Some of the insolvent or financially distressed companies at the Nairobi Securities Exchange (NSE) #ticker:NSE risk being delisted if far-reaching changes to the rules are adopted.
The Capital Markets Authority (CMA) and the NSE Wednesday released the proposed listing rules that will see the struggling firms put under a recovery board and given three years to complete a turnaround or be expelled from the Nairobi bourse altogether.
The recovery board will accommodate firms struggling with negative working capital — where short-term assets fall short of short-term liabilities — a position that has made it difficult for them to pay their short-term debt and meet routine financial obligations.
The recovery board is also expected to alert investors at the NSE of companies in which they should trade with caution when buying shares.
The proposal is aimed at helping especially retail investors make informed decisions before buying stocks.
“The Exchange shall compulsorily delist an issuer who is placed on the recovery board of a market segment if the issuer… after the expiry of a three-year period on the recovery board has not met the net assets and insolvency requirements,” say the proposed changes to listing rules.
Failure to submit a recovery plan within six months of being placed on the recovery board or failing to show progress reports of the restructuring plan will also earn a firm expulsion from the NSE.
Investors trading in firms that have been moved to the recovery board will be advised to trade with caution and be aware that they are dealing with firms in trouble.
Hong Kong and India have similar boards to put listed firms that do not fit on the main board to ensure key investor protection measures are maintained.
“In order to enhance investor protection, the Exchange and the authority are jointly proposing the establishment of a recovery board at the exchange on which securities of an issuer who is technically insolvent, non-compliant with any other listing obligation or whose operations are being conducted in a manner that is prejudicial,” the NSE said in a notice.
A poor run by companies at the NSE has turned most counters into penny stocks, wiping out billions of shillings of shareholder wealth.
One third of the counters — 23 firms — are trading at less than Sh10 out of which four are less than Sh1 as their value and confidence in the market are eroded. And four companies, including Mumias and Uchumi, are trading at less than Sh1 a share.
If the rules are implemented, the NSE and the market regulator will form an advisory board to help shepherd the recovery of the troubled counters while they take a timeout at the recovery trading segment.
The plan to create the special trading platform for troubled listed firms was designed after it emerged that outright delisting could create a confidence crisis in the capital markets and send the wrong signals to potential investors.
The rehabilitation is expected to help the distressed firms get back on their feet.
Africa to post negative growth for first time in 25 years : The Standard
Covid-19 is driving sub-Saharan Africa towards its first recession in 25 years.
According to the latest Africa’s Pulse, a biannual update on the region published by the World Bank, growth is forecast to fall from 2.4 per cent last year to between negative 2.1 per cent and negative 5.1 per cent in 2020.
In its analysis, the World Bank expects Covid-19 to cost the region between $37 billion (Sh3.9 trillion) and $79 billion (Sh8.4 trillion) this year.
The factors behind this drop in revenue include disruptions to trade, especially for countries that rely heavily on commodity exports; a drop in foreign financing as sources like remittances and tourism dry up; and the disruption to business as governments institute measures that restrict consumption.
“The Covid-19 pandemic is testing the limits of societies and economies across the world, and African countries are likely to be hit particularly hard,” said Hafez Ghanem, the World Bank’s vice president for Africa, in a statement yesterday.
“We are rallying all possible resources to help countries meet people’s immediate health and survival needs, while also safeguarding livelihoods and jobs in the longer term – including calling for a standstill on official bilateral debt service payments, which would free up funds for strengthening health systems to deal with Covid-19.”
The bank wants African government to put in place social safety nets that would boost food security, help workers who get laid off, and support small and medium businesses.
It recommends that regional policymakers institute measures that are cognisant of their economic realities, especially a reliance on the informal sector, high debt levels that limit their fiscal options, and their generally low operational capacity to respond to the health crisis.
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$35b in ticket refunds pushes airlines further to turbulence
The unprecedented shut down of the aviation industry has left airlines holding a prospective bill of up to $35 billion as refunds to passengers for sold but unused tickets.
The bill triggered by the covid-19 crisis, will further put pressure on airline reserves with new analysis by the International Air Transport Association IATA, predicting that airlines could drawdown as much as $61 billion of their cash reserves during the second quarter ending 30 June, 2020. They will also post a net loss of $39 billion for the quarter.
“In addition to unavoidable costs, airlines are faced with refunding sold but unused tickets as a result of massive cancellations resulting from government-imposed restrictions on travel. The second quarter liability for these is a colossal $35 billion. Cash burn will be severe. We estimate airlines could be burning through $61 billion of their cash balances in the second quarter,” IATA says.
Brazil, Canada, Columbia and the Netherlands have tried to help their airlines by allowing them to offer passengers travel vouchers in place of cash refunds.
Kenya Airways has already appealed to the government for a cash bailout in order to stay afloat. Almost all categories of staff have taken a pay cut too.
Uganda Airlines halted plans to open new regional routes after the airspace was closed. Rwandair too has ground its fleet
Pierce Brian, IATA’s chief economist said the impact of covid-19 on quarter one revenues would be limited because it was not until mid-February that disruptions to air travel became pronounced.
“We started the year strongly and it is not until February that we saw revenues begin to struggle,” he said during a conference call on March 31.
IATA which has projected a 38 per cent dip in demand and full year losses of $252 billion for 2020, also says that the fall in demand will peak during the second quarter which will see a 71per cent drop year on year.
However, the continuation of cargo services will limit the fall in revenues to 68 per cent.
Variable costs are expected to fall by 70 per cent, tracking a 65 per cent reduction in the number of aircraft flying and sharp drops in the price of jet fuel. However, fuel hedging contracts that were based on pre-crisis projections will see airline fuel costs fall by just 31per cent.
Equal to roughly half of a typical airline’s cost profile, fixed and semi-fixed costs, are expected to fall by a third as carriers watch the bottom line while trying to preserve the workforce that will be required fora future recovery.
IATA’s director general and chief executive Alexandre de Juniac says without immediate intervention, the industry’s cash position will be precarious.
“Airlines cannot cut costs fast enough to stay ahead of the impact of this crisis. We are looking at a devastating net loss of $39 billion in the second quarter. The impact of that on cash burn will be amplified by a $35 billion liability for potential ticket refunds,” he said.
IATA welcomed the mix of relief measures to the industry that have been announced by countries such as Colombia, the United States, Singapore, Australia, China, New Zealand and Norway.
The US announced a $2 trillion economic stimulus package more than $50 billion of which will go to airlines.
UAP Old Mutual CEO Peter Mwangi Resigns
The Board of Directors of UAP Holdings has announced that Peter Mwangi, the CEO of its Nairobi-publicly trading Group has resigned to pursue new interests, with effect from 14th April 2020.
In a statement, the group’s board chairman Dr JB Wanjui noted that “Peter’s departure is a regrettable loss, but we wish him nothing but the very best as he embarks on the next phase of his career.”
Peter is credited with the integration of the UAP Old Mutual Group including Faulu Microfinance Bank Limited and the entrenchment of a strong governance culture which has translated to improved performance of the underlying subsidiary companies.
Mwangi, who has led the East African business for five years, will be succeeded from 15 April 2020 by Arthur Oginga who currently serves as the Chief Operating Officer for Old Mutual Africa and over the last two years has been the Acting Chief Financial Officer for UAP Old Mutual based in Nairobi.
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