At least 12 companies risk being delisted from the Nairobi Securities Exchange due to poor performance and corporate governance challenges.
The EastAfrican has learnt that market regulators are targeting firms in which investor confidence has dropped significantly, making them trade below or near their par values. They will be moved to the recovery board.
Also to be moved on the recovery unit are firms struggling with negative working capital — where short-term assets fall short of short term liabilities — making it difficult for them to pay their short-term debt and meet daily financial obligations.
Uchumi Supermarkets, Mumias Sugar Company, Kenya Power, National Bank and TransCentury are among corporates being targeted for the recovery board, due to their declining financial performance, corporate governance issues and the rapid decline of their share prices.
The firms will be given a lifeline of two to three years to turn around or be issued with notices of delisting.
The NSE has been mandated to speed up the process of setting up the recovery board to take care of the ailing firms.
“I don’t think we have options on how to deal with these firms, apart from the continuous monitoring of their business strategies as we wait to put them on the recovery board,” said a source with knowledge of the matter.
“If they fail to turn around within the given timelines then we shall issue them with notices of delisting.”
According to last week’s trading statistics from the NSE, the other companies that risk being put on the recovery platform are Express Kenya, Sameer Africa Plc, Athi River Mining, EA Cables Ltd, East Africa Portland Cement, Home Afrika Ltd, Olympia Capital Holdings Ltd and Eveready East Africa.
Kenya planned to create the special trading platform for troubled listed firms after it emerged that outright delisting could create a confidence crisis in the capital markets and send the wrong signals to potential investors.
The Capital Markets Authority has proposed an amendment to the NSE listing and trading rules, introducing a board where financially distressed firms can be rehabilitated over two to three years to help them get back on their feet.
The companies will be required to furnish the authority with a turnaround plan. Failure by the rehabilitated firms to recover within this period will lead to delisting from the exchange as the last resort.
“Companies that do not meet the minimum listing criteria will be automatically moved to the recovery board where there will be a firm timeline within which they must remedy their areas of non-compliance or be delisted,” said CMA chief executive Paul Muthaura.
Investors trading in firms that have been moved to the recovery board will be advised to trade with caution and be aware that they are dealing with firms in trouble.
Hong Kong and India have similar boards to put listed firms that do not fit on the main board to ensure key investor protection measures are maintained.
Several listed firms on the NSE are grappling with liquidity, corporate governance and insolvency challenges.
Some firms have even dropped into negative working capital territory.
“Yes, the Exchange is aware of the situation and has continuing engagements with the affected companies to assess their individual positions,” said NSE chief executive Geoffrey Odundo.
Kenya has 67 listed firms. Three — Marshalls East Africa Ltd, Hutchings Biemer and A. Baumann — have been delisted while Atlas Africa Industries Ltd has been suspended from trading.