Towards a More Attractive Stock Market

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The Securities and Exchange Commission and Nigerian Stock Exchange took steps capable of attracting more listing and trading on the stock market, writes Goddy Egene

Given the population of Nigeria, which is estimated at 200 million people, it is seen as a good market for goods and services. It is also believed that many companies ought to be operating successfully through high enjoying high patronage based on the huge population. However, this has not been the case. Whereas there are many registered companies in the country, not all of them are operating successfully due to certain factors. Two major factors that affect the operations of companies negatively are high cost finance and poor infrastructure.

Although there is an existing capital market where companies ought to get relatively cheaper funding, the patronage of the market has not been as encouraging as expected. About 168 companies are listed on the Nigerian Stock Exchange (NSE), a number that is too low considering the fact that NSE has been in existence for 59 years and there are several thousands of companies eligible for quotation.

Instead of more companies getting listed on the NSE, listed ones are exiting. Notable firms such as Nigerian Bottling Company and Seven-Up Bottling Company Plc have left the exchange, apart from smaller companies. Newrest ASL Nigeria Plc also was delisted two weeks ago, while First Aluminium Nigeria Plc will soon be delisted.

While some companies are opting for voluntary delisting, MTN Nigeria Communications Plc got listed on the NSE by introduction two weeks ago. The admission of the largest telco firm in Africa onto the Nigerian market, lifted the market capitalisation of the exchange from N10.6 trillion to N13.6 trillion.

Streamlining Listing Process
However, in new efforts to ensure more companies get listed on the NSE, the Securities and Exchange Commission (SEC) and the exchange have made moves to make the processes involving listing more efficient and cost effective by streamlining the approval process.

The streamlined process, which will come into effect on June 1, 2019, is aimed at reducing the regulatory burden on issuer’s by eliminating duplication of processes between the SEC and the NSE, reducingthe time to market for the issuance and listing of securities and ultimately driving more listing on the exchange.

ith the streamlined processes, the SEC and the NSE would carry out joint site visits of companies intending to get listed, following the registration of their securities with the SEC.
In the same vein, certain offer documents such as the Vending Agreement, Underwriting Agreement, Trust Deed and ISPO, identified to be strictly within the jurisdiction of the SEC are to be submitted only to the SEC. Also, the exchange will rely on SEC for approval of offer documents such as a Prospectus.

Commenting on the development, the Acting Executive Commissioner, Operations, NSE, Mr. Isiyaku Bala Tilde said: “Streamlining the issuance process with the listing process of the NSE is a major milestone for the commission in its quest to create an enabling environment capable of attracting new listings.

“One of our core values is leading by example, and we hope that other stakeholders will also look inward to explore similar initiatives which will ensure quick time to market of securities in our market. We have no doubt that the streamlined process will enhance the competitiveness of the Nigerian capital market as a global investment destination.”

Also speaking, Executive Director, Regulation, NSE, Ms. Tinuade Awe, said: “I commend the SEC for working with us in streamlining the listing process for securities on the exchange. The NSE is much obliged for the SEC’s demonstration of a worthy example of effective collaboration all through this process in the interest of the market. As an agile exchange, we are determined to make it easier for issuers to list their securities in our market in an efficient, timely and cost effective manner. The NSE began its collaboration with the SEC by identifying areas of duplication and overlap between the two organisations, paving way for a better experience for issuers. We believe this will potentially attract more issuers to list their companies and other securities on the NSE.”

New listing rules
As part of the efforts to attract more issuers to the market and make trading on the stock more efficient, SEC approved some new rules and amendments of existing ones proposed by the NSE.
The rules are: on securities transactions between dealing members of the NSE, which will become effective June 3; Rules for listing on the Growth Board of the NSE, to be effective June 17; Rules governing free float requirements for issuers listed on the NSE, effective June 3; Rules on price stabilisation of securities, effective July 15 and Rules on release calendar for regulatory announcements and filings of listed companies, effective September 2, 2019. According to the NSE, all the rules were approved by SEC on May 6, 2019.

Free float
According to the rule, free float means the number of shares that an issuer has outstanding and available to be traded on the exchange.
“ It includes all shares held by the investing public, and excludes shares held directly or indirectly by promoters, directors and their close relatives; strategic investors holding five per cent and above of the issued share capital or government,” it said.

The rule states that for any issuer seeking to list on the Premium Board, its free float shall be: (a) 20 of the Issuer’s issued share capital made available to the public and held by not less than three hundred (300) shareholders; or (b) valued at N40 billion or more, or any value prescribed by the exchange from time to time, on the date The exchange receives the issuer’s application to list.

For issuer seeking listing on the Main Board, its free float must be 20 per cent of shares held by not less than 300 shareholders or valued at N20 billion or more, or any value prescribed by the exchange from time to time, on the date the exchange receives the Issuer’s application to list.
For Alternative Securities Market (ASeM) Board, free float shall be 15 per cent of the shares and held by not less than 51 shareholders or valued at N50 million.

