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FREE FLOAT, DELISTINGS: NSE may review free float rule, maintain liberal delisting rule

N81bn worth of shares affected
7up Bottling tops value of delisted shares
Stakeholders’ in mixed reactions

By Peter Egwuatu

FOLLOWING the increase in the flouting of free float rule by quoted companies, the Nigerian Stock Exchange, NSE, is considering reviewing the rules to ensure that companies comply with the post listing requirement and avoid being delisted from the Exchange. Free float rule stipulates the minimum number of shares required by promoters of public companies listed on the NSE to be released to the investing public for trading at the stock market.

But more impactful is the use of controlling shares to determine the fate of the minority shareholders especially as it relates to voluntary delisting of companies from the Exchange. Last year alone about N81.3 billion worth of shares of minority shareholders were forcefully delisted from the Exchange under the NSE-ordered delisting and voluntary delisting window which the controlling equity holders exploit, a development which may have discomforted the NSE.

Nigerian Stock Exchange

Chief Executive Officer, NSE, Mr. Oscar Onyema, hinting of plans to re-write the rule, stated: “I think there is an effort to look at it; instead of just looking at 20 percent, we want to do just as we did on premium board to put an actual amount of money as well. This is the way we are looking at making changes. It is important you have an adequate amount of secondary float because that is what determines prices. If you go and say only five percent will be in the market it then means five percent will determine the price of 95 percent that is not in the market, so it is a balancing account when we follow the global practice.”

The free float requirement for companies on the Alternative Securities Market, ASEM Board, is 15 per cent of market capitalization, Main Board is 20 per cent of market capitalization, same as companies on the Premium Board is 20 per cent of market capitalization or above N40 billion on the date the Exchange receives the Issuer’s application to list.

NSE market capitalisation dips N239bn, amid year end activities

The amount of delisted stocks in 2018 represented a huge increase of 67.3 percent from N48.6 billion recorded in 2017. Financial Vanguard’s findings also show that in 2018 seven corporate bonds worth N57.34 billion and N473.5 billion worth of governments securities were also delisted following their maturity.

The companies delisted in 2018 are Afrik Pharmaceuticals Plc, African Paints Plc, 7 Up Bottling Company Plc and Paints & Coatings Manufacturers Nigeria Plc.

Reacting to delistings, Onyema said: “Companies in their life cycle will list and some of them will delist over time. That is the reality that Exchanges around the world experience. Companies will delist for different reasons from voluntary to regulatory delisting, mergers and acquisitions and other things that would cause them to delist.

“On regulatory delisting, our job is to make sure that we make it easy for companies to come in and if they want to leave, that they leave in an orderly manner. So, what we have tried to do with our listing rules in the last one to two years is that we have tried to enhance the rules to ensure that companies behave in an orderly fashion, especially companies that want to delist voluntarily and where there is a business purpose why they are delisting. We cannot prevent a company that freely listed on our platform from delisting because it is not a prison. What we can do is to ensure that when they are leaving, there are certain things they must put in place for their shareholders and we believe that our current listing rules, which are bench-marked against other rules in other jurisdictions, do provide those protections.”

Stakeholders react

Stakeholders’ reactions to this development were mixed as some argued that companies can voluntarily seek delisting, just as the NSE can as well delist companies from the Exchange if they do not meet post listing requirements.

However, some shareholders expressed discomfort with the high increase in rate of delisting of stocks on the Exchange. They argued that the market generally sees delisting as a major negative sign that can damage investor confidence in the companies. Hence, the value of shareholders’ investments is whittled down.

Moreover, it becomes difficult to even sell the shares and recover the money tied to delisted equity, as the liquidity of the affected stock is restricted.

Most crucial, according to the shareholders, is the issue of transparency in the operations of the delisted company, which now become private and are no longer subject to the scrutiny of capital market regulators. Some of the stakeholders who oppose voluntary delisting by companies further argued that the Securities and Exchange Commission, SEC, and NSE have a big role to play when it comes to delisting as they are there to protect minority investors’ interest. They further stated that regulators should be involved in the delisting process when it comes to voluntary delisting by companies to avoid short-changing the minority investors.

For shareholders that support delisting, they stated, however, that it is still possible to trade delisted companies’ shares on the Over-the-Counter (OTC) market which has more relaxed rules or which has almost no regulation or listing requirements compared to the major Exchange that has stringent post listing requirements.

