Kenya to ban directors over corporate bonds – The East African
Capital Markets Authority CEO Wycliffe Shamiah during a bell ringing ceremony to mark commencement of trading at the Nairobi Securities Exchange. PHOTO | DIANA NGILA
Kenya has introduced new measures to penalise and ban company directors who misuse corporate bond proceeds following a string of defaults that have dampened investor confidence.
The new policy by the Capital Markets Authority (CMA) requires company directors to file quarterly returns with the authority on the use of borrowed funds in a move to ensure bond proceeds are used only for the purposes prescribed in the prospectus.
Those found culpable of diverting funds will be barred from holding office in any listed entity.
“This time we are taking action on individuals, not on the company,” the authority’s chief executive Wycliffe Shamiah told The EastAfrican in an interview last week.
“When we take you through the enforcement process, which is being done by an independent committee, you will see that they have taken actions barring you from holding any office in a listed company, in an issuer or licensed entity,” he added.
CMA says companies will not be allowed to use bond proceeds for other purposes except those prescribed in the prospectus and if they want to divert funds to other uses they must seek approval from the regulator.
The EastAfrican has learnt that under the authority’s new corporate debt monitoring framework, company directors are also required to furnish the regulator with bank statements showing the movement in the bondholders’ funds.
“What we have decided to do is to follow how money is being spent.
‘‘So we get returns and confirm that if you said you wanted to use the money for working capital, that money should be channelled to that purpose,” Shamiah said.
Proceeds of bonds issued by large corporates will be under heavy scrutiny of the regulator, while small and medium-sized enterprises will be required to seek approval from the authority to spend their bond funds.
Small companies will be required to retain professionals who will certify the amount a company requires and detail how the funds will be spent.
“Any one raising a bond has to do returns to show where the money is and share with us their bank statements so that we can confirm with the bank. They will also do returns quarterly to show us expenditure,” Shamiah said.
“We shall not allow small companies to withdraw the money unless we know the money is going to the right purpose,” said Shamiah.
Other requirements are that companies with weak balance sheets seeking to issue bonds get bank guarantees to protect investors’ funds in the event of default, and that companies issuing asset-backed securities undergo credit rating for their risk positions to be well captured.
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