Some listed firms are in panic over new rules at the Nairobi Securities Exchange that threaten to kick out companies that are performing poorly.
Getting thrown out of the bourse has severe ramifications on a company’s credibility and may just be the last nail on its coffin.
At a trillion, Safaricom makes up half of the value of the NSE yet there are 63 firms at the bourse, a third of which can be bought for less than Sh10 a share.
Companies that have run into financial headwinds have been allowed to continue trading at the NSE, giving them a whiff of credibility even as they sink further into debt, and become technically insolvent.
As they fall further down the rabbit hole, they find it difficult to pay suppliers, employees and audit firms, delaying release of their results.
A record six firms — Uchumi Supermarkets #ticker:UCHM, Mumias Sugar #ticker:MSC, Kenya Power #ticker:KPLC, East African Portland Cement #ticker:PORT, Crown Paints #ticker:BERG and Home Afrika #ticker:HAFR — were all late in releasing their results, citing different reasons.
“To enhance investor protection, the Exchange and the Authority are jointly proposing the establishment of a recovery board on which securities of an issuer who is technically insolvent, non-compliant with any other listing obligation or whose operations are being conducted in a manner that is prejudicial to the investors, are placed,” NSE said in a notice last week.
Struggling companies will now be placed under a newly created recovery board and get three years to get compliant if they become insolvent as the market seeks to end a run of zombie firms.
Under the period, companies will be put under a microscope and report on a quarterly basis to the NSE and Capital Markets Authority or get delisted if they fail this prescribed regimen.
The rules released by the NSE say firms that breach listing regulations will be placed under a recovery board where they will have to come up with a revival plan within six months or get ejected.
Uchumi Supermarket’s uncertainty has shrank its prices down to a 52-week low of 29 cents and is facing a second attempt to be wound up over insolvency.
The retailer, which has always delayed publishing its results, has its fate tied to a fight with Kenya Defence Forces over Kasarani land.
Struggling national carrier Kenya Airways #ticker:KQ, during the year ended 31 March, 2017, was also insolvent. The group’s and company’s current liabilities exceeded its current assets by Sh44.554 billion and Sh46.895 billion, respectively. KQ has material uncertainties over ownership, with plans to revert to the State. It is accumulating losses.
As at June 2018, Kenya Power’s current assets stood at Sh54 billion, less than the current liabilities of Sh106 billion, resulting in negative working capital of Sh51 billion.
“As at June 2018, the company’s current assets of Sh54 billion were less than the current liabilities of Sh106 billion, resulting in negative working capital of Sh51 billion,” the Auditor General said in the firm’s annual report. The listed monopoly has been unable to extricate itself from informal arrangements with the government to cut tariffs in 2017 and from November 2018 to July 2019, with the promise it will be increased from July 2019 by the Energy and Petroleum Regulatory Authority (EPRA).
EPRA indicates it is unlikely to revise tariffs upwards, making it difficult for the recovery of Kenya Power, which is trading at Sh3.74 and whose profits fell 63.7 per cent to Sh1.92 billion for the year ended June 2018.
Mumias Sugar Company is technically insolvent to the tune of Sh6 billion as total assets, as at June 30 2018, stood at Sh15.7 billion against total liability of Sh21.6 billion.
Mumias Sugar, which has been slapped with a taxman bill of Sh10 billion and has been having difficulty getting cane to crush, is retailing at 30 cents a share.
The miller’s losses are colossal, posting a Sh15.1 billion net loss for the year ending June 2018, which is more than double the previous loss of Sh6.8 billion that was recorded in 2017.
East African Portland Cement #ticker:PORT is also technically insolvent, with current liabilities in 2018 exceeding its current assets by Sh6 billion from Sh4.2 billion in 2017.
It is also facing a Sh1.4 billion labour suit and auctioneers from Kenya Commercial Bank #ticker:KCB over a Sh5.4 billion loan.
TransCentury #ticker:TCL, trading at Sh3.68, and its subsidiary East African Cables #ticker:CABL, trading at Sh3.05, have debt problems and have struggled with technical insolvency even after restructuring part of their debt.
During the year ended 31 December 2018, TransCentury Group’s and company’s current liabilities exceeded current assets by Sh10.362 billion and Sh386 million, respectively. “The group has put in place detailed action plans to ensure it meets its obligations as and when they fall due,” the group said in its annual report.
Its subsidiary East Africa Cables’ current liabilities whittled down by Sh2.1 billion after restructuring although the company was still insolvent by Sh542 million as at June 2019. This is a great improvement from the position at the end of last year where the current liabilities exceeded the current assets by Sh3.27 billion.
NSE is witnessing more exits than entries into the market but the Nairobi bourse seems to prefer getting vibrant firms rather than hosting zombies that give the bourse a bad reputation.
KenolKobil #ticker:KENO recently quit the market after it was acquired by French firm Rubis while Express Kenya Limited #ticker:XPRS and Unga Group #ticker:UNGA have expressed a desire to leave.
The most recent exit has been British firm Atlas, which seemingly vanished into thin air, and was finally struck off the register. National Bank #ticker:NBK is expected to be kicked out once it is swallowed by KCB.
To turn the tide, CMA says it is talking to Kenya Association of Manufacturers to get firms interested and has created an exciting product called iBuka to help incubate and accelerate firms to join the market. Fifteen companies, including retailer Tuskys and HomeBoys, have signed up.