Breakdown of delisted companies in 2018

Financial Vanguard’s findings show that that 7up Bottling Company topped the value of delisted equities recording 640.6 million at N125 per share valued at N80.1 billion. It was followed by African Paints delisted 368.5 million share at N2.35 per share totalled N866 million. Paints & Coatings delisted 792.9 million shares at N0.59 per share valued at N468 million, while Afrik Pharmaceuticals delisted 24.9 million shares of 50kobo per share worth N13 million.

 Breakdown of delisted companies in 2017

In 2017 MTech Communications Plc delisted 9.96 billion shares at 91 kobo per share valued at N4.5 billion. It was followed by MTI  Plc delisting 4.89 billion shares at 50kobo per share valued at N2.45 billion. Beco Petroleum delisted 3.72 billion shares at 50 kobo per share valued at N1.9 billion. UTC Nigeria delisted 1.23 billion shares at 50kobo per share valued at N0.617 billion; Avon CrownCaps Containers Plc delisted 683.97 million shares at N1.18 per share valued at N0.807 billion, while Ashaka Cement Plc delisted 2.24 billion shares at N17.08 per share valued at N38.3 billion.

Corporate bonds delisting

Seven corporate bonds were delisted from the Exchange in the year under review. These are UBA 35 million units at N1000 each valued at N35.0 billion, IFC 12 million units at N1000 each valued at N12.0 billion, Dana Grou, eight million units at N1000 each valued at N8.01 billion, Afdb 4.8 million units at N1000 each valued at N4.856 billion, Tower Funding 3.6 million units at N100 valued at N3.63 billion.

Others are Lacasera Company Plc, three million units at N1000 each valued at N3.0 billion and Tower Funding Plc, one million units at N1000 each valued at N1.0 billion.

Government bonds

The government securities delisted include: Federal Government 300 million shares at N1,000 each valued at N300.0 billion, Lagos State government 57.5 million units at N1000 each valued at N57.5 billion, Delta 50 million units at N1000 each valued at N50.0 billion, Edo government 25 million units at N1000 each valued at N25.0 billion, Ekiti government 20 million units at N1000 each valued at N20.0 billion. Others are Niger government 12 million units at N1, 000 each valued at N12.0 billion and Niger government 9 million units valued at N9.0 billion.

Stakeholders’ Reactions

President, Association for the Advancement of Rights of Nigerian Shareholders, AARNS, Dr. Faruk Umar, said: “Nigerian capital market regulators should protect minority shareholders’ interest in the transaction when delisting. The regulators in the capital market should be involved in the delisting process to avoid short changing the minority shareholders when it comes to pricing of the shares to buyout Nigerian minority shareholders. Also minority shareholders should look beyond immediate and short-term capital gain to implication of such acquisition, which will turn the company into a fully-owned foreign company.”

Shareholder Activist and Co-Founder, Nigeria Shareholders Solidarity Association, Gbadebo Olatokunbo, said: “Some of the companies have realised that one of the major reasons for listing, which is access to equity capital, is not forthcoming due to investor apathy amidst the current economic realities. I know of companies that got listed so as to raise cheaper funds. But that has not been achieved. Yet they are required to maintain certain minimum standards, according to the NSE rule which is quite expensive to keep. So instead of working only for the regulators, some of companies are seeing exiting as the better alternative.

“Though the rule of the game at the capital market is “free entry and free exit”, but the rules insisted on equity on all dealings, therefore the Nigerian local investors should be protected when it comes to delisting of companies on the Exchange.”

Timothy Adesiyan, former President, Nigerian Shareholders Solidarity Association of Nigeria, NSSA, said: “delisting companies from the Nigerian stock Exchange has not been favourable to shareholders who have invested their hard-earned resources in the market.

“Delisting companies or firms from the NSE is a punishment to shareholders and most times we hear that a company we have invested in has been delisted on the pages of the Newspaper. The worse of it is that directors of these companies a lot of times escape with our monies.

“I must say the companies that delist voluntarily sometimes pay us something with which we acquire shares of other companies” said Adesiyan.

In the same vein, Chairman, Progressive Shareholders Association of Nigeria,(PSAN) Mr. Boniface Okezie agrees that some of the companies that are delisted have paid shareholders off. Okezie disclosed that such delisted companies as Afprint Plc, Kaduna textile and others in the past paid off shareholders very well. He however, blamed the SEC for not following up on others that have refused to pay shareholders off after delisting. “SEC is weak in this respect. SEC attends the meetings as an observer where some of these decisions are taken and it more often than not fails to follow through” he added.


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