The board of directors of Nation Media Group (NMG) has made a rare announcement about a proposal to buy back up to 10% of its ordinary shares. The announcement is in line with capital markets regulations which require a company to inform investors about a plan to buy back shares. A share buyback is a unique opportunity for a company to buy its own shares from the stock market. Share buybacks are relatively new in Kenya.
Buybacks are used by companies for diverse reasons such as; to boost investor confidence in a company, buy undervalued stocks, and to drive up a company’s share price.
Financial markets expert, Felix Ochieng says, “NMG shares have traded for long at a price the market perceived as a discounted price…….NMG buying back means the company sees potential value in the shares”.
According to Felix, a buyback increases a company’s book value, controls liquidity and enables the company to sells the shares later when the share price rises.
The law on share buybacks was introduced in Kenya in 2015. The Companies Act, 2015 outlined the guidelines on share buybacks including, the procedure to follow, mode of financing, and reporting and disclosures on buyback schemes.
In January 2019, Kenya suspended share buybacks by listed companies due to concerns that the move would remove liquidity from the market. In addition, stakeholders feared that some companies may use share buybacks to manipulate share prices at the NSE.
On June 30, 2020, the Capital Markets Authority published fresh guidelines on share buybacks, allowing listed firms to acquire their own shares from the stock market. The guidelines require a company to seek shareholders approval, publish the buyback announcement in a national newspaper, not to offer more than 10% above the prevailing market price, to disclose the buyback results, among other requirements.
Although Nation media group is yet to disclosed key details about the transaction such as the reason for the buyback, the offer price, mode of financing the buyback, and validity period of the buyback, the company says that the deal is subject to regulatory and investors’ approval.
Nation media group shares have gained 10% value since the buyback announcement today morning.