How unsuspecting investors bought Mumias shares

Investors bought a total of 654,200 shares of Mumias Sugar Company #ticker:MSC in three days without knowing that the miller had been placed under receivership, turning the spotlight on KCB Group #ticker:KCB .

KCB Group, the receiver, failed to disclose the material development immediately as required by Kenya’s securities law. PVR Rao, KCB’s appointed receiver, says it took over the running of Mumias Sugar last Friday, September 20, after the miller defaulted on loans amounting to Sh12.5 billion.

The amount is owed to KCB and other creditors. The bank, however, only communicated the appointment of the receiver on Tuesday, hence Nairobi Securities Exchange (NSE) suspended Mumias Sugar shares trading the following day.

Investors unwittingly bought the miller’s shares on Friday and Monday, enabling the sellers to pocket Sh180,680 and trapping the new owners in a stock whose trading at the NSE looks uncertain.

The stocks were sold at a price of between Sh0.27 and Sh0.28. The average volume of 218,066 shares dealt over the three days is significantly above the normal average of 139,000 units, according to statistics from data provider Refinitiv.

The sellers managed to avoid the fate of more than 130,000 investors whose wealth remains locked up in the miller after the suspension. Regulations set by the Capital Markets Authority (CMA) require listed firms to disclose material events immediately to enable investors make informed decisions when buying or selling shares. KCB yesterday declined to comment on the matter. The CMA also hadn’t responded to Business Daily queries by the time of going to press.

Having kicked out the board and management of Mumias, it was the duty of KCB and the receiver manager to make the prompt disclosure of the receivership, analysts say.

This was the case in the collapse of ARM Cement and Deacons East Africa where the administrators notified the investing public of their takeover the same day their mandate commenced.

“An issuer shall disclose all material information and make a public announcement of… the appointment or imminent appointment of receiver manager or liquidator of the issuer or any of its subsidiaries,” the CMA rules stipulate. “In relation to the continuing obligation to disclose information, an issuer shall make immediate public disclosure of information which might reasonably be expected to have a material effect on market activity in the prices of, its securities.”

The NSE, which stopped Mumias shares from trading on Wednesday, issued a statement saying the miller’s official suspension from trading started yesterday and will continue for three months or more.

The bourse also noted that the appointment of the receiver manager was on Friday last week but did not comment on why the suspension of the miller’s shares came days later.

“Notice is hereby given on the suspension in trading of Mumias Sugar Company Plc shares following the placement of Mumias under receivership and appointment of Ponangipalli Venkata Ramana Rao as the receiver through a deed of appointment of receiver dated September 20, 2019,” the NSE said.

KCB says it made a pre-emptive move to thwart more punitive actions sought by other creditors, including auction of Mumias’ assets.