The Capital Markets Authority (CMA) has postponed plans to place struggling listed companies on a recovery board over fears of creating a negative market sentiment.
Firms that were to be migrated to the board included those that are insolvent, have corporate governance problems or breach disclosure and reporting requirements.
The special board would identify them as troubled firms, signalling to the public the risks of buying their shares in a move that aimed to protect small investors.
The Business Daily has established that the regulator is delaying the plan whose other potential consequences include delisting of firms unable to recover within three years. It is also feared that being placed on the board will further hurt the share prices of the companies.
The CMA and the Nairobi Securities Exchange (NSE) #ticker:NSE had in September 2019 proposed listing rules for struggling firms to be put under a recovery board and given three years to improve their financial books.
Failure to submit a recovery plan within six months of being placed on the board or failing to show progress reports of the restructuring plan could also see the firms risk delisting.
The move was meant to resolve the challenges faced by the companies besides boosting overall investor confidence in the market where profitability and investor returns are concentrated in Safaricom #ticker:SCOM , big banks and a few manufacturers.
The CMA has, however, resolved that delisting of troubled firms would create a confidence crisis in the capital markets and send the wrong signals to potential and small investors.
Suspension of the recovery board means the struggling companies will continue to trade on the NSE even as they make losses, wipe out shareholder funds and fail to publish their results. Kenya Airways #ticker:KQ , TransCentury #ticker:TCL , Mumias Sugar Company #ticker:MSC and Uchumi Supermarkets #ticker:UCHM are among the troubled firms on the NSE.