Listed firms up in arms against CMA’s plan
Saturday October 02 2021
Shareholders follow proceedings during Marshalls East Africa Annual General Meeting held at Kampala Road Branch in Nairobi’s Industrial Area. PHOTO | FILE
Kenya’s Capital Markets Authority move to provide a lifeline to distressed companies listed on the Nairobi Securities Exchange (NSE) through a recovery board has faced opposition from quoted firms. The EastAfrican has learnt that listed firms are uncomfortable with the proposed trading platform for ailing firms, saying it has serious repercussions on the perception of investors about firms pushed onto this board.
In 2018, CMA proposed the creation of a recovery board where financially distressed firms on the NSE would be rehabilitated for two to three years to help them get back to financial stability.
Failure by the rehabilitated firms to recover within this period would eventually lead to delisting from the exchange as the last resort.
But a market insider told The EastAfrican that the proposed recovery board is not being seen as priority for now since investors are increasingly becoming aware of companies that are facing financial and governance challenges on the exchange.
“This board is not necessarily a priority for now because right now people are starting to know which companies have problems in the stockmarket. I don’t think there is any investor who is coming blindly to the stockmarket. They have stockbrokers who are carrying our intensive researches on these listed companies to know which one to invest in,” said source.
“Actually the main issue was delisting because ideally if you are not compliant you are supposed to be delisted. But because they were finding it difficult to delist, the recovery board was a way of giving these companies a chance to come back.”
CMA acknowledged that listed companies have raised concerns about the proposed recovery board while insisting that each company that is put on this board will be given an opportunity to be heard.
“NSE was trying to harmonise communication strategy and also how to manage issues thrown out by some of the companies that may likely find themselves on this board. We are not aware of any companies that have refused but we know some have raised their fears on the implications,” CMA chief executive Wycliffe Shamiah told The EastAfrican last week.
Opportunity to be heard
“Every company that ends on the board will be given an opportunity to be heard and also expected to give strategies addressing the underlying issues within time they will be on the board.”
However the regulator could not commit to new timelines on when the recovery board will be implemented after failing to meet its own December 2020 deadline.
“To be honest, being on recovery board is dictated by circumstances a company finds itself in. NSE will then engage the company before being placed on the Board. This board will be operationalised soon,” said Mr Shamiah
Efforts to get comments from NSE chief executive Geoffrey Odundo proved futile by the time of going to press as our text messages to his cellphone went unanswered.
In December last year, CMA said it had reviewed the eligibility criteria for troubled listed firms to be put on the recovery board prior to being delisted by excluding firms with working capital challenges.
Under the reviewed criteria technically insolvent companies, firms under receivership and statutory administrations, those facing corporate governance and management issues and high risk companies are the main candidates for the recovery board.
On the other hand companies with working capital challenges which are considered ‘short term’ have been granted a helping hand under the reviewed eligibility criteria as they will not be put on the recovery board.
“We want companies to enter on the recovery board, the only reason we have delayed is because of Covid-19. We are reviewing the eligibility criteria so that those companies which enter on that board specifically deserve assistance and they are there for a period of time,” Shamiah told The EastAfrican last year (2020).
“We are looking at any company which has been placed under receivership or statutory administration as we call it now and it is listed. This company is supposed to be a candidate of the recovery board. Also any company which is defaulting or is insolvent for some reasons they need to end up on that board. But a company which is failing on a requirement like working capital requirement may not be put there (on the recovery board) because those are requirements which can be settled with a certain period of time.”
In 2018 CMA proposed the creation of a recovery board where financially distressed firms on the NSE would be rehabilitated for two to three years to help them get back to financial stability.
Failure by the rehabilitated firms to recover within this period would eventually lead to delisting from the exchange as the last resort.
The proposed Recovery Board is expected to have distinct rules and regulations including eligibility criteria, continuing reporting requirements, and periodic submissions to the regulator.
Investors trading in firms that have been pushed into the Recovery Board would be advised to trade with caution, fully aware that they are dealing with firms in trouble.