Kenya has overhauled the regulatory framework applicable to the public offer of securities to persons in Kenya. The Capital Markets (Public Offers, Listings and Disclosures) Regulations, 2023 (the Public Offer Regulations), which came into effect as of 15 December 2023, will apply to all listed companies, new listings (equity and fixed income) and IPOs and persons offering or marketing securities to the public in Kenya.
These new regulations will provide a welcome update to the well-out-of-date Capital Markets (Securities) (Public Offers, Listings and Disclosures) Regulations, 2002 (the Repealed Regulations) that they have repealed.
We have reviewed the key changes to be introduced by these Public Offer
Regulations as summarised below.
Public versus private offers
The Public Offer Regulations have refined the definitions of a “public offer” vis-à-vis a “private offer”. This follows repeated discussions regarding the interpretation of the previous definitions and their implications on offers of securities, particularly those done on a cross-border basis. Whereas some of the previous criteria have been retained from the Repealed Regulations, it is interesting to note that the Public Offer Regulations omit the option of an offering with a minimum subscription price of KES 100,000 (~USD 750) per unit as satisfying the definition of a private offer.
Given the Capital Markets Authority’s (CMA) push to require alternative investment funds (such as private equity and venture capital funds) to raise funds only through private placements (read more here), these restrictions will also be applicable in such fundraising.
Market segments and eligibility requirements
Additionally, the Public Offer Regulations have stipulated that every securities exchange shall have two market segments for equity and fixed-income securities respectively: the Main Investment and Small and Medium Enterprises Segments (MIMS and SMEMS respectively).
With respect to the equity segments, some of the listing requirements have been relaxed. For example, the requirement in the previous equities’ Alternative Investment Market Segment (AIMS) for 20% of the shares of the issuer being held by not less than 100 shareholders has been revised to at least 10% of the shares being free float with a minimum of 7 shareholders in total under the SMEMS segment. The previous requirement in the MIMS segment of 25% and not less than 1,000 shareholders has been relaxed to 15% of the shares being free float with not less than 250 shareholders in total. The requirements on minimum share capital, net assets prior to listing and record of profitability have also been revised.
For equities, a transitional period that ended on 14 March 2024 has been set for equity securities listed on the AIMS segment of the Nairobi Securities Exchange (NSE) to choose which segment they will be listed on. As of the date of publication, this change is yet to be implemented on the NSE and the NSE is yet to issue a directive in respect of this.
Appointment of compliance officers
Each listed company will now be required to designate a compliance officer who shall be in charge of supervising and ensuring the listed entity’s compliance with the Capital Markets Act and the Public Offer Regulations. Listed companies must appoint/designate these officers by 15 December 2024. The Public Offer Regulations do not specify whether this must be a dedicated role, but given the additional compliance cost, direction will be required from the CMA on this.
The recovery list
The Public Offer Regulations have also created a recovery list where each licensed securities exchange shall place an issuer whose breach of continuing listing obligations is likely to prejudice the interests of investors or market integrity. Given recent queries over compliance by a few issuers with the minimum listing requirements, it is likely that this recovery list will soon be in use with special time-bound listing rules applicable to it.
Continuing disclosure obligations
The continuing obligations have also been updated across all categories of issuers. Of interest is that the threshold for transactions by issuers that would require shareholder approval has been revised to include the acquisition of shares resulting in a company becoming a subsidiary or disposal of shares resulting in the company ceasing to be a subsidiary only where the sale/disposal is more than 10% of the issuer’s net asset value.
Other provisions
The Public Offer Regulations also aim to modernise the Kenyan regulatory framework to incorporate concepts that have since become commonplace in the global capital markets. These include provisions on electronic offers, special purpose acquisition companies (SPACs), green-shoe options and green bonds. Further, the CMA’s Guidelines on Share Buybacks for Listed Companies, 2021 have now been codified into the Public Offer Regulations, with modifications. The Public Offer Regulations have also reduced the number of years of continuous service that preclude a director from being considered independent from nine (9) years to six (6) years.
Transitional provisions
In this transitional period, any applications to the CMA that were pending before 15 December 2023 will continue to be assessed under the Repealed Regulations. All licensed securities exchanges (being the NSE and EABX plc) will also be required to amend their listing and trading rules to align with the Public Offer Regulations.
Conclusion
The CMA’s efforts to modernise the capital markets framework have finally come to fruition and the Public Offer Regulations serve to resolve a number of ambiguities that have arisen as global capital markets evolved since the 2000s.
At present, the Public Offer Regulations are under review by the National Assembly’s Committee on Delegated Legislation, as required under the Statutory Instruments Act, 2013. This review is limited to confirming that their enactment was procedural and constitutional, rather than a substantive evaluation. They continue to be in effect unless annulled by the National Assembly on this basis.
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Read the original publication at ENS