Kenya has suspended a law on share-buy backs by listed companies. The law was incorporated in 2015 in the New Companies Act. At the time of incorporation, the law allowed public companies to repurchase their own shares from the capital market. However, after many deliberations between the Nairobi Securities Exchange and Capital Markets Authority, the law has been suspended.
An article on The East African quoted a source saying that, “There are concerns that allowing companies to buy back their shares is tantamount to removing liquidity from the market, something which goes against NSE’s efforts to attract companies to list.
“…significant shareholders should be allowed to buy their shares from the open market,” said the unnamed source.
Share buy-backs are not unusual in the UK and the US markets. Companies in these jurisdictions are allowed to repossess their shares from the stock market as a way of increasing control in the company, enhancing the company’s market value, and boosting shareholder’s dividends. Additionally, large companies that would like to reduce their shareholder numbers often resort to buy-back their shares.
The law has been suspended in Kenya due to several factors. First, it goes against CMA’s efforts to boost liquidity at the bourse. Also, the regulators fear that the law will enable some companies to manipulate their share prices at NSE. Kenyan companies that have considered a buy-back plan include; Safaricom, Kenya Airways, Crown paints, and East African breweries Limited.