Shareholders of Nation Media Group are poised to benefit from the listed firm’s second share buyback program, run by Faida Investment Bank. The firm expects to shore up its share price at the Nairobi Securities Exchange (NSE) in an exercise that will be concluded after 12 months. The NMG share buyback plan is running parallel to that of Centum Group Plc, which will take 18 months.
A share buyback is a form of exercise that involves a listed company repurchasing its outstanding shares to reduce the number of shares on the market with the aim to increase the value of remaining shares.
In an interview with Julians Amboko of NTV Business Redefined, Bob Karina, Chairman of Faida Investment Bank said the intention of Nation Media Group’s second buyback program is to shore up its undervalued share price and reward shareholders.
According to Mr Karina, Nation Media Group did not fill up the entire 10% that they were buying during the first buy back program. The result was a buyback of 82% of the 10% stock up for sale, the exercise covering a period of three months.
Karina said that after two years, NMG management felt that the share price has not improved much given that the net asset value of the NMG share is about KSh 40.
“When an issuer of a listed firm realizes that the value of their company compared to the price of the share are not aligned, they feel it is better to buy back those shares, hold them and release them to the market at an opportune time or use these shares for strategic purposes. This is what NMG is doing hoping that with reduced number of shares in the market, the prices will move up, “said Karina.
In the first NMG share buyback, the price gained momentum before declining slightly, driven fundamentally by changes in market factors. Karina explains that these situations occur because the issuer is not in control of underlying market conditions.
“For instance, a depreciation of the Kenya Shilling has led to capital flight from this market. Foreign investors are taking out their money before the Shilling depreciates further, to avoid a situation where they require more shillings for the dollar. We are hoping the second buyback of 10% will sustain the price at KSh 20 per share or push it higher, based on other surrounding market factors,” said Karina.
He said that while at the moment, interest rates rising in advanced markets, leading to capital flight from markets such as the NSE, the timing remains right for the NMG share buyback program, with the issuer allowed to purchase up to 10% of shares at a maximum of KSh 20 over a period of 12 months.
Faida Investment remains the only intermediary to have undertaken a share buyback program in the Kenyan market.
While the first share buyback used provisions in the Company Act to conduct the exercise, the CMA has since developed more elaborate guidelines that NMG and Centum are using at present.
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