‎The ‎Nairobi Securities Exchange-listed firms are opposed to the implementation of a special board to host companies facing financial or management trouble, further delaying the separation of distressed firms on the stockmarket after the approval of their trading rules.

‎The latest events have further been complicated by state-owned corporations such as Mumias Sugar Company and Uchumi Supermarkets, about which the National Treasury feels pushing them onto the recovery board would jeopardise ongoing efforts to revive them, according to people familiar with the matter that has been in the works for the past seven years.

‎Industry sources privy to the ongoing discussions among the National Treasury, Capital Markets Authority (CMA), NSE and listed companies say the biggest worry is that wrong signals are being sent out to investors and financiers about the firms on the recovery board.

Listed firms, which have had concerns with the new trading board since its inception, argue that since it is associated with companies in trouble, it would make it difficult for distressed firms to access financing and acquire businesses.‎But CMA has held its ground on the implementation of the recovery board, seeing it as a necessary buffer to protect investors seeking to buy shares of ailing companies.

But the negotiations are yet to break the deadlock, according to the source.‎ “What we need is first of all to get the companies and the public to understand that this board is not a deathbed, but it gives them an opportunity to recover while allowing the public to know that there is a problem with these companies,” the source said.“But all of them (stakeholders) have taken it a bit negative. So, the perception has not been the best. That is where we are at the moment.”

CMA Chief Executive Wycliffe Shamiah confirmed that consultations are ongoing on how the special board would be implemented without causing harm to the market.“The NSE Recovery Board was established as a special segment to provide a transparent platform for companies facing financial distress or compliance challenges, allowing them time to restructure and work towards regaining full listing status. The NSE submitted the draft rules, which the Authority has reviewed and approved,” Mr Shamiah told The EastAfrican.“We are consulting widely with stakeholders regarding operationalisation of the board in a manner that is least disruptive to the market.”According to the source discussions are on-going between the CMA and the National Treasury on the treatment of ailing listed companies in which the government has significant shareholding, such as Mumias Sugar Company (MSC) and the retail chain Uchumi Supermarkets, which are going through strategic revival plans.

“The government has been trying to see which of these companies can come back to life. We have been engaging the government on these companies but making decision is still a challenge.”CMA and NSE jointly proposed the establishment of a recovery board at the exchange on which listed firms which are technically insolvent, non-compliant with listing obligations or whose operations are being conducted in a manner that is prejudicial to the interest of investors or market integrity can be temporarily transferred to enhance investor protection.

CMA proposed an amendment to the NSE listing and trading rules in 2018 to introduce a Recovery Board where financially distressed firms would be rehabilitated for two years.

Upon expiry of the two years these companies would be delisted or suspended from trading if they fail to comply with the listing requirements including solvency and corporate governance requirements subject to the authority’s approval.

Investors trading in firms on the Recovery Board would be advised to trade with caution, fully aware that they are dealing with firms in trouble.

This means that companies that fail to comply with disclosure requirements, delay in reporting of financial results, those with negative working capital, those grappling with a mix of depleted shareholder funds and losses will be transferred to the special board for two years to help them get back on stronger footing.

The trading limit is seen as a move to stem speculative trading and price manipulation in the shares of such companies.‎‎‎The NSE-listed firms are worried about being pushed into a recovery board would send the wrong signal to investors about their financial health.

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