The Capital Markets Authority(CMA) has published guidelines that will enable listed firms to acquire their own shares.
This is a provision that was introduced to offer a unique opportunity for listed firms to buy their own shares.
Listed firms intending to repurchase their shares are to get shareholder approval, publish the intention in the newspapers, not offer more than 10% above prevailing market price and disclose buyback results and treatment to regulators in the annual report.
A share buyback is a decision by a listed firm to acquire its own shares from the marketplace.
A company might buy back its shares to boost the value of the stock and to improve its financial position.
In other capital markets, listed firms tend to repurchase shares when they have cash on hand, and the stock market is on an upswing.
Kenya’s Companies Act contains general rules to be applied by any listed limited company intending to acquire its own shares, either through a market purchase of an off-market purchase. The CMA has developed additional guidelines to be applied to enable listed firms to execute this transaction. These new rules include disclosures, approval requirements, and timelines.
The guidelines seek to enhance investor protection, promote liquidity, and ensure transparency in share buyback transactions.
The Authority invites stakeholders and the public to submit comments on the proposed guidelines on share buyback for listed firms. The deadline for submission is July 31st, 2020 to the Acting CMA Chief Executive Officer.
These new guidelines require that a listed firm intending to do share buyback ensures its Articles of association allows the said company to undertake share buybacks. Additionally, the proposed share buyback must be authorized by shareholders in a general meeting.
In the event, a proposed share buyback breaches the limits that may trigger a takeover, the Capital Markets (Take-overs and Mergers) Regulations, 2002, shall apply.
The Nairobi Securities Exchange(NSE) will be required to disclose on its website, the share buybacks undertaken by any listed company.
The disclosure shall include information on the company, the number of shares that have been bought back, the price per share of the shares bought back, and the percentage of the free float in the post-buyback era.
The Authority can cancel any share buyback transaction if the said firm executes the deal two weeks prior to the publication of its half-yearly or annual financial statements.
The firm is also prohibited from doing any share repurchase if it is proved that it was aware of any material information which has not been made public, which if disclosed, could affect the price of the shares.
A buyback may be canceled or otherwise suspended if material information is announced within 14 days prior to the buyback being conducted.
The volume of the shares purchased on any single day must not exceed 25% of the average daily trading volume for the four calendar weeks preceding the week of the purchase and must not be executed as to significantly adversely affect the liquidity of the shares in question.
The buyback should also not be effected during the pre-open session of trading.
For all Exchange transactions, the maximum share buyback price shall be 10% above the weighted price average of the share 10 days prior to the day of the Board resolution of share buyback.
The minimum price shall be the nominal price of the shares or the prevailing market price of the shares at the time the resolution was approved by the shareholders.