CMA Caps Maximum Share Buyback Price at 10.0%

The Capital Markets Authority (CMA) of Kenya has set maximum and minimum share buyback price in new guidelines for listed companies.

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

The objective is to enhance investor protection, promote liquidity and ensure transparency in share buyback transactions.

“The maximum share buyback price of the shares to be purchased shall be ten per cent above the weighted price average of the shares during the period of 30 days before the day of the board resolution approving the share buyback,” part of the Guidelines on Buybacks for Listed Companies state.

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

Key highlights include:

  1. The listed firm intending to conduct a share buyback should ensure that its Articles of association allows the said firm to carry out share buybacks. Additionally, the proposed share buyback must be authorized by shareholders in a general meeting.

  2. The company should avail a shareholder circular disclosing all material information that the shareholders of the listed firm and their professional advisers would reasonably require so as to make informed decisions on the acceptance or rejection of the proposed share buyback transaction.

  3. The disclosure should include;

    (i) reason for the buyback,
    (ii) the number of shares to be bought back,
    (iii) method of effecting the buyback,
    (iv) impact of the share buyback on the company’s financial position, and,
    (v) validity period for the buyback once approval is given, amongst other disclosures.

  4. The Authority can cancel any share buyback transaction if the said firm executes the deal 2 weeks prior to the publication of its half-yearly or annual financial statements; or after it has become aware of any material information which has not been made public and which if disclosed, could affect the price of the shares.

    Additionally, a buyback may be cancelled or otherwise suspended if material information is announced within 14 days prior to the buyback being conducted.

  5.  The volume of the shares repurchased on any single day must not exceed 25.0% of the average daily trading volume for the four calendar weeks preceding the week of the purchase and must not be executed as to significantly affect the liquidity of the shares in question.

  6. For on-market transactions, the maximum share buyback price shall be 10.0% above the weighted average price of the share 10 days prior to the day of the Board resolution of share buyback.

    The minimum share buyback price, on the other hand, shall be the nominal price of the shares or the prevailing market price of the shares at the time the resolution was approved by the shareholders.

The new guidelines come after Nation Media Group (NMG) became the first listed company in the Nairobi Stock Exchange (NSE) to conduct a share buyback which ran from 28th June 2021 to 24th September 2021.

The share buyback saw NMG acquire 17.1 million ordinary shares out of the targeted 20.7 mn ordinary shares, representing an 82.5 per cent success rate.

“We expect more listed companies to conduct buybacks in the NSE, especially for companies whose prices and valuations are at historical lows. The 10.0% limit on the share buyback price will minimize the impact on a company’s balance sheet by reducing the cash or debt outlay for financing the buyback. However, the cap on share buyback price could limit companies intending to repurchase their shares at a much higher price so as to support their undervalued share price,” Cytonn Investments state.

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Source Cytonn Investments