Nation Media Group is considering a 10% buyback of its 18,854,229 ordinary shares, the Board of Directors disclosed Thursday.
In a public cautionary notice, the Board said the proposal was in line with the Capital Markets Authority (CMA) regulations which require a company to inform investors about a plan to buy back shares.
A buyback, also known as a share repurchase, is when a company buys its own outstanding shares to reduce the number of shares available in the open market.
“By reducing the number of shares in the market, and hence the supply of traded shares, listed companies are able to boost their share price and therefore provide long term shareholder value. Shareholders who retain their shares in a buyback effectively take a long term view in the hope of benefitting from a higher share price in the future,” Ananjarwalla & Khanna Law Firm.
ALN says the Companies Act, 2015 (the Companies Act) brought in a substantive change to company law in Kenya by providing for share buybacks by companies in Kenya. Initially, it permitted such repurchase of shares by both private and public companies.
However, It was put on hold after CMA and the Nairobi Securities Exchange raised concerns.
Following the publication of new guidelines by CMA, listed firms would now acquire their own shares from the stock market.
The guidelines require a company to seek shareholders approval, publish the buyback announcement in a national newspaper, not to offer more than 10% above the prevailing market price, to disclose the buyback results, among other requirements.
Investors have responded positively to the announcement with NMG’s share price gaining 9.33% at Ksh 14.65 per share compared to its Wednesday Ksh 13.40 per share.
Alykhan Satchu, CEO Rich Management said, “It’s a positive signal and says Management believes shares are too cheap,” adding that “Frankly it was long overdue at a market Cap of around $24m even with the Schumpeter media-level disruption I think it was just too egregious. They are showing they want more skin in the game at this level.”
AIB-AXYS Africa, a leading Financial Service provider, said the buyback will reduce the Company’s cash holdings while boosting earnings per share as there will be less shares in the market at the end of the period. However, the NMG has not announced at what price they will buy back the shares.