CMA and NSE are proposing the establishment of a Recovery Board at the Exchange on which securities of an issuer who is technically insolvent, non-compliant with any other listing obligations or whose operations are being conducted in a manner that is prejudicial to the interest of the investors or market integrity can be temporarily listed.
Furthermore, the Exchange has proposed an amendment to the Equities Listing and Trading Rules to facilitate the implementation of the same.
The Capital Markets Authority (CMA) aims to ensure that companies listed on the Nairobi Securities Exchange (NSE) are compliant with all listing requirements and obligations. In addition, CMA ensures that investors are aware of the status of investments they are participating in to enable them to make informed decisions pertaining to those investments.
The proposal will allow companies to develop and implement recovery plans and/or to ensure full compliance with the requisite listing obligations and/or such other conditions as may be imposed by the Authority while ensuring transparency to the investing public on the status of the entity.
Delisting of insolvent firms
Insolvent and financially distressed firms risk being delisted should the proposal sail through. In this case, the firms will be under the Recovery board for three years to bounce back or face expulsion from the Exchange if after the three-year period the firm has not met the net assets and insolvency requirements.
Firms that fail to submit a recovery plan within six months of being under the Board or fail to show restructuring plan progress will face expulsion from the bourse. On top of that, the board will oversee firms with negative working capital in that they are unable to meet short-term debt and routine financial obligations.
Furthermore, the board will caution investors about firms with a red flag so that they can trade with caution.
NSE poor performance
Firms at the Nairobi bourse have recorded a poor run leading to loss of billions of shillings of shareholders’ wealth. For instance, a third of the counters – 23 firms- have shares trading at less than Sh10.
Mumias and Uchumi lead the pack trading at less than Sh1 a share due to eroded value.
