Kenya’s Capital Markets Authority (CMA) has reviewed the eligibility criteria for troubled listed firms to be put on a recovery board prior to being delisted. PHOTO | FILE
Kenya’s Capital Markets Authority (CMA) has reviewed the eligibility criteria for troubled listed firms to be put on a recovery board prior to being delisted, a development which exempts companies with working capital challenges.
The new criteria, currently being shared with the market, targets companies that are technically insolvent, under receivership and statutory administrations, companies facing corporate governance and management issues and high risk companies.
However, firms with working capital challenges, which are considered ‘short term’ have been granted a helping hand under the reviewed eligibility criteria as they will not be put on a recovery board.
“We want companies to enter the recovery board, the only reason we have delayed is because of Covid-19. We are reviewing the eligibility criteria so that companies entering that board specifically deserve assistance and they are there for a short period only,” CMA acting chief executive Wycliffe Shamiah told The EastAfrican last week.
“We are looking at companies under receivership or statutory administration and are listed. Such firms are candidates of the recovery board. Also any firm that defaults or is insolvent for other reason, will end up on that board. But a company failing on a requirement like working capital may not be put on the board because those are requirements that can be settled within a certain period of time.”
The EastAfrican has also learnt that the board, which is expected to go live next month will not act as a soft landing for ailing companies as discussions are underway by the regulators on whether to kick out managers believed to have orchestrated the poor performances of their firms.
STRIKING MIDDLE GROUND
“If companies have management issues, for example, they don’t have a board of directors, I think these firms will end up on that board for the time they don’t have the board,” said Mr Shamiah.
“But you are not just ending at the recovery board as a soft landing. We shall put pressure on you. We are discussing whether to allow such companies to remain under the same management that placed them in the circumstances they find themselves.”
Paul Mwai, the chief executive of AIB AXYS Africa and chairman of the Kenya Association of Stockbrokers and Investments Banks said the recovery board is a good idea to strike a middle ground between shareholders of troubled firms who still want to trade in their shares and the general public who will be fully aware of distressed firms and therefore trade in them with caution.
“A recovery board is good for the market. The reason being that the recovery board would help investors who bought shares of troubled firms to continue trading in them.”
“You will never win when you suspend a share from trading because in doing so you are protecting some people while hurting others. The board will take care of both in a way that those who are coming in are aware that there is problem while for those who are inside (those who have already bought shares) know there is a door open for them to trade if they so wish,” said Mr Mwai.
In 2018, the CMA proposed creation of a recovery board where financially distressed firms on the Nairobi Securities Exchange would be rehabilitated for two to three years to help them get back to financial stability. Failure by firms to recover within this period would eventually lead to delisting from the exchange as a last resort.
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