CMA moves to enforce foreign caps in share sale

The Capital Markets Authority (CMA) has ordered stockbrokers not to process any further transactions for foreigners wanting to buy into companies already owned 75 per cent or more by non-residents.

As at the end of March, British American Tobacco (BAT) and Total Kenya were held by foreigners to the tune of 76.14 and 94.19 per cent respectively.

BAT was in compliance as at March 2012, but failed the test in subsequent years.

CMA data shows that Total has increased foreign shareholding since 2011. Other companies have also breached the limits at one time or the other in the past decade.

“Trading participants are advised not to process any further foreign transactions in the subject counters until they fall back into compliance through normal market activity,” said CMA director of market operations, Wycliffe Shamiah, in response to queries from Business Daily.

The CMA blamed the systems used by stockbrokers for being unable to arrest the problem. The regulator, however, said brokers have now been ordered to ensure their infrastructure is able to prevent flouting of the rules.

“The historical systems infrastructure (trading and settlement) does not have measures in place to enforce compliance with the limits, therefore, orders are not automatically rejected where they will result in a breach of the caps,” said Mr Shamiah.

The CMA said the initial challenge came because the regulation was made when some companies had already surpassed the 75 per cent limit. Such companies included Total and BAT at the listing stage.

The companies held beyond 75 per cent by foreigners were exempted from the rule (The Capital Markets Foreign Investors Regulations 2002) at the time.

The understanding was that they would not increase foreign shareholding going forward and would be expected to actually reduce in the event they carried out a rights issue where they sat out taking up new shares on offer on the Nairobi Securities Exchange (NSE).

The exemption would only come at the listing stage although it did not specify whether this could be done thereafter.

“Every issuer or listed company shall reserve for local investors at least 25 per centum of its ordinary shares,” said the CMA rules.

The rules add that in the case of ordinary shares of a listed company, “where, in the case of public offering, the per centum reserved for local investors is not subscribed for in full by local investors, the issuer may with the prior written approval of the Authority, allot the shares so remaining to foreign investors.”

Standard Investment Bank executive director Job Kihumba said the restriction of foreign shareholding was informed by the need to ensure Kenyans were able to own a piece of the companies listed on the NSE.

“The motivation was always to ensure we have local investors with holdings on the NSE,” said Mr Kihumba.

Mr Shamiah said the listed companies should monitor diversification of investors in their shares.

“The Authority notes that it is the listed companies who have a responsibility to assess their shareholder diversification, but this can only be done after the fact given the holdings are defined by individual shareholder actions,” said Mr Shamiah.

Mr Shamiah said, however, once violation is identified, “remedying the same can be very challenging as it is impossible to identify who should be singled among the foreigner shareholders to be required to reduce their holdings.”