Crown Paints is yet to secure regulatory approval for its share buyback plan, partly due to the lack of rules to guide stock repurchases by publicly traded firms.
The Capital Markets Authority (CMA) says it is aware of the paints manufacturer’s move, adding that it has not issued its approval since regulations are not yet in place.
The regulator says the regulations could take weeks to complete, shortening the time within which Crown may repurchase its target of 10.6 million shares. The paints maker received shareholders’ approval for the share buyback in June with a deadline to implement the trades by December 2018.
“The Authority is aware of the issuer’s share buyback plan,” CMA said of Crown’s move to repurchase its stock. “CMA will be required to approve the disclosures to be made to the shareholders and investing public regarding the proposed share buyback plan.”
The regulator says it is in the process of concluding the preparation of preliminary guidelines on share buybacks by listed firms, with market participants to be informed through a circular.
“The circular will be followed by the issuance of comprehensive guidelines or regulations,” said the regulator. The regulations are expected to delve into the details of share buybacks with a view to, among other objectives, preventing its abuse by listed firms.
In the absence of the guidelines, Crown had proposed a loosely defined share repurchase plan.
Crown says it will pay a minimum of an average of one year’s trading price and a maximum of one year’s trading price plus a 50 per cent premium. This means it is ready to buy its shares at any price set by the market. The Companies Act says a company shall only buy back its shares if it determines the minimum and maximum prices that may be paid for the shares. CMA’s regulations are expected to fix the floor and ceiling either in absolute terms or in connection with valuation metrics.
Crown is already one of the most expensive stocks in the market, with its price-to-earnings ratio of 44.7 more than double Safaricom’s 20.6.