7 companies may face sanction
Why we are in default — Coys
Implications of the default — Analysts
By Peter Egwuatu
FRESH facts have emerged that seven companies may face the hammer of the Nigerian Stock Exchange, NSE, before the end of the year. Eighteen companies already have flawed the Exchange’s posting listing requirement with regards to free float of shares to the investing public.
The companies that have free float deficiencies are: AG Leventis Plc, Capital Hotel Plc, Caverton Offshore Support Group Plc, Champion Breweries Plc, Ekocorp Plc, E-Tranzact International Plc, Infinity Trust Mortgage Plc, Interlinked Technology Plc, The Tourist Company of Nigeria Plc.
Others are Transcorp Hotels Plc, Union Bank Nigeria Plc, Portland Paints & Products Nigeria Plc, Global Spectrum Energy Services Plc, CWG Plc, Aluminium Extrusion Plc, Union Dicon Salt Plc, Austin Laz & Company Plc and Notore Chemical Industries Plc.
Financial Vanguard’s latest findings show that Union Dicon Salt Plc is undergoing restructuring to comply with listing requirement as reported by the Exchange, while the seven companies that may face sanctions are: Portland Paints & Products Nigeria Plc, Global Spectrum Energy Services Plc, CWG Plc, Aluminium Extrusion Plc, Austin LAZ & Company Plc and Notore Chemical Industries Plc.
It was gathered that the seven companies that may face sanctions before the end of this year were operating below listing standard and have not provided the NSE information on how they will meet the free floats requirements.
The NSE recently warned companies to meet their post listing requirement or face sanctions.
Free float rule requires a minimum proportion of shares promoters of public companies listed on the NSE should release to the investing public for trading at the stock market.
The Free float rule
The free float requirement for companies on the Alternative Securities Market, ASEM, Board is 15 percent of market capitalization while 20 percent is prescribed for companies listed on the Main Board and also Premium Board is 20 percent of market capitalisation or above N40 billion on the date the Exchange receives the Issuer’s application to list.
According to the NSE some companies that have free float deficiencies have applied for waivers from the Quotations Committee of Management specifically provided compliance plans with tentative timelines to support their requests.
The Quotations Committee of Management considered and approved an extended timeframe for the companies to regain compliance with the listing requirement.
The companies were, however, required to also provide quarterly disclosure reports to the Exchange detailing their level of implementation of the compliance plans.
But Financial Vanguard investigations revealed that five companies are still unable to meet the compliance date, even as they had applied for further extension. The five companies are: Capital Hotel Plc, Caverton Offshore Support Group Plc, Champion Breweries Plc, Ekocorp Plc, and Interlinked Technology Plc.
Companies and deficiencies
Findings revealed that AG Leventis has free float of shares of 11.64 percent and deficiency of 8.36 percent or 1.9 billion shares and compliance due date of October 19,2020; Capital Hotel Plc has 2.99 percent free float of shares and a deficiency of 17.01 percent or 8.8 billion shares with compliance due date of October 31,2017; Caverton Offshore Support Group has 17.30 percent free float of shares and deficiency of 2.70 percent or 526.9 million shares with compliance due date of October 31, 2017; Champion Breweries Plc has 17.17 percent free float of shares and deficiency of 2.83 percent or1.3 billion share with compliance due date of March 2 31,017; Ekocorp Plc has 11.84 percent free float of shares and deficiency of 8.16 percent or 343.6 million shares and compliance due date of October 31,2017; e-Tranzact International has 10.06 percent free float of shares and deficiency of 9.94 percent or 4.1 billion shares with compliance due date of May 17, 2019; Infinity Trust Mortgage has 3.50 free float of shares and deficiency of 16.50 percent or 19.7 billion shares with compliance due date of May 17, 2021; Interlinked Technology Plc has 14.50 percent free float of shares and deficiency of 5.50 percent or 87.8 million shares with compliance due date of October 14,2017.
