
Email: bob10@calva.com
Crane Financial Services (U) Ltd.
Plot 20/38 Kampala Road
P.O. Box 22572 Kampala
Tel: +256 414 341 414/ 345345
Fax: +256 414 231 578
Crested Stocks and Securities
Limited
6th Floor Impala House
Plot 13-15, Kimathi Avenue
P.O. Box 31736, Kampala, Uganda
Tel: +256 414 230 900
Fax: +256 414 230 612
Email: info@crestedsecurities.com
Web: www.crestedsecurities.com
Dyer & Blair (Uganda) Ltd
Rwenzori House Ground Floor
P.O. Box 36620
Tel: +256 414 233 050
Fax: +256 414 231 813
Email: shares@dyerandblair.com
Equity Stock Brokers (U) Ltd.
Orient Plaza Plot 6/6A Kampala
Road, P.O. Box 3072 Kampala
Tel: +256 414 236 012/3/4/5
Fax: +256 414 348 039
Email: equity@orient-bank.com
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Renaissance Capital Ltd
Plot 15, Kitante Close, Lower Kololo
P.O. Box 893, Kampala, Uganda
Tel: +256 41 4340018/9
+256 31 2264775/6
Fax: +256 41 4340016
Email: enquiries@renaissance.
co.ug
UAP Financials Limited
Plot 1 Kimathi Avenue
P.O. Box 7185, Kampala, Uganda
Tel: +256 414 332700
Uganda Securities Exchange Ltd.
Plot 1, Pilkington Road
Worker's House, 2nd Floor, Northern Wing
P.O. Box 23552, Kampala, Uganda
Tel
+256 414 259 585, 342 818
+256 312 370 815, 370 817, 370 818
Fax
+256 414 342 841
Email info@use.or.ug
Website www.use.or.ug