Stock Market as Nightmare for Retail Investors

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Eromosele Abiodun writes that the recent delisting of eight companies by the Nigerian Stock Exchange is another major loss to retail investors in the capital market

One of the primary ways to protect the retail investor is through vigorous and comprehensive enforcement programme. In order for retail investors to feel comfortable participating in the markets, they need to know that there is a strong and focused regulator. That is why regulators all over the world do everything possible to ensure zero tolerance to infractions in the capital market. However, that seems not to be the case in Nigeria.

Nigerian investors had over the years raised concerns about government’s non-chalant attitude to their huge losses following regulatory induced policy and inconsistent fiscal economic blueprints. To put their mind at rest, the federal government recently assured retail investors of their safety stressing that the government empathises with Nigerian shareholders over the situation of their portfolio investments.

The Director General of the Securities and Exchange Commission (SEC), Mounir Gwarzo, gave the assurance at a workshop organised by the Capital Market Correspondent Association of Nigeria (CAMCAN) last year.
He said that government through the capital market regulator was serious in addressing the issues raised by retail investors.

According to him, “We want to address concerns of retail investors before we start wooing them into the market.”
Gwarzo said the commission had inaugurated the board of Investors Protection Fund (IPF) and from this year, proceeds of shares sale will be paid directly into the account of investors as part of efforts to address investors’ concerns.
Speaking in the same vein, the Chief Executive Officer of the Nigerian Stock Exchange (NSE), Mr. Oscar Onyema, who spoke on the workshop theme, “Effective Reporting of Changes in the Nigerian capital market,” said retail investors need to be educated on why they should take portfolio approach to investment.

“It is important to do the analysis, understand where those opportunities are but certainly there are opportunities, not only in the equity side but across the various asset classes. We always advise investors to diversify their portfolios across different assets classes to mitigate risks,”he said.

Onyema said that good corporate governance will ensure the existence of solid companies in Nigeria. He also argued that forcing companies to list on the nation’s bourse may lead to infractions in the market, adding that a lot of energy has been committed in building the foundational aspect of the market in terms of transparency, orderliness, fairness, disclosure, and enforcement of rules and regulations.

“In the short term, you will see the huge volatility but that should not distract from those fundamental elements about good companies, making good money, running under a well governed Exchange structure and a well regulated market structure. These factors will combine to shore up investors’ confidence in these challenging times. As we continue to work towards achieving and sustaining this market, the importance of your role cannot be over emphasised, “he stated.

Same Old Story
Just as investors were hoping for greater protection following the assurances given to them by the regulators in the capital market, things took a different turn recently when the NSE announced the delisting of eight companies from its daily official list.
The NSE said it took the action because of the persistent failures of the companies to meet best corporate governance practices, as enshrined in the listing rules.
The eight companies are IPWA Plc, G. Cappa Plc, West African Glass Industries Plc (WAGI), Investment & Allied Insurance Plc, ALUMACO Plc, Jos International Breweries Plc, Adswitch Plc and Rokanna Plc.

The NSE management noted that the delisting was in pursuant to Clause 15 of the General Undertaking, Appendix III of the Rule Book of the Exchange, 2015, Part II, Issuers’ Rules, which referenced the obligations of quoted companies in terms of regular periodic submission of performance and financial reports, corporate governance and accountability. It said the delisting of the eight companies from the daily official list of the Exchange became effective from 18th May 2016.

“The Quotations Committee of the National Council of the Nigerian Stock Exchange (QCN) approved the delisting of the afore-listed companies on Friday, 18 March 2016, “the NSE management said.

Minority Shareholders’ Burden
Recent data from the Exchange obtained by THISDAY revealed that no fewer than 63 companies have been delisted from the NSE. A company is delisted from an exchange involuntarily, when the company for which the stock is issued is not in compliance with the listing requirements of the exchange.
A review of the list showed that out of the 63 companies, seven chose to delist voluntarily; 47 delisted due to regulatory instruction; while 9 of these companies delisted due to reforms/ expansion within the sectors they operated.

Most of the companies that delisted voluntarily from the bourse had sited harsh economic climate and parent company buy-out as reasons. Whichever way, all of these companies at one time held annual general meetings, had public offerings where monies where and never put to use.

While retail investors, some who put in their retirement benefits into these companies cry, sponsors of these companies are walking the streets as free men whereas some even come back with different companies to raise monies. Notable names in this category are: CFOA Nigeria Plc, Nigerian Textile Mills Plc, Nigerian Bottling Company Plc NAMPAK Plc, United Nigeria Textile Plc, Incar Plc, and Impresit Bakolori Plc.

