Ailing Listed Firms To Be Placed On Regulator Watchlist

By Kepha Muiruri For Citizen Digital 

The Capital Markets Authority (CMA) has proposed to place ailing listed companies on a regulatory watchlist.

This is a new draft of Capital Markets Public Offers Listing and Disclosure Regulations which are now the subject of stakeholder input until June 2.

Listed firms that deplete shareholder funds (from losses) into a net liability position for three consecutive years will be placed on the watchlist.

“Upon depletion of shareholder funds resulting in a net liability position for the third and subsequent consecutive financial year, an issuer must immediately announce the fact through its website and in at least one newspaper with national circulation,” reads the draft in part.

Firms placed in the watchlist must also provide the CMA and the securities exchange (NSE) with a restructuring plan to be updated on a quarterly basis.

“If the issuer fails to comply with the regulation within 36 months of the date on which it was placed on the watch-list, the exchange may either delist the issuer or suspend trading of the listed securities with a view of delisting,” the draft adds.

The draft further proposes the creation of the controversial recovery board where the shares of the issuer placed on the watchlist shall trade for a specified period of time to allow the affected issuer to regularize compliance, solvency and capital position.

Previously, the Nairobi Securities Exchange (NSE) and other market stakeholders have pushed back against the creation of such an alternative board saying the creation is likely to lead to negative investor sentiment on firms under the recovery board.

Previously, the CMA had postponed plans to institute a recovery board as it weighed the impact of the action.

The proposed watchlist is likely to raise similar backlash from the wider investing public should it be viewed as a measure condemning and shaming beleaguered public firms.

At present, firms such as Uchumi, TransCentury and the East African Cables would be casualties of the watchlist having fallen into financial headwinds over recent years.