February 16, 2015

Industry leaders move against mandatory listing on NSE

Industry leaders move against mandatory listing on NSE

By Franklin Alli & Naomi Uzor

INDUSTRY LEADERS in the country are making frantic efforts to halt passage of the Private Companies Conversion and Listing Bill into law by the National Assembly. They said the bill being sponsored by the Deputy Chairman of the House of Representatives Committee on Capital market, Hon. Chris Emeka Azubogu, would not help the business climate in Nigeria and should be withdrawn.

Nigerian-Stock-Exchange-(NSThe draft bill which is premised on the provisions of Section 16(2) (a) (b) and (c) of the Constitution of the Federal Republic of Nigeria 1999 has passed the second reading on the floor of the House of Representatives  as at the last quarter of 2014.

The Industry leaders drawn from multinational corporations like PricewaterHousecoopers (PWC); Shoprite, British America Tobacco; Shell and Chevron, FrieslandCampina including leaders of the Organised Private Sector (OPS) have unanimously kicked against the Bill and are now harmonising their position ahead of the Public Hearing of the Bill.

Financial Vanguard learnt that the  sponsors of the Bill had advanced the following arguments to justify the introduction of the bill: “Conversion to public companies and listing on the Stock Exchange would increase the hitherto private companies’ access to long term funding from the capital market , leaving the banks to cater for the funding needs of the real sector.

“The Bill will boost operations at the Stock Exchange and increase the sector’s contribution to the GDP which is considered smaller compared to other emerging economies. The sponsors also argued that the Bill will promote financial inclusion and move the economy from the current dominance by informal sector to formal sector.  Also, section 1 of the Bill provides that existing private companies that should convert to public liability companies and be listed in the Stock Exchange market within 12 months of their conversion, shall have shareholders’ funds in excess of N 40 billion, annual turnover in excess of N40 billion and total assets in excess of N80 billion.

According to the bill, the asset value of a private company shall be determined based on the gross values of the company’s assets as recorded in its balance sheet at the end of the last audited financial year, while the annual turnover shall be based on the gross revenue of the company from income, into or from Nigeria, arising from the sale and rendering of goods and services, and the use of the company’s assets in a manner that yield interest, royalties and dividends.

The bill, however, makes no provision for the minimum percentage of the share capital to be offered to the public but seeks to grant tax incentives to companies caught by the bill. The tax incentive, which is for five years after listing, varies with the percentage of shares listed by the qualifying companies. The proposed tax incentives offered by the bill are “(a) companies that list at least 40 percent of the issued share capital shall be eligible for a tax incentive at a rate up to one-third of its applicable income tax.

(b)Companies that list 30 percent of its share capital shall be eligible for a tax incentive up to one-fourth of its applicable income tax; (c) Companies that list 20 percent of its share capital shall be eligible to a tax incentive at a rate up to one-eight of its applicable income tax. Qualifying companies will also be entitled to tax deductible expenses on: “All expenditure incurred by the companies for the purposes of listing on any securities and 60 percent of Securities and Exchange Commission related fees for listing.

It was also learnt that Section 8 of the bill creates offences and penalties: “A person who contravenes any of the provision of the bill commits an offence and is liable on conviction to imprisonment for a period of not less than two years. Where the offence is committed by a body corporate, the corporate body shall be liable on conviction to a fine of 10 percent of its annual turnover for each year of default.

And where the offence was committed with the knowledge, consent or connivance of a director, employee or secretary jointly or severally, all the directors, employees and secretary that have taken part in the commission of the offence shall be liable on conviction to a fine of N1 million for each month of default or imprisonment for a period not below two years or both.”

Reacting to the bill, Alhaji Remi Bello, President, Lagos Chamber of Commerce and Industry, LCCI, noted that the bill under consideration has elicited concerns from various stakeholders in the business community, especially LCCI member companies.  “Our preliminary review of the proposed bill shows that it will impact negatively on local and foreign investment and the broader economy.

It may also lead to considerable loss of revenue to the government and break up of companies to circumvent the requirement of the Bill. Also, the Nigerian Stock Exchange may not have the depth and liquidity needed for the investment arising out of the mandatory listing of these companies,” he said. He urged the Organised Private Sector to harmonize its position with a view to positively influencing the direction and content of the bill before it is passed into law.

Corroborating this position, Mr. Bimbo Atlola, Deputy Chairman LCCI  Commercial Law & Taxation Committee, also warned that the bill, if eventually enacted into law either by the 7th or 8th National Assembly, has serious implications for the private sector, especially the manufacturing, energy and telecommunications sectors. He said that the bigger picture is that the manufacturing, the oil and gas, power and the telecommunications sectors will certainly be the worst hit by this obnoxious bill in the unlikely event that same is passed into law by the government.

According to him, foreign companies operating in these sectors, especially in the last two and half decades, and the assets acquired by these corporate players in these sectors will make them easy preys to this scheme.

“The bill certainly has serious implications for the oil and gas sector. Exploration and production including ancillary technical services are highly capital intensive and as such, key operators in the Nigerian oil and gas industry, especially in the upstream sector, are automatic candidates for the compulsory conversion and listing contemplated by the bill.

