Centum Investment Company Plc has received an exemption from the Capital Markets Authority (CMA) to expand share purchases under its proposed share buyback programme beyond the 25 percent daily volumes cap.
Rules on the volume of shares to be purchased on a daily basis during a share buyback are designed to prevent insider dealings and maintain liquidity in the stock, among other regulatory objectives.
“The company has been exempted from the limit under the guidelines to purchase no more than 25 percent of the average daily trading volume for the four calendar weeks preceding the date of purchase,” Centum told its shareholders.
The exemption is key since Centum’s daily traded volumes are mostly below 100,000 which would mean a prolonged share repurchase programme for the company if the limit is to apply.
Centum, for instance, traded a total of only 3.4 million shares in the quarter that ended in December 2022. This represented an average volume of 57,948 shares for each of the 60 trading days.
The company plans to buy back up to 66.5 million shares over a period of 18 months at prices ranging from a minimum of Sh0.5 to a maximum of Sh9.03 per share.
According to the CMA guidelines on share buybacks for listed companies, the volume of shares purchased by a listed company on any single day may not exceed 25 percent or the limit prescribed by the regulator.
The cap is usually based on the liquidity of the shares in the market of the average daily trading volume for the four calendar weeks preceding the week of the purchase.
At the same time, the share repurchase shall not be executed as to significantly adversely affect the liquidity of the shares in question.
Centum is expected to open its share buyback program on February 6.
The share repurchases, part of the company’s efforts to address its undervaluation on the Nairobi Securities Exchange, could cost it up to Sh600 million.
Centum reported a net asset value per share of Sh59.8 in the six months that ended September 2022 but its share price of Sh8.3 is a fraction of that.
Share buybacks have the effect of reducing the volume of outstanding stock, potentially boosting the market valuation besides increasing the stakes of continuing shareholders.