The rule provides that the exchange may grant extension of time to an Issuer to comply with the minimum free float requirements if: it believes that the market can operate fairly and in an orderly manner with the issuer’s existing level of free float or it receives an undertaking from: a majority holder of shares in the issuer holding a number of securities equivalent to at least five per cent of the issued shares, or a combination of holders of shares in the Issuer, holding a total number of securities amounting to at least five per cent of the issued share capital, to make available to the investing public a specific number of securities, required to restore the Issuer to the required free float level within such period as the exchange may approve. The Issuer shall produce and submit to the exchange for consideration and approval, an acceptable compliance plan in that regard.

Dealing with free float deficiencies
According to the rule, where any Issuer is not compliant with the free float requirement, and the exchange notifies such Issuer of that fact, the following shall be applicable: The Issuer shall within 10 business days of receiving the exchange’s notification, initiate discussions with the exchange on the Issuer’s plan for restoring itself to a state of full compliance with the free float requirement.

“ Within three months of receiving the exchange’s notification, the Issuer shall produce and submit to the exchange for consideration and approval, an acceptable compliance plan setting out a programme for restoring itself to full compliance with the exchange’s listing standards.
“Upon receiving the exchange’s approval on the compliance plan, the Issuer shall immediately commence implementation of the plan towards achieving full compliance within such period as The Exchange may approve.

“Within 10 business days of the exchange’s above decision, the Issuer shall notify its shareholders in writing via a notice submitted through the exchange’s Issuers’ Portal that if it does not achieve the required free float within the stipulated timeframe, the exchange may suspend trading in its securities,” the rule states.

The rule provides that exchange will commence the process of delisting an Issuer’s shares if: The Issuer fails to respond to the exchange within 10 business days of receiving the notification referenced in Rule 3.1 of these free float rules or the issuer fails to produce and submit an acceptable compliance plan to the exchange within three months of the exchange’s publication of its name on the exchange’s periodic “X-Compliance Report” as operating “Below Listing Standard”; or the compliance plan submitted by the issuer is not acceptable to the exchange, and the issuer fails to produce and submit an acceptable alternative plan within 21 business days of the exchange’s rejection of the initial plan; or the issuer is unable to return to a state of full compliance with the exchange’s listings standards within such period as is reflected in the issuer’s compliance plan approved by the exchange.

The Growth Board
In addition, to make listing more attractive and requirements more flexible, the NSE introduced new rules on Growth Board. The exchange said the aim of the new board was to provide a platform for greater global visibility for eligible Nigerian entities and foreign companies, which will engender global capital flows.
For any firm to be quoted on the Entry Segment already be listed on the Main Board or Alternative Securities Market (ASeM) Board of the exchange or seeking to list on the entry segment.

“Is duly incorporated as a public company limited by shares and has been in operation for at least two years, and has audited financials prepared in line with the International Financial Reporting Standards (IFRS); grown its revenue by a minimum rate of 20 cumulatively in its last years of operations; or is a new business that can provide evidence of investment in it by: a core investor or a strong technical partner that has a minimum of two years’ operating track record, or a majority shareholder who is either a high net worth individual or is a director of a listed company; and has a market capitalisation that is equal to, or is in excess of N50 million on the date the exchange receives the issuer’s application to list on the Entry Segment; and has a minimum free float of 10 per cent of its issued share capital; and has appointed a Designated Adviser or such other relevant professional as may be prescribed by the exchange from time to time; and has a minimum of 25 shareholders or such other number as may be approved by the exchange from time to time.

Rule for price stabilisation
Another rule that is expected to ensure stable prices of stocks on the local bourse is the one on Price stabilisation. According to the rule, price stabilization is a trading activity aimed at supporting and maintaining the price of eligible securities during the stabilisation period by the Stabilisation Manager for the purpose of establishing an orderly market in the immediate secondary market after an offer.

“Stabilisation period the time frame within which price stabilisation transactions are permitted which shall not exceed 30 calendar days from the date of listing, or 30 calendar days from the first day of the trading of the securities in the offering (as may be applicable). For price stabilisation to occur the issuer shall ensure that a prominent statement appears in the Prospectus or other offering documentation which clearly states: (a) the existence and maximum size of any over-allotment option and any conditions for the exercise of the over-allotment option; that price stabilisation may be undertaken for the offer, however, that there is no assurance that it will be undertaken, and that it may be stopped at any time within the 30, being the earlier time between: (i) the exercise of the over-allotment option, when the shares purchased for price stabilisation equals the over-allotment size, or (ii) the end of the stabilisation period; the nature and effect of price stabilisation including the fact that price stabilisation is aimed at supporting the market price of the eligible securities; (d) the identity of the stabilisation manager; and (e) the date of commencement and closing of the stabilisation period; and the provider (offeror or issuer) of eligible securities for the over-allotment option.