Capital Markets

CMA on the spot again as Express Kenya ban lifted

CMA chief executive Paul Muthaura. FILE PHOTO | NMG
CMA chief executive Paul Muthaura. FILE PHOTO | NMG 

The Nairobi Securities Exchange (NSE) #ticker:NSE has lifted its suspension of Express Kenya #ticker:XPRS after the company became the subject of a buyout bid, leaving investors at a crossroads.

The action once again turns the heat on the Capital Markets Authority (CMA), which has been at pains to explain whether suspension of trading is the new norm for such transactions.

In the recent past, the NSE has locked companies that are subject to buyout bids out of the trading floor until the deals are concluded.

The CMA has in the past weathered investor criticism that prolonged suspensions have left them at a disadvantage, locking in their wealth for long periods and denying them a chance to maximise the value of their shares.

The CMA, however, seems to have quietly changed tack, allowing both Express Kenya and Unga Group #ticker:UNGA shares to resume trading at the bourse after the bids were disclosed.

The markets regulator has argued that the law allows the suspension to be lifted in the course of a takeover, raising questions as to why this was not done in previous offers.

“The suspension does not need to last for the duration of the takeover and may be lifted once all the relevant disclosures have been made. Accordingly, the continued suspension or lifting of suspension from trading of securities on any counter that is the subject of a takeover is treated on a case-by-case basis,” the CMA said, adding that “the authority is currently reviewing the offer document, shareholders’ circular and valuation report for circulation to shareholders of Express Kenya Limited.”

Express Kenya, which returned to the trading floor on Monday after three months on suspension, has made the maximum possible price gains in the two days, jumping from Sh3.70 a share to Sh4.50 at close of trading yesterday.

Unga’s shares were frozen from trading for two days from February 9 after the US firm Seaboard Corporation placed a bid for shares held by minority shareholders. Neither the CMA nor the NSE notified shareholders of the action.

The CMA had insisted that the NSE was to blame for the freeze on Unga shares, arguing that the action had been taken to enable the miller supply additional information on the deal.

Diniz Holdings, an investment firm owned by Express Kenya CEO Hector Diniz, has sought to acquire the 38.36 per cent stake held by other shareholders other than its affiliates for Sh5.50 a share.

It is now likely that the premium of 48.65 per cent on the pre-offer share price of Sh3.70 could be wiped out should the stock keep gaining at the bourse.

Seaboard’s offer to buy out other minority Unga shareholders has been priced at Sh40 a share but the share is currently trading at Sh42.50, effectively wiping out the premium Seaboard had offered investors.

The miller’s stock has gained 45 per cent or Sh13.25 on the prevailing price at the time the offer was made public on February 9, and its suspension lifted two days later.

Allow trading

Analysts argue that the decision to allow stocks to continue trading after an offer has been made is the right one, as it protects investors from lowball offers and from lockdown of their wealth for a long period, often without any tangible returns.

“Ideally the stocks subject to a bid should always have been allowed to trade. Equities is a market of risk, and those willing to trade on a stock that has a cautionary announcement should be allowed to do so, and those who don’t should be allowed to exit,” said ABC Capital corporate finance manager Johnson Nderi.

“When you see prices go up after a bid is made, that is simply the market speaking, indicating that they consider the offer price to be low. The argument therefore is that it was not right in the past for such stocks to be suspended for long periods as was the case.”

Unlike their counterparts in Unga and Express Kenya, minority shareholders in former listed companies such as Access Kenya #ticker:ACCS, CMC Motors #ticker:CMC, Rea Vipingo and Marshalls #ticker:FIRE were unable to trade due to suspension once bids came in for their shares.

Only in the case of Rea Vipingo #ticker:REA was the bidder, REA Trading, forced to increase the offer price from an initial Sh40 to Sh85 after rival offers materialised from fellow listed firm Centum and local investment firm Bid.

Rea was trading at Sh27.50 at the time of its suspension in December 2013, with the firm eventually delisted in September 2015.\

CMC shareholders were bought out at Sh13 per share by Dubai group Al Futtaim Group, representing a 3.7 per cent discount over the last trading price of Sh13.50.

CMC had, however, been suspended since September 2011 due to governance issues --two years before the offer was made in September 2013. The firm was delisted in February 2015.

Access Kenya was suspended for six months up to November 2013 until Dimension Data completed its buyout and delisting of the firm. Dimension paid Sh14 a share, which represented a 42 per cent premium on the Access Kenya’s price of Sh9.85 on May 3, 2013.