Stockbrokers warn of mass NSE forced buyouts delistings

Stockbrokers and investment banks have warned of mass takeovers and delisting from the Nairobi Securities Exchange (NSE) following the coming into force of a new law lowering the threshold for a forcible buyout of minority shareholders.

The Statute Law (Miscellaneous Amendments) Act No. 12 of 2019, which took effect in July, allows shareholders with a 50 percent stake to make compulsory acquisitions of shares held by the remaining investors.

This is lower than the previous threshold of 90 percent that had protected the interests of minority shareholders.

The Kenya Association of Stockbrokers and Investment Banks (KASIB) say the revised threshold “is too low” and will make it easier for majority shareholders to forcibly eject the minorities.

“Reduction of this threshold erodes investor confidence in the capital markets because investors do not feel secure enough, especially when they had intended to take a long-term investment horizon,” said KASIB chief executive Willie Njoroge.

At least 20 or a third of the companies listed on the NSE are now at risk of forceful takeover by their majority shareholders, thanks to the changes. This could, in turn, lead to their delisting from the bourse.

Minority shareholders at Stanbic Holdings #ticker:CFC, BAT Kenya #ticker:BAT and Barclays Bank of Kenya #ticker:BBK where the multinational top shareholders own more than half of the firms all face enhanced risk of a forceful buyout.

Others are Unga Group #ticker:UNGA, Express Kenya #ticker:XPRS, East African Breweries Limited #ticker:EABL, BOC Kenya #ticker:BOC, WPP ScanGroup #ticker:SCAN, Kakuzi #ticker:KUKZ, Sanlam Kenya #ticker:PAFR and Total Kenya #ticker:TOTL.

The lobby wants the changes revoked, arguing that there was no public participation before these amendments were enacted into law as provided for in the constitution.

“KASIB and other capital markets industry stakeholders were unaware of these amendments or any engagements to discuss these amendments,” said Mr Njoroge.

The association warns that the changes will discourage investors from putting their money in the bourse and extend the initial public offering (IPO) drought at NSE.

Stanlib Fahari #ticker:FAHR was the last IPO in October 2015.

Mr Njoroge said the new law would work against calls for companies such as family-owned businesses to offload from as little as 10 percent shareholding to the market during an IPO.

The law will also hurt owners of start-ups since many financiers demand a majority stake as a condition for pumping in more capital.