Kenya CMA endorses recovery board for ailing firms listed on bourse

Sunday February 25 2024

The Nairobi Securities Exchange (NSE) trading screen. PHOTO | DIANA NGILA | NMG


The Capital Markets Authority (CMA) has sanctioned the implementation of the contentious recovery board for ailing companies listed on the Nairobi Securities Exchange (NSE).

The move will see troubled firms such as TransCentury, Kenya Airways, Mumias Sugar Company and Uchumi Supermarkets transferred to a special board for two years to help them get back to stronger footing.

Failure to recover within this period would lead to delisting of such companies from the exchange.

TransCentury, Kenya Airways, Mumias Sugar Company and Uchumi Supermarkets are currently grappling with a mix of depleted shareholder funds, losses, lack of sales and financial reporting gaps, presenting a great risk for uninformed investors.

Investors trading in firms on the recovery board would be advised to trade with caution, seeing as they would be dealing with firms in trouble.

The policy shift which has been in the works since 2018 seeks to protect investors from buying shares in troubled firms, avert unexpected company failures and help revive investor confidence in the volatile equity trading business.


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The regulator, through a special issue of the Kenya Gazette Supplement No 204, has authorised the NSE to prepare and submit for approval the rules for the administration of the recovery list, including rules on the setting up of a recovery board.

Under the plan, troubled firms will first be put on the recovery board for 24 months before they are delisted or suspended from trading if they fail to comply. No company will be suspended or de-listed by the NSE without the prior written approval of the CMA.

The separate trading board is designed for listed companies that fall into financial or management trouble. These include those that fail to comply with disclosure requirements, those that delay in reporting of financial results and those whose working capital falls below the minimum or operate negative working capital positions.

A review of the financial statements of several listed firms shows those likely to be in the recovery board are East African Portland Cement, Home Afrika and Kurwitu Ventures, which suffer a mix of losses, capital shortfalls, lack of revenue and patchy financial reporting.

“An issuer on the recovery list may apply to the Authority to be removed from the recovery list if it complies with net assets and solvency requirements or such other requirements as may have been imposed by the Authority,” the new rules read.

But the rules contained in the Gazette Notice dated October 27, 2023 give troubled companies the right to be heard by the regulators (CMA and NSE) before being placed on the recovery board.

According to CMA, firms placed on the recovery list shall be required to immediately announce the action through its website and in a daily newspaper with nationwide circulation. These firms are also required to provide a restructuring plan approved by its members to the regulators and implement the restructuring plan within the prescribed time following the submission to CMA and NSE.

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The new rules also require firms on the recovery board to furnish the market and the regulators with an update, once in every three months, on its efforts and progress made in meeting the exit criteria of the recovery list, including its financial situation, future direction, level of compliance with the continuing obligations or other material development that may have a significant impact on its compliance position.

Under the new rules, trading in shares of companies put on the recovery list will continue unless a trading halt or a suspension is, or has been, effected.

The proposed recovery board is expected to have distinct rules and regulations including eligibility criteria, continuing reporting requirements, and periodic submissions to the regulator.

The CMA had in 2019 put the implementation of this recovery board on halt following a disagreement with the NSE on its implication on the market.

While CMA saw the new recovery board as a necessary buffer to protect innocent investors seeking to buy shares of the ailing companies, the NSE viewed the move as tantamount to condemning and shaming listed firms.

“This board affects the market. We received feedback from the market and some issues were raised. There have been some consultations with the CMA but no firm outcome yet,” NSE’s outgoing chief executive Geoffrey Odundo said in 2020.

He targeted listed firms were worried of being pushed into a recovery board, arguing the action will send the wrong signals to investors about their financial soundness, thereby making their stocks less attractive.

Read: Cross-listed firms hard-hit by drop in trade volumes

Listed firms were also uncomfortable with the “recovery board” name tag.

NSE-listed firms have dropped to 61 after the collapse or takeover of several companies in the past 15 years including ARM Cement, Marshalls East Africa Ltd, KenolKobil, National Bank of Kenya and Deacons East Africa.

Globally, Hong Kong, US, Pakistan, Japan, and India have introduced recovery boards to accommodate listed firms that do not meet the requirements of the main board and ensure key investor protection measures are maintained.