Others are: The Tourist Company of Nigeria Plc with 3.58 free float of shares and deficiency of 16.42 percent or 10.3 billion shares with no compliance due date ; Transcorp Hotel has 6.00 percent free float of shares and deficiency of 14.00 percent or 17.7 billion shares with due date of May 18, 2020. Union Bank has 14.94 percent free float of shares and 5.06 percent deficiency or 10.1 billion shares with compliance due date of May 18, 2020; Portland Paints has 14.57 percent free float of shares and 5.43 percent deficiency or 295.7 million shares with non-available compliance due date; Global Spectrum Energy Services has 7.01 percent free float of shares and 12.99 percent deficiency or 1.5 billion shares with no available compliance due date; CWG Plc has 15.97 free float of shares and 4.03 percent deficiency or 637.1million shares with non available compliance due date; Aluminium Extrusion Plc has 17.73 percent free float of shares or 2.27 percent deficiency or 28.2 million shares with non available compliance due date; Union Dicon Salt Plc has 18.00 percent free float of shares and 2.00 percent deficiency or 30.4 million shares with non available compliance due date; Austin Laz & Company has 5.51 free float of shares and 14.49 percent deficiency or 2.8 billion shares with non available compliance due date and Notore Chemical Industries Plc has 10.02 free float of shares and 9.98 percent deficiency or 1.6 billion shares with non available compliance due date.
Top 5 deficient coys
The top five companies with free float deficiencies are: Capital Hotel 17.38 percent, Infinity Trust Mortgage 16.50 percent, The Tourist Company of Nigeria 16.42 percent, E-Tranzact International 14.35 percent and Transcorp Hotels 14 percent.
Why we are defaulting – Coys react
While reacting to its status, a source close to Transcorp said: “The Company is aware of the free float deficiency and Management is working closely with the NSE Exchange to meet the free float. We could have done this earlier before now but the market has not been favourable since last year but we hope that once the market is favourable, we will float more shares to the general public.”
Union Bank said: We are in talks with the Exchange as we have applied for extension of compliance.”
Leventis said: We are aware of it as we have sought for extension.”
Other defaulted companies did not respond to text /email messages sent to them as at press time.
Investment experts, shareholders react
Commenting on the situation the Executive Vice Chairman, High Cap Securities, Mr. David Adonri said; “The Inability of the companies to comply with the free float is worrisome. It is to ensure that stocks ownership in public companies is not concentrated in few hands and to prevent price manipulation and dearth of liquidity. The earlier the defaulters comply, the better it is for the integrity of the capital market.”
Managing Director/CEO, APT Securities & Funds Limited, Mallam Kasimu Kurfi said: “The situation depends on the market demand. As long as there is no demand it will take time to meet up with the minimum flotation of 20 percent of the issued shares. You can see that despite efforts of Dangote, still Dangote Cement Plc did not meet up with the minimum free float of share over years after listing on the Exchange. The better way is to give more time to the defaulters otherwise they may delist which is not good for the market.
In his own remark, Managing Director/CEO, Sofunix Investment and Communications Limited and a Chartered Stock Broker, Mr. Sola Oni said: “The NSE requires quoted companies to have a minimum 20 percent of its paid up share capital as free float or at least the value of its free float should be equal to forty billion Naira on the day the company is admitted to the Daily Official List of the Exchange.
‘‘The philosophy of free float is to hedge against high level of lock-in shares held by the company’s promoters. However, companies that fail to comply with the requirement have breached part of The Exchange’s Post Listing Requirements which they signed to uphold. It portrays them as not transparent and reduces effective public participation in the companies’ ownership. This can attract sanctions from the Exchange.
“On the part of shareholders, a breach of free float rule obscures the real capitalization of such companies. It makes it difficult for shareholders to know the actual total value of a company for the purpose of investment decision. This particularly affects stockbrokers and other investment advisers in their advisory services on such companies.”
Reacting, the spokesperson for Independent Shareholders Association of Nigeria, ISAN, Mr. Moses Igbrude said: “When market regulators fail or choose to bend the laws or their regulations to favour some players this scenario will be the case.
‘‘Before now, core investors were not allowed to own more than 51 percent or 60 percent. This will allow for free float of shares. In the name of attracting certain companies to list on Stock Exchange the regulation was removed and the implication is what we are seeing in the market.
‘‘The regulators also forgot that the strategic investors don’t trade their shares and it is the free float of shares in market that make prices. The removal or non compliance to rule is one of the reasons why most delisted companies opted for that option, it made it a lot easy for a company with the intention to delist to gradually increase its percentage holdings over time by using their cronies to mop the shares.
‘‘Share price of such stocks can easily be manipulated and it doesn’t reflect true market price, the likes of AG Leventis, Dangote Group of listed companies fall in this category.
‘‘I strongly advise the NSE and SEC to have the boldness and confidence to address this issue if they really want to have a global or international market as they want us to believe. A free float of companies’ shares is one major criteria to measure transparent and credibility of Stock Exchange.”