Nairobi Securities Exchange-listed firms could start buying back shares from next year after new guidelines directing the process are published.
The Companies Act, 2015 allows firms to repurchase stock but such transactions have been put on hold awaiting further guidance from the Capital Markets Authority (CMA).
The market regulator says it will publish a circular in the first quarter of 2020 that will see companies disclose all the critical information to shareholders, including the risks and pricing of the share repurchase programmes.
Nairobi Securities Exchange-listed firms could start buying back shares from next year after new guidelines directing the process are published.
The Companies Act, 2015 allows firms to repurchase stock but such transactions have been put on hold awaiting further guidance from the Capital Markets Authority (CMA).
The market regulator says it will publish a circular in the first quarter of 2020 that will see companies disclose all the critical information to shareholders, including the risks and pricing of the share repurchase programmes.
“It is envisaged that circular will provide detailed disclosure requirements in addition to the legal requirements as provided for in the Companies Act, 2015 and this will fully operationalise the share buyback regime for listed companies,” the CMA said in a statement to Business Daily.
Share buybacks are common in the Western world where they are ideally implemented when companies believe their stock is trading at a major discount to the intrinsic value.
These transactions have the effect of forcing share prices up besides increasing the stake of long-term shareholders. Companies typically buy back shares when they have idle cash. Share repurchases have also been controversial, with some companies implementing ill-timed trades to help executives cash in their stock options at a profit.
Crown Paints and Centum Investment Company are the first NSE-listed firms to announce intention to buy back stock.
Centum, for instance, says in its latest annual report that it will spend up to Sh19 billion to pay dividends and repurchase shares over the medium term in a bid to raise its share price.
The investment had a net asset value (NAV) per share of Sh79 as of March but its share price continues to languish at Sh28.6. “In line with the objective of closing the price to NAV gap and following significant investor engagement, we are of the view that an enhanced dividend payout and a share buyback will bring the share price in line with the NAV per share,” Centum CEO James Mworia says in the report.
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