CMA regulations have revised the 'one-size-fits-all' capital raising and listing standards.
The capital markets are expected to be better placed to support flexible capital raising to fund accelerated economic growth, following the review of the public offers and listing regulations. This is in line with the Bottom-up Economic Transformation Agenda (BETA).
The Capital Markets (Public offers, Listings and Disclosures) Regulations 2023, which were acceded to by Parliament in April 2024, support efforts to make capital markets the preferred source of long-term funding for micro, small and medium-sized enterprises (MSMEs).
The MSMEs constitute more than 95 percent of all registered businesses in Kenya, making them pivotal in accelerating economic growth and jobs creation envisioned under BETA.
The regulations allow MSMEs to raise debt and equity capital without the requirements of a profitability track record, which marks a shift from the merit-based approach to disclosure-based in line with global best practices.
The regulations have revised the “one-size-fits-all” capital raising and listing standards, which required issuers to meet highly prescriptive pre-listing quantitative requirements. Entities are allowed to raise market-based finances irrespective of size, sector, and incorporation status.
The regulations stipulate the market-entry criteria, provide the minimum requirements and disclosures applicable to those seeking capital with the objective of providing safeguards to protect the investing public.
They also promote use of technology by supporting electronic initial public offering (e-IPOs) as well as innovations through setting up specialist boards in the main and SME market segments in the licensed exchanges. These changes are aligned to emerging global trends with the notable shift from traditional IPOs by providing for special purpose acquisition companies to fast-track fund raising through the capital markets.
To support accelerated issuances in the public markets, the regulations provide for short- form and shelf prospectuses, to shorten the time taken for a new issue of securities.
Other changes include establishment of more than one securities exchange, provision for over-the-counter trading, the introduction of a dtabilisation agent to support post-IPO prices and the establishment of a recovery board, which is seen as a better option to suspension or mandatory delisting of entities.
Under the regulations, issuers of securities to the public, including listed companies, are expected to fully implement the provisions in the Corporate Governance Code.
However, the regulations provide for development of MSME specific provisions to address proportionality.
To further embed best corporate governance standards, the regulations include a revision of tenure for independent directors from nine to six years. This was informed by the need to promote diversity of skills and experience in boards and allow for injection of fresh perspectives to enhance the corporate decision-making processes.
The revisions are also driven by the need to mitigate the risks associated with director entrenchment and foster a culture of accountability within boardrooms. Directors are continuously motivated to challenge the status quo and uphold the highest standards of corporate governance.
This is in tandem with local realities as well as global best practices in corporate governance, particularly exemplified by countries like Turkey which imposed a six-year limit, enhancing investor confidence and bolstering the integrity of the capital markets in Kenya.
The regulations were informed by extensive stakeholder engagement to ensure the revisions are informed by market realities, and emerging trends in the domestic and global arena.
The writer is the Director Market Operations, Capital Markets Authority.
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