Enabling Strong Economic Growth with Demutualisation

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By Kunle Aderinokun

Recently, the Securities and