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How Cytonn went public without taking IPO path

Cytonn Investments chief executive Edwin Dande. FILE | PHOTO | NMG
Cytonn Investments chief executive Edwin Dande. FILE | PHOTO | NMG 

When the board of directors of Cytonn Investments Management Limited announced the conversion of the privately owned firm to a public limited company on Monday, many Kenyans were left wondering how that would work out without any reference to an impending initial public offering (IPO) or going to the bourse by introduction, the two known paths private firms have been using to go public.

But the investment firm that was founded in 2014 with offices in Nairobi and DC Metro in the US was on track to using a new provision in Kenya’s Companies Act to chart a new path for its owners.

The new provision, which came with a 2015 amendment of the Companies Act, allows any private business with more than 50 shareholders to become a public limited company — after meeting a raft of conditions meant to streamline their governance. 

Edwin Dande, the firm’s chief executive, said Cytonn’s board of directors had earlier this year realised that the number of shareholders had passed the 50 mark.

The directors decided that they would ask shareholders to consider passing a special resolution converting the private firm to a public company.
That happened on March 3 during Cytonn’s annual general meeting (AGM).

“We held our AGM on March 3, 2017 and this is where we passed the special resolution. We put the matter to vote according to  procedures in our articles and memorandum of association and it was adopted,”  Patricia Wanjama, Cytonn’s company secretary, said.

The shareholders’ resolutions were then filed with the Registrar of Companies for approval — subject to meeting the set legal requirements.

“We met the requirements of Division 2, Section 70 of the Companies Act, 2015, and received notification from the Registrar of Companies in early July confirming that the conversion was indeed successful,” said Ms Wanjama.

Section 70 of the Act allows a private company, whether limited or unlimited, to convert to a public company limited by shares if (but only if), it passes a special resolution to that effect.

Conversion application

An application for registration of the conversion is then lodged with the registrar in accordance with Section 74 of the same Act, together with the documents required.

A private company that has resolved to convert itself to a public company may lodge an application for registration of the conversion subject to meeting, among others, the following conditions.

First, the nominal value of the company’s allotted share capital must not be less than the authorised minimum.

The company’s allotted shares must be paid up for at least to one-quarter of the nominal value of that share and the whole of any premium on it.

If any shares in the company or any premium on them have been fully or partly paid up for by an undertaking given by a person, that person or another person should do work or perform services (whether for the company or any other person) – until the undertaking has performed or otherwise discharged.

The Registrar of Companies’ approval of Cytonn’s plan to convert to a public company paved the way for the firm move to the next stage of the journey, which was to change the name.

“That is why we have changed from Cytonn Investments Management Limited to Cytonn Investment Public Limited Company (Plc),” said Ms Wanjama.

Section 70 (f) of the Companies Act states that a company must make such changes to its name and articles of association “in order for it to become a public company.”

Besides, under Section 62 of the same Act, a company may change its name by special resolution or as may be provided for by the articles of the company.

Selling stakes

The change in designation means Cytonn shareholders can trade their shares in-house through bid forms. Shareholders wishing to sell their stakes will place the order indicating the number of shares they want to sell and at what price.

The management will then alert an interested buyer through an established internal platform designed to handle such transactions.

“We are providing a platform, the willing buyer fills in the form and the willing seller also fills a form. There is a recommended valued price and we show them the valuation, how it is arrived at, and as long as the purchase is above Sh100,000, we will match  willing buyer with willing seller,” Ms Wanjama said.

Mr Dande said going public is mainly driven by the quest to strengthen corporate governance at Cytonn in light of the negative impact that poor governance has had on many Kenyan firms in the recent past.