The following is a brief summary of the companies, the year and mode of their delisting from the daily official list of the Exchange. Impresit Bakolori Plc (2002/voluntary); Dumez Nigeria Plc (2002/regulatory: NSE); CFOA Nigeria Plc (2007/voluntary); Acen Insurance Plc (2008/ regulatory: NAICOM); Atlas Nigeria Plc (2008/regulatory: NSE); Ceramics Manufacturing Company Plc (2008/regulatory: NSE) and Amicable Insurance Plc (2008/regulatory: NAICOM).

Exit in a Boom Time
Baico Insurance Plc had been delisted in 2008 due to regulatory instruction from NAICOM; while Beverages (WA) Nigeria Plc was delisted from the daily official list in 2008 following the regulatory instruction by the NSE.
Also in 2008, Enpee Plc due to regulatory instruction by the Nigerian Stock Exchange was delisted from the daily official list; while Tate Industries Plc in 2008 delisted following regulatory instruction by the NSE. In addition, Maureen Laboratories Plc delisted in 2008 due to regulatory instruction by NSE; while the same regulator delisted Rietzcot Nigeria Plc in 2008 from its daily official list.

In addition, Intra Motors Nigeria Plc was delisted by the Nigerian Stock Exchange in 2008; while Aviation Development Company Plc was delisted in 2008 for failing to meet regulatory requirements.

Grommac Industries Plc was also delisted in 2008 from the Exchange for failing to meet regulatory requirements. Others are: Onwuka Hi-Tek Plc (2008/ regulatory: NSE); Nigerian Lamps Plc (2008/regulatory: NSE); Nigerian Yeast & Alcahol Manufacturing Plc (2008/regulatory: NSE); Security Assurance Plc (2008/regulatory: NAICOM); Sun Insurance Plc (2008/regulatory: NAICOM); Nigerian Textile Mills Plc (2008/voluntary); and Footwear Manufacturing Plc (2009/regulatory: NSE).

Also on the list of companies delisted from the Nigerian bourse are: Ferdinand Oil Mills Plc (2009/ regulatory: NSE); Christlieb Plc (2009/regulatory: NSE); BCN Plc (2009/regulatory: NSE); Liz-Olofin & Company plc (2009/regulatory: NSE); Oluwa Glass Company Plc (2009/ regulatory: NSE); Asaba Textile Mills Plc (2009/ regulatory: NSE); Aboseldehyde Laboratories Plc (2009/regulatory: NSE); Epic Dynamic Plc (2009/regulatory: NSE); Fadmad plc (2009/regulatory: NSE); Aba Textile Mills Plc (2009/ regulatory: NSE); Afprint Plc (2010/regulatory: NSE); Incar Plc (2010/ voluntary); Nigercem Plc (2011/ regulatory: NSE); Daily Times Plc (2011/regulatory: NSE); and Albarka Airline Plc (2011/regulatory: NSE).

Other notable companies that delisted from the daily official list of the Exchange are: Abplast Plc (2012/ regulatory: NSE); Udeofosin Garment Plc (2012/regulatory: NSE); Hallmark Paper Product Plc (2012/regulatory: NSE); BACGO Bag Plc (April 11, 2013/ merged with Flour Mills Plc); Crusader Nigeria Plc (May 13, 2013/ merged with Custodian & Allied Insurance Plc; West African Aluminium Plc (June 3, 2013/regulatory: NSE); and Nigerian Wire Industry Plc (June 3, 2013/regulatory: NSE).
Foremost Dairies Plc (2011/regulatory: NSE); Wiggins Teape Nigeria Plc (2011/regulatory: NSE); Okitipupa Oil Palm Plc (2011/regulatory: NSE); First Capital Investment & Trust Plc (2011/regulatory: NSE); Flexible Packaging Plc (2011/regulatory: NSE); Newpak Plc (2011/regulatory: NSE); Krabo Nigeria Plc (2011/regulatory: NSE); and Tropical Petroleum Plc (2011/regulatory: NSE).

Also, in 2011, Nigerian Bottling Company Plc delisted voluntary; while in the same year, Nampak Plc delisted voluntarily. United Nigeria Textile Plc (2011/voluntary); Bank PHB Plc (2011/nationalised: CBN); Afribank Plc (2011/nationalised: CBN); Spring Bank Plc (2011/nationalised: CBN); Intercontinental Bank Plc (2011/merged with Access Bank Plc); Oceanic Bank plc (2011/merged with ETI Plc); Finbank plc (2011/ merged with FCMB Plc) and Ecobank lc (2011/absorbed by ETI: now Ecobank Nigeria Limited).

