Nairobi Securities Exchange breathes new life into struggling companies
Nairobi Securities Exchange (NSE) has been given the green light to put struggling listed companies on recovery board after nearly three years of wrangling over whether the proposed advice would help breathe new life into the struggling stock market.
The Capital Markets Authority (CMA) confirmed that an agreement had been reached with the NSE to operationalize the board after all outstanding issues were resolved.
âWe finally agreed with NSE and we gave them the go ahead to operationalize the board,â said Wycliffe Shamiah, CEO of CMA. East Africa.
Shamiah said companies with reporting and corporate governance issues referred to the stimulus board would have an opportunity to defend themselves.
âNSE must now start to identify these companies, for example Uchumi. In the operationalization process, every company will have the opportunity to explain themselves before landing on this board, âsaid Mr. Shamiah.
Under the deal, NSE will be required to place companies on the turnaround board in consultation with the regulator – CMA.
The implementation of the takeover board has met opposition from listed companies, who claim that the trading platform will have a negative impact on investor perception.
The NSE looked for ways to deal with the issues raised by some of the companies that might be on the board. Last year, the regulator revised the eligibility criteria for preselecting companies on the stimulus board before being written off by excluding companies with working capital problems.
Companies that will be included in the recovery board include those that are technically insolvent, those under reorganization and statutory administration, those facing governance and business management issues, and those perceived to be high risk.
Companies facing âshort-termâ capital challenges will be spared.
Firms in financial difficulty, including those that fail to comply with disclosure requirements, those that delay reporting their financial results, and those with working capital that falls below the minimum threshold, could be referred to the recovery board.
Among the companies targeted by the turnaround board are TransCentury Plc, Uchumi, Mumias Sugar Company (in turnaround), fashion retailer Deacons East Africa (under administration), East Africa Portland Cement Company and ARM Cement, which is in liquidation.
The board of directors should offer rehabilitation to these companies for two to three years to allow them to regain profitability, otherwise they will be delisted. It has separate rules and regulations, including eligibility criteria, continuous reporting requirements, and periodic submissions to the regulator.
Investors who are trading in companies that have been pushed into the stimulus board will be urged to trade with caution, fully aware that they are dealing with troubled companies.