CMA tightens takeover rules for listed firms to curb insider trading

The capital markets regulator has crafted new company takeover rules aiming to plug the legal loopholes that have exposed acquisition deals to BOC, Carbacid-type disputes and facilitated insider trading in the stock market.

The draft guidelines, to be debated next week by the Association of Kenya Stockbrokers and Investment Banks (AKSIB), are particularly targeted at the grey area of venture capital and equity funds and their role in the capital markets that many investment experts have seen as disruptive.

Such concerns arise from the fact that existing capital markets regulations restrict how much stake short term foreign investors are allowed to take in listed companies and how long they can hold onto it before moving out.

Investment bankers argue that rigidity of the rules has made it impossible to pull through any listed company transactions involving venture capitalists without seeking numerous exemptions from the Capital Markets Authority.

That was the case two years ago when UK based Helios acquired a 24.9 per cent stake in Equity Bank and Stanbic Bank made a takeover bid for CFC Bank.

The new rules define significant shareholding in a listed company as 10 per cent, meaning any purchase of a stake above this threshold would require formal disclosure of intentions.

It will now be mandatory for anyone acquiring or selling 10 per cent or more of a listed company to notify the CMA within hours of doing so but not later than 9am on the dealing day following the date of the acquisition or disposal.

CMA’s proposals have sparked intense debate in the stock brokerage and investment banking fraternity with most players describing them as aimed at stopping market intermediaries from taking positions in listed companies.

“The new rules appear to target some people and institutions, especially brokers and investment banks, with a view to stopping them from buying shares regularly in the listed companies,” Peterson Mwangi, the managing director of Africa Investment Bank, said.

Investment analysts described the new rules as impractical, saying it would be hard for the Nairobi Stock Exchange to monitor compliance.

NSE and CMA did not respond to our questions on the matter.

“We need to find a way of accommodating foreign clients who want to take more than 10 per cent of a listed company and to harvest their investments as soon as they deem fit,” said Lucas Otieno, the managing director of African Alliance.

The rule suggests that one shall report if “as a result of the acquisition he comes to hold, with any shares or rights over shares already held by him, shares or rights over shares representing 10 per cent or more but less than 35 per cent of the voting rights in a company.”

CMA has also revised the unconditional clause that was behind the drawn-out dispute between it and BOC over the Carbacid takeover bid.

Should the rules come into force, the terms of offer would be revised even after the 60 days during which a bid is valid allowing the suitors to evaluate their positions based on market realities or the trading environment.