Kenya has suspended share-buy backs by listed companies which were incorporated in 2015 in the New Companies Act. Former attorney general Githu Muigai suspended its implementation on the advice of the regulators.
At the time of incorporation, the law allowed public companies to repurchase their own shares from the capital market.
However, after many deliberations between the Nairobi Securities Exchange and Capital Markets Authority, the law has been suspended.
“There are concerns that allowing companies to buy back their shares is tantamount to removing liquidity from the market, something which goes against the NSE’s efforts to attract companies to list. Instead, significant shareholders should only be allowed to buy their shares from the open market. These are the two areas that are being looked at,” said a source who spoke to the East African.
“It was therefore prudent that the share buyback legislation be held back to allow for amendments that encourage major shareholders to buy shares from the open market,”
NSE chief executive Geoffrey Odundo declined to comment on the matter, saying he needed time to consult while CMA chief executive Paul Muthaura could not be reached.
Kenya’s legislation on corporate share buyback allows limited companies that have share capital to buy back their own shares (including redeemable shares) on condition that the purchase doesn’t exhaust all the issued shares of the company, which could put the company at risk of bankruptcy.
There were fears that had the share-buy backs seen the light of the day it could have opened the door for listed companies to manipulate share prices.
It is also argued that companies that have expanded significantly to dominate their industries and have little headroom left for more growth are looking at share buybacks as a way of reducing the equity capital on their balance sheets, which they now view as a burden.
Kenya Airways, East African Breweries Ltd, Safaricom and Crown Paints have in the past contemplated share buybacks, but there has been no support in the Companies Act.