CMA explains Uchumi, KQ trading with negative equity

Capital Markets Authority (CMA) has allowed two companies with negative equity to continue trading at the Nairobi Securities Exchange (NSE) owing to significant government stake.

Kenya Airways and Uchumi Supermarkets have more liabilities than assets, indicating their shareholders would not get a cent today if the companies were wound up.

The two have continued trading at the NSE with the chairman of CMA James Ndegwa attributing activity in the counters to public and investors’ belief that the government will put in resources to ensure they do not collapse.

“The common shareholder (the Treasury) in the minds of the public, is effectively acting like a guarantor of the last resort. He is the one who has had to come in to sort out where a corporation has not done things within a certain structure,” said Mr Ndegwa.

He nonetheless noted the regulator would be issuing a directive on one of the companies in the near future but declined to give details.

Uchumi had a negative equity of Sh181 million as per its half-year results. Its shares are currently trading at Sh3.50 each at the stock exchange. The government owns 14.7 per cent of the retail outlet.

The national carrier, 29 per cent owned by the government, has a negative equity of Sh38.9 billion with its total liabilities being Sh197.4 billion against assets valued at Sh158.5 billion.

KQ share price has rebounded in the last week since the appointment of former Safaricom boss, Michael Joseph, as its chair to trade at Sh6.70 each.

READ: KQ half-year loss shrinks to Sh4.8bn on deep cost cuts

Companies listing on the securities market are required to have a net asset of not less than Sh100 million.

Financial regulators have increasingly been going easy on distressed government companies which are non-compliant with the statutory regulations.

Consolidated Bank, majority owned by the government, has been struggling with capital adequacy in the last three years forcing the Central Bank of Kenya to deny it an operating license. Promises by the government to inject new capital in the bank have fallen short.

National Bank, 22.5 per cent State-owned, was rocked by claims of insider lending early this year but was allowed to keep its doors open despite Chase Bank, which faced similar challenges, being put under statutory management.

The Treasury has intervened in previous instances to save institutions in which it has shareholding, giving credence to the investor confidence in the financially crippled companies.