As Quoted Companies Shrink on Nigerian Stock Exchange…

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In about 16 years, the number of companies listed on the Nigerian Stock Exchange has reduced by 93, which comes to an average of about six per annum. But the capital market regulator, Securities and Exchange Commission, is now trying to reverse the debilitating trend. Bamidele Famoofo reports

In just four months this year, three companies whose shares were formerly on the quotation list of the Nigerian Stock Exchange (NSE) exited the market where they had enjoyed access to long- term fund to grow their businesses. Perhaps, a worse fate befell their shareholders who will no longer be able to make money from the shares they own in the companies. Shareholders make money through capital appreciation, dividend or bonus from investing in the shares of quoted companies.

Delisting

Most recently, Seven-Up Bottling Company (SBC) Plc, one of Nigeria’s foremost beverage producers; African Paints (Nigeria) Plc; and Afrik Pharmaceuticals Plc had their shares delisted on the NSE. While SBC Plc filed to delist voluntarily, the two others were forced to go.

According to the NSE, “delisting” of securities means removal of listed securities from The Exchange. Consequently, the securities of an affected issuer will no longer be traded on The Exchange and the issuer’s name will be removed from the Daily Official List of The Exchange”.

Meanwhile, the NSE approved the voluntary delisting of Seven-Up Bottling Company after it received a takeover bid from its majority shareholder aimed at restructuring the company. Seven-Up’s minority shareholders backed a $70 million buy-out bid by majority investor, Affelka, the investment firm of the Lebanese El-Khalil family.

Specifically, Seven-Up Bottling Company Plc (SBC) in January notified the NSE and the investing public of an upward review of the scheme consideration for the company’s minority shares to N125 per share, from the earlier N112.70 per share. Affelka S.A. – the holder of 73 per cent of the company’s shares outstanding – has signalled intention since last year to completely buy-out minority shares in SBC for a consideration of N112.70 per share relative to the market price of N97.12 as of December 7, 2017.

But even before the shareholders of SBC Plc could satisfy a legal obligation to make the deal go through, by holding a court- ordered meeting, the Board of Directors of SBC got a “No objection” signal from the SEC to execute the deal.

Seven-Up Bottling last traded at N101.97 per share, valuing the company at 65.32 billion naira ($214 million). It would be recalled that six years before the exit of SBC from the NSE, Coca-Cola delisted its local bottling unit in a $136 million buyout deal to expand the business and fend off competition.  And just like SBC, NBC Plc was fully taken over by its majority shareholder, Coca-Cola Hellenic Bottling Company S.A. (“Hellenic”).

Besides Seven-Up Bottling Company Plc and Nigerian Bottling Company (NBC), two leading firms in the foods and beverages sector of the NSE, which voluntarily filed for the delisting of their shares within a space of seven years to each other, a noticeable number of companies that operate in some other sectors of the Nigerian economy, had also voluntarily asked SEC to grant them the liberty to withdraw from participating in the capital market.

CFAO Plc, a formidable operator in the Nigerian automobile industry, for instance, took the decision to jettison the NSE earlier. In 2017, its Board of Directors demanded a voluntary delisting.  A year later, Nigerian Textile Mills followed suit, while its competitor in the Nigerian textile industry, United Nigerian Textile Mills, also went the same way some three years later. Construction giant, Cappa & D’Alberto Plc and Ashaka Cement Plc withdrew in 2015 and 2017, respectively.

NSE

Interestingly, over 80 per cent of the 93 companies that had their shares delisted from 2002 to April 2018 were kicked out by the regulators of the market. NSE and SEC said the companies were no longer fit to retain their listing statuses because they could not meet the necessary conditions for listing.

“The Exchange will delist securities where the issuer has not complied with the Listings Rules of The Exchange, or for breach of the terms and conditions of the General Undertaking executed by the issuer when its securities were listed by The Exchange; or further to the Issuer’s application for voluntary delisting of its securities,” NSE said.

Other reasons for delisting a company, according to NSE, include where the National Council of The Exchange (“Council”) considers that there is insufficient public interest in the issuer, or the securities of the issuer in the hands of the public are insufficient to make a market in the securities.

However, NSE says the decision to delist a security is taken only after thorough and careful analysis. “It is not a decision arrived at without full consideration of the interests of all stakeholders involved,” a statement from the NSE disclosed.

 Mixed Reactions

While some capital market analysts attributed the decision of SBC Plc to quit the Nigerian capital market to slow demand arising from weak economic growth in Nigeria and currency crisis that stifled raw material imports in the period, others argued that it was because both the SEC and NSE failed in their responsibilities to issuers that voluntary de-listing gained ground among issuers.

“Obviously, if the owners of the companies that chose to delist believed in the regulators, they would not contemplate delisting,” a capital market analyst who does not want his name mentioned told THISDAY. He warned that the immediate effect of quoted securities offering to delist was the blow on the image of NSE as an avenue for raising capital and trading in the securities of listed companies.

Others pointed out that if the trend persisted, it would naturally translate to a reduction of market capitalisation, the more important one being reduction of the diversity in listed securities, which would impact adversely on market liquidity.

On the other hand, analysts at Proshare blamed companies like NBC Plc, Cappa & D’Alberto Plc. for backstabbing the NSE on the indigenisation programme launched by the bourse on November 12, 1973, which offered them the opportunity to list their shares.

“Owners of the AG Leventis Group are simply telling Nigerians that they are no longer obliged to partner with them in their business, just as the owners of Cappa & D’Alberto have done, shouting to hell with indigenisation. They are not sensitive to the plights of the local investors as a result of their decision to quit the market,” Proshare analysts lamented.

Rescue

Acting Director General of SEC, Mary Uduk, has set out plans to check the debilitating the trend of delisting. To be able to come up with a lasting solution to the problem, Uduk said the Capital Market Committee (CMC) of SEC at its last meeting held in Lagos, was mandated to look into the real reasons why quoted companies were delisting from the NSE.

Besides, the highest regulatory body in the Nigerian capital market also promised that it would meet with shareholders groups to determine the reasons for the de-listings.

Apart from putting a stop to excessive delisting of companies, Uduk said SEC will go the extra mile to see an improved listing of multinational companies in Nigeria on the capital market. “Increase in de-listing by public companies pose a threat to the market in view of the fact that quite a number of them are highly capitalised,” she said reiterated.