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Putting NSE into Perspective: Capital Market Authority on the Spot

BY Soko Directory Team · April 4, 2016 01:04 pm

Chapter Four of the Capital Markets Act on the issue of Shareholding states that:

  1. An issuer is required at the end of each calendar quarter to disclose to the Nairobi Stock Exchange every person who holds or acquires 3 percent or more of the issuer’s ordinary shares and publish in the annual report the following key information.
  2. Distribution of shareholders, Names of the ten largest shareholders with their respective ownerships, Name and address of the company secretary.
  3. An issuer is required to inform the Nairobi Stock Exchange and the Capital Markets Authority in writing when it becomes aware that the proportion of its securities in the hands of the public has fallen below the minimum prescribed of 25 percent.

Item number three (3) is important both for the Nairobi Security Exchange as well as for the shareholders as it determines the sustainability of the listed company at the NSE and what the shareholders will be taking home after the financial results are announced.

Companies that are listed at NSE are required by law, according to the Act, to inform the public within the period of at least 24 hours in the event that its full-year results are likely to drop. Is this rule being adhered to? Is the authority of Capital Market Authority to make sure this rule is adhered to or being ignored?

National Bank of Kenya reported a Ksh 1.2 billion loss without a prior warning to the investors and shareholders as required by law. The bank issued a profit warning on the midnight of Wednesday through a press release and then announced the results on Thursday morning, less than eight hours and far much away from the 24 hours required by law.

The law under the Capital Markets Act contemplates that a profit warning has to be issued through publication of notices in local media of national reach and it is under the mandate of CMA to make sure that that rule is adhered to. What has CMA done about the issue of National Bank of Kenya? Nothing at all.

The placing of Imperial Bank under receivership by the Central Bank of Kenya got most shareholders unaware as well as those who had subscribed to the services of the bank. It was only after the bank had been put under receivership in October 2015 that CMA released a statement indicating that it had received reports on the brewing trouble at Imperial Bank from the board of directors two months earlier prior to its closure. CMA was blamed for laxity and for its failure to smell trouble upon the receiving of complaints from the board of directors and only waited until the bombshell was dropped. What baffled many was the fact that CMA had approved a Ksh 2 billion bond from Imperial Bank to be traded only for it to collapse two months later. This begs the question, is CMA aware of the total net worth of the companies listed under the Nairobi Security Exchange? Is CMA aware of all the financial activities of the firms that fall under its very watch?

There have been rumors in the social media for the better part of the last two weeks that Fidelity Bank was about to be placed under statutory management as it was for Imperial Bank. Capital Market Authority remained silent concerning the rumors up to today. It was only last week that the Central Bank of Kenya came out to rubbish claims that Fidelity Bank will be placed under statutory management. Stakeholders and customers had been under panic due to the rumors and it was expected that CMA would come out first to clarify the matter and nothing came forth. It is only the Central Bank’s assurance that the bank is not going under statutory management will hopefully reassure customers and clients that the bank is stable. Investors in the bank are however, smelling a rat for before Imperial Bank went under receivership, rumors such as these ones came out first.

Uchumi Supermarkets and Kenya Airways problems can partly be blamed on the failure of CMA to act and address the problem at its inception. Last year, the two companies were operating at a negative working capital putting CMA on the limelight because according to the capital markets law, CMA has power to take action against listed firms that appear to have very slim chances of recovering from massive losses, insolvency as well as negative working capital in an effort to protect investors, financiers, suppliers as well as employees. According to economic analysts, CMA should have suspended the companies from trading on the Nairobi Security Exchange because they had become liabilities to the owners. The two companies are still struggling at the NSE and CMA is silent about it.

According to a report released by Nairobi Security Exchange on Thursday March 2016, the overall Wealth of the investors at the NSE stood at 2.054 trillion after rising by 5.2 billion shillings on a single day of 6th Thursday.

What is the mandate of Capital Market Authority? Does it have what it takes to manage all the firms listed at the NSE? Why has it not taken action against National Bank of Kenya? Why is it that Kenya Airways and Uchumi Supermarkets are still trading at the NSE yet they have a negative working capital?

Article by Juma Fred.

Soko Directory is a Financial and Markets digital portal that tracks brands, listed firms on the NSE, SMEs and trend setters in the markets eco-system. Find us on Facebook: facebook.com/SokoDirectory and on Twitter: twitter.com/SokoDirectory

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