Kenya: Capital Markets Authority caps firms shares buyback price at 10%
The capital markets regulator has capped the price of shares listed firms propose to buy back from market at 10 percent above the weighted value for the month preceding the resolution.
The Capital Markets Authority (CMA) has set maximum and minimum share buyback price in new guidelines which are in line the Companies Act, 2015, that introduced the share buyback option for publicly-traded firms.
“The maximum share buyback price of the shares to be purchased shall be ten per cent above the weighted price average of the shares during the period of 30 days before the day of the board resolution approving the share buyback,” the Guidelines on Buybacks for Listed Companies state.
“The minimum share buyback price of the shares to be purchased shall be the nominal price of the shares or the prevailing market price, whichever is lower, on the date of the board resolution approving the share buyback.”
The pricing of shares is among a raft of rules the CMA has published to guide stock repurchase transactions which are expected to gain momentum going forward as an option of addressing perceived undervaluation of share prices.
Kenyan rules limit proposals to buy back stock that relates to a class of shares to 10 percent of total issued equity of that class in a given financial year, but the firms are free to apply for conditional waiver from the regulator.
Companies typically repurchase their own stock from the market when they have excess cash and feel the share price is undervalued.
Share buybacks are common in the developed capital markets, including those in the US and the UK, where they are largely offered when companies believe the stock is trading at a significant discount to the intrinsic value.
These transactions have the effect of driving share prices up.
Share repurchases are expected to become more common on the Nairobi Securities Exchange (NSE) as undervalued companies seek to close the share valuation gap as they return to targeted growth in profitability post-Covid shocks on earnings.
Nation Media Group became the first company on the Nairobi bourse when it launched a share buyback between June 28 and September 24 after getting the greenlight from the regulator before the guidelines were issued.
The Nation’s offer at Sh25 per share posted a performance of 82.25 percent after the region’s largest media house bought 17.1 million shares against a target of 20.74 million shares it had targeted — an equivalent of 10 percent of issued and paid up stock.
Shareholders of Jubilee Holdings in June also resolved to allow the firm to repurchase the stock from time to time subject to regulatory approval.
Centum Investment Company Plc has since last year also been considering a share buyback to address what it believes as an undervaluation of its stock.
Centum’s vice chairperson Laila Macharia said in September the prevailing share price was not reflective of the firm’s value.