Indeed, it may be safely argued that every active oil block owning private companies including some marginal field operators will be caught by the regime of this bill and a few private key players in the downstream sector will also not be left out. The recent liberalisation and privatisation of the Nigerian electricity sector following the enactment of the Electricity Power Sector Reform (EPSR) Act of 2005 also makes the emerging Nigerian electricity and power sector another target of the bill.

Continuing Mr. Atlola said “All the Global System for Mobile (GSM) communication operators in Nigeria are certainly automatic candidates of the bill as they will be caught by the qualifying threshold created by section 1 of the proposed bill. The Private Companies Conversion and listing bill is retrogressive in several respects. The passage of the bill, in its current form, signifies a drastic shift in Nigeria’s policy on foreign direct investment with implications for the Nigerian energy sector.

According to him “It is important to reiterate that the bill applies to enterprises owned by Nigerians and non-Nigerians alike and this will certainly discourage foreign investments in virtually all the major business sectors in Nigeria including the oil and gas, emerging electricity and power sector. The tax incentives contemplated by the bill also appear discriminatory and unfair as same is available to private companies listed on the stock exchange pursuant to the provisions of the proposed Act but not available to those companies that got listed voluntarily.

Nigeria can also hardly afford the potential revenue loss to be occasioned by the tax incentives proposed by the bill, especially now when emphasis is being placed on tax revenues following the dwindling oil price in the global market. “It is also my view that the objectives sought to be achieved by this bill can otherwise be achieved through other lawful means. This bill and the underlying rationale for same, in my view, simply reinforces the need for an amendment of the Companies and Allied Matters Act, provisions of which had long become obsolete and largely devoid of contemporary relevance. The CAMA simply need to be amended to address the challenges giving rise to the bill.

“While increased listing of companies on the stock exchange is healthy for the economy, compelling private companies to do so will be patriotism taken too far,” he stated. “The Private Companies Conversion and listing Bill, 2013 is retrogressive and unconstitutional. What the government should do, in my view, is to put in place a legal framework that will encourage private companies to fall over themselves to get listed.

The National Assembly may make laws granting irresistible and mouth watering tax waivers and other incentives to private companies seeking public status and thereby creating a compelling business case for listing. While increased listing on the floor of stock exchange is good for the economy, to force private companies to list is unethical and smacks of dictatorship. Some Nigerian families would rather have their companies dead than to go public.

Nigerian Stock Exchange

“The bill, if passed, will make Nigeria less attractive for foreign investors and starve the emerging energy sector the much needed foreign investments. No prudent foreign investor will invest in an economy that guarantees no security of investment. The bill is ill conceived and should be vehemently opposed by the organized private sector,” Atilola maintained.

In his remarks, Kola Adeeeko, Head Corporate Services Division, NSE, gave the perspective of the NSE, saying “The concept of compulsion is totally unacceptable to the Exchange; NSE wants quality companies to be on the Exchange. We are not in support that the Bill should be thrown out outright but any company that will be listed on the Exchange should have good corporate governance; we disagree with the whole concept of compulsory listing; it should be based on free-enterprise.

“Our position is that the bill should be reviewed because it lacks cross-reference to NSE listing requirements. Over the years we have put together listing requirements and compliance after listing. Sending people to prison for failure to list is a bit draconian,” he said. He stated that private companies have the least compliant attitude to tax issues, adding that listed companies have better compliance.

“It is purely economic law that when you list in the stock market, you pay lesser tax and when you do not list, you pay more. If you list, you will be given five years tax holiday. If you list 30 per cent of your capitalisation, you will be given 10 per cent discount in tax.” Adekola said. Shola Dosumu, a representative of the British American Tobacco (BAT) also stressed that the bill is unacceptable. “We do not want this bill; we are opposed to this bill. This bill is a private member bill, it is not a government bill, we are standing to oppose it,” he said.

Also speaking, Kunle Ajabi, a legal practitioner, noted that the bill is the latest attempt to hinder the way business is done in Nigeria. If the bill is passed into law, it will drop Nigeria on the global ranking of Ease of Doing Business. Mr. Dick Kramer, Chairman, African Capital Alliance, advised that this is not the time for policy and law makers to toy with private investments otherwise, Nigeria will face the music. “If you pass this bill, the down-turn in the economy will be worse than before; what is needed at this time is to put in place what will help family businesses to be the back bone of the economy by developing an attractive business environment.

If you pass the bill you will see the same thing that happened during the Nigerian indigenisation decree; if you do not learn from history, you will make the same mistake in the future,” he warned. Muda Yusuf, LCCI Director General, said there would be a greater degree of success in the country if the appropriate investment climate is created, where companies will seek to invest and will seek to be listed on the NSE by their own volition based on objective, empirical, investment/market considerations.

“The Companies and Allied Matters Act, 1990 (“CAMA”) should be amended as no amendment has been made to the Act in 24 years. Also, the Corporate Affairs Commission should be strengthened with appropriate legislation to discharge the responsibilities placed on it by CAMA,” he said.