Shareholders Berates NSE, FG
In their response to the delisting, some leaders of shareholders associations said the NSE and the SEC has not done enough to protect retail investors.
National Coordinator, Independent Shareholders Association of Nigeria (ISAN), Sunny Nwosu, said the apathy among domestic investors stemmed from repeated nonchalant attitude of government to the suffering of more than six million active Nigerian retail investors.

Nwosu accused government of treating shareholders with disdain in spite of their contributions towards sustained local wealth creation and economic development.
According to him, “We were promised mouth-watering returns at court ordered meetings in preparation of public or initial public offerings. Return never came. We trusted regulators to protect us so we put out monies from our retirement benefit in private placements with the promise that the shares will be listed on the Nigerian Stock Exchange.

“That never happened. Even the ones that were listed have either been taken over by regulators or struggling to survive. Imagine buying 10,000 units of a bank share at N33.00 in a public offer in 2007 and today the same stock trades at N6. That is N27.00 multiplied by 10,000 units. Our offence is that we invested.”

He added: “The only luck we retail investors have now is that some of the banks still exist. But what about a situation where you buy a bank share in a public offer at N13 per share and for no just course you are told your 100,000 units (N1.3 million) has been watered down by shares reconstruction that was done without your permission or that your shares has been reduced to 1,000 because they are now worthless because your bank was rescued by a Central Bank and sold to a bidder who merges your bank and his together and decides what unit of shares you deserve.

“These are just a few of the many anomalies suffered by poor Nigerians in the capital market. It is an understatement to say that over 1000 has died since the 2008 market crash. Some have become an anatomy in hospital as a result of incapacitation arising from blood pressure. You may have read in the media that the stock market has returned so and so per cent in the last one year, good statistics. Please ask those brandishing the numbers how many retail investors benefited from the return. Take out Dangote Cement Plc and Nestle Nigeria Plc and a few others in the fast moving consumer goods sector, the so called return will turn out a farce.”

SEC Takes Matter to Police
To ensure that its promise of zero tolerance to infractions is taken serious, SEC recently urged the law enforcement agencies to collaborate with the Commission in its quest to ensure zero tolerance on infractions in Nigeria capital market and also ensure that perpetrators of fraudulent acts are brought to book appropriately.

The SEC boss stated this when he led members of the management of the commission on a visit to the Inspector General of Police, Solomon Arase in Abuja.
Gwarzo solicited the support of the IGP to enhance the ongoing co-operation between the Force and the Commission towards ensuring that laid down rules and procedures are adhered to in the capital market.

He appreciated the police on the work they have been doing since the collaboration started and sought for more in areas of specialised discipline such as forensic investigation to enhance the operations of the capital market.

In his response, Arase assured the Commission that the Nigerian Police, under his leadership, will do all that it can to assist the Commission in ensuring that incidents of infractions within the Capital Market are brought to the barest minimum.

He commended the DG SEC on his desire to make the capital market free of malpractices, saying that no nation can develop with the increase in crime and corruption adding that life and property which include tangible and intangible assets must be protected

He said the inter agency collaboration is in the right direction as both Nigeria Police, Economic and Financial Crimes Commission, EFCC, and SEC are committed to deliver mandate of protecting life and property of the people adding that the administration will deal with anybody found defrauding the people in the capital market.

The Investment and Securities Act of 2007, section 304 requires the Commission to refer matters of criminal nature to the appropriate criminal prosecuting authorities including the Nigerian Police.
Some of these infractions include fraudulent disposal of investor assets, illegal fund management, wonder banks, insider dealing, corporate accounting fraud and share manipulation etc.

Despite the great successes with tracking fraudulent practices in the market, the Commission is not resting on its laurels as there are still illegal fund managers, wonder banks and possible cases of market abuse.
It is hoped that this synergy with the police will help to significantly reduce, if not totally eradicate, these activities to the benefit of investing public.

In its determination to eradicate crime and malpractices in the Nigerian capital market, the then IGP, Mohammed Abubakar, announced the deployment of 18 policemen to the SEC.
They were deployed to prosecute criminal cases involving capital market activities and ensure that every culprit found wanting is dealt with in accordance with the Investment and Securities Act and laid down regulation.