Kenya: Capital Markets Authority caps buyback price of company shares at 10%

The capital markets regulator has capped the price of shares that listed companies offer to buy back on the market at 10% above the weighted value of the month preceding resolution.

The Capital Markets Authority (CMA) has set a maximum and minimum share buyback price in new guidelines which are in line with the Companies Act 2015, which introduced the buyback option for listed companies.

“The maximum repurchase price of the shares to be repurchased will be ten percent greater than the weighted average price of the shares during the 30-day period preceding the day of the resolution of the board of directors approving the repurchase of shares,” the guidelines on buyouts for listed companies. State of companies.

“The minimum redemption price of the shares to be redeemed shall be the par price of the shares or the prevailing market price, whichever is lower, on the date of the board resolution approving the share redemption.”

The share price is part of a series of rules that the AMC has issued to guide share buyback operations that are expected to gain momentum in the future as an option to address undervaluation perceived stock prices.

Kenyan rules limit share buyback proposals relating to a class of shares to 10% of the total issued shares of that class in a given financial year, but companies are free to seek a conditional waiver from the regulator.

Companies typically buy back their own shares in the market when they have excess cash and believe the stock price is undervalued.

Share buybacks are common in developed capital markets, including those in the US and UK, where they are widely offered when companies believe the stock is trading at a significant discount to its intrinsic value.

These transactions have the effect of driving up stock prices.

Share buybacks are set to become more common on the Nairobi Stock Exchange (NSE) as undervalued companies seek to close the equity valuation gap as they return to targeted growth in profitability after Covid shocks on profits.

National Media Group became the first company listed on the Nairobi Stock Exchange when it launched a share buyback between June 28 and September 24 after getting the green light from the regulator before the guidelines were issued.

The Nation’s bid at 25 shillings per share posted a performance of 82.25% after the region’s biggest news outlet bought 17.1 million shares against a target of 20.74 million shares that he had targeted the equivalent of 10% of the shares issued and paid up.

Jubilee Holdings shareholders also decided in June to allow the company to repurchase shares from time to time subject to regulatory approval.

Centum Investment Company Plc Since last year, it has also been considering a stock buyback to address what it sees as its stock undervaluation.

Centum Vice President Laila Macharia said in September that the prevailing share price did not reflect the value of the company.