Weed out worthless firms listed on Nairobi bourseWednesday May 04 2022
The Capital Markets Authority (CMA) needs to come up with minimum standards that must be met by listed companies and act promptly to delist those that fail to comply.
The regulator appears to be caught in a dilemma. There is a growing list of companies that remain listed on the Nairobi Securities Exchange #ticker:NSE despite being worthless, having gone out of business, or failing to publish their financial statements for years.
But there is no clear path to dealing with these are breaches. The CMA has been mulling over transferring these firms to a recovery board where they would be rehabilitated for a period of two to three years.
If they are unable to regain their footing, they will then be delisted. The regulator has developed cold feet in implementing the board, fearing that it will lead to more delisting and a small market.
This is not a justifiable excuse. Other exchanges in the developed world have minimum requirements which must be met for a company to remain listed.
Companies, for instance, are required to be in business and have a certain minimum market value. Failure to comply leads to voluntary or forceful delisting.
Meanwhile, in Kenya, companies like Mumias Sugar #ticker:MSC and Uchumi Supermarkets #ticker:UCHM remain listed despite ceasing operations.
The CMA’s goal should be to have a market with companies that are actually in business, have assets, and care enough about shareholders to make periodic disclosures as required by law.
It is time to weed out the zombie companies that currently serve as gambling chips on the NSE.
The fear that delisting them will hurt minority investors is overblown because the damage has already been done.
The troubled firms have lost more than 95 percent of their market value.
There is no need to keep them on the bourse as they do not serve shareholders.
If anything, they are instilling fear among potential new investors who see them as evidence of the risks of losing money in the stock market.
It is normal for companies to suffer a decline or go bankrupt. That is capitalism. What is not acceptable is allowing companies that cannot meet the minimum expectations to continue trading.
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