Kenya: a multi-year facility is the pattern the rules are written against

A standby equity facility is not available to a Nairobi Securities Exchange issuer, and no route to a refixing conversion price was found. Regulation 17 of the Capital Markets (Public Offers, Listings and Disclosures) Regulations, 2023 lets a private offer reach only one hundred identified persons, stay open for no more than twelve months, and not be repeated for a common purpose within twenty-four months.

Key takeaways

• Three limits stack in one paragraph. Regulation 17(1)(a) caps a private offer at one hundred specifically identified persons, limits it to a continuous period not exceeding twelve months, and bars a repeat with wholly or partially different persons for a common purpose within twenty-four months of the first offer.
• The instrument is Legal Notice No. 172 of 2023, published in Kenya Gazette Supplement No. 204 of 27 October 2023 under the Capital Markets Act (Cap. 485A). It replaced the 2002 framework outright.
• The restricted public offer runs towards the regulator. It is a public offer restricted to sophisticated investors or a category the issuer prescribes in a short form prospectus, and that document is submitted for approval.
• Additional issues need the Authority as well as the meeting. A Main Investment Market Segment issuer must announce within twenty-four hours of the board resolution, stating that the issue is subject to shareholder and Authority approval.

The anti-avoidance construction, read slowly

Most jurisdictions define a private placement by counting investors. Kenya counts investors, then adds a clock, then adds a second clock aimed at the thing an adviser would try next. Under Regulation 17(1)(a) an offer is a private offer where "the securities are offered to not more than one hundred persons who are specifically identified and the offer shall remain open for a continuous period not exceeding twelve months, and the offer shall not be repeated with wholly or partially different persons by the same entities or related parties, or ultimately for a common purpose, within a period of twenty-four months from the date of the first offer."

The words ultimately for a common purpose are the operative ones. A standby facility is one purpose expressed as many subscriptions. Splitting it into separate offers to separate vehicles does not escape the rule, because the rule already contemplates different persons and related parties. A separate limb, Regulation 17(1)(f), caps a restricted circle of sufficiently knowledgeable persons at the same hundred.

Why the restricted public offer is not the exit

The 2023 Regulations created a middle tier between a private offer and a full public offer, and it is the obvious place to look for headroom. It does not provide any. A restricted public offer is defined as a public offer restricted to sophisticated investors or such category or number of persons as the issuer prescribes in the short form prospectus, and Regulation 29 makes that short form prospectus the offer document. Moving up a tier buys a larger investor base at the cost of filing a document for approval — and a document has to state the terms, which is exactly what a conversion price referenced to future trading cannot do.

The listing rules add the second gate

Even where an offer is properly constituted, the disclosure requirements for additional issues on the Main Investment Market Segment apply. The issuer must ensure equality of treatment for holders of the same class; may first offer shares issued for cash to existing shareholders pro rata, subject to Part XIV of the Companies Act, 2015; may not issue shares conferring a controlling interest without prior shareholder approval by special resolution; and must announce within twenty-four hours of the board resolution, stating the issue is subject to the approval of the shareholders and the Authority.

That last clause settles the tier. A new issue by a listed Kenyan company is an approved event, and an approved event cannot be priced by a formula that resolves later.

What a Nairobi issuer can use

A rights issue remains the workhorse, and a single properly sized private offer inside the Regulation 17 limits is genuinely available — once. A restricted public offer reaches sophisticated investors through a short form prospectus. Convertible debentures are a recognised Kenyan instrument, issued on terms fixed in advance and disclosed to investors. Each is a fixed-price transaction: see convertible debentures for listed issuers and private placements by public companies, and Rule 144 and restricted securities for how a US register changes the resale question. Check which listings we can work with.

Two segments exist under the 2023 framework, the Main Investment Market Segment and the Small and Medium Enterprises Market Segment, and their free-float and shareholder conditions shape how much of a company can sit with one investor. Kenya belongs with Nigeria and Egypt where the regulator clears each offering, and stands opposite South Africa, where a standing shareholder authority does the same work.

• All markets
• Nigeria
• Egypt
• South Africa
• Morocco

Primary sources

• Capital Markets Authority — Public Offers, Listings and Disclosures Regulations, 2023 (Legal Notice 172)
• Capital Markets Authority Kenya — regulatory framework

Financing an NSE issuer: frequently asked questions

What exactly does the 24-month rule say?

Regulation 17 treats an offer as a private offer where the securities are offered to not more than one hundred persons who are specifically identified, the offer remains open for a continuous period not exceeding twelve months, and the offer is not repeated with wholly or partially different persons by the same entities or related parties, or ultimately for a common purpose, within a period of twenty-four months from the date of the first offer.

Why does that stop a standby equity facility?

A facility is a single commercial arrangement expressed as a sequence of subscriptions over several years. Each drawdown after the first is an offer for the same purpose, made under the same arrangement, and the twelve-month limit on how long one private offer may stay open runs out long before the facility does. The structure sits inside the fact pattern the regulation is drafted to catch.

Is a restricted public offer a way around it?

No, because it moves the transaction towards the regulator rather than away from it. A restricted public offer is defined as a public offer restricted to sophisticated investors or such category or number of persons as the issuer prescribes in the short form prospectus, and that short form prospectus is an approval document. The pricing has to be stated in it, which is the same obstacle a refixing conversion price meets everywhere.

Does the Authority have to approve a new issue by a listed company?

Yes. The disclosure requirements for additional issues by a Main Investment Market Segment issuer require an announcement within twenty-four hours of the board resolution recommending the issue, and that announcement must state that the issue is subject to the approval of the shareholders and the Authority. An issue that confers a controlling interest additionally needs a special resolution.