Capital Markets

Companies to buy out small investors ahead of delisting

nse

An investor at the NSE office in Nairobi. FILE PHOTO | NMG

Majority shareholders of firms looking to delist from the Nairobi Securities Exchange (NSE) will now be required to make cash offers to buy out small investors in measures meant to protect them from being locked in unlisted companies.

While most of the delistings at the NSE have come after buyouts where minority shareholders were offered a chance to sell up, current Capital Markets Authority (CMA) regulations provide a window for firms with large anchor shareholders acting in concert to delist without having to buy out their minority peers.

Kenya's securities law says that a delisting resolution can be passed by a simple majority at a meeting where shareholders with a combined stake of at least 75 percent are represented in person or through proxies.

Such a resolution can nonetheless be nullified if investors with a 10 percent equity or more vote against it.

Draft regulations

The CMA’s Draft Capital Markets (Public Offers & Listing of Securities) Regulations 2022 published earlier this month are now making it compulsory for the majority shareholders to offer minority owners fair compensation for their stock and a way out of the firm before it gets delisted.

“An exit offer must be made to the issuer's minority shareholders and holders of any other classes of listed securities to be delisted to ensure that investors who purchased and held securities on the basis of the listing are not prejudiced by being compelled to hold unlisted securities,” read the CMA draft regulations in part.

“The exit offer must be fair and reasonable; and include a cash alternative as the default alternative; and the issuer must appoint an independent transaction adviser to advise on the exit offer and the independent transaction adviser must opine that the exit offer is fair and reasonable.”

Nine NSE firms have left the market in the last decade, some after takeovers and others due to failure to adhere to listing rules.

The most recent delisting was that of the National Bank of Kenya (NBK) in November 2021, following its acquisition by KCB Group through a share swap.

Others that left the bourse as a result of buyouts include agriculture firm Rea Vipingo (2015), oil marketer Kenol Kobil (2019), CMC Motors (2015) and AccessKenya (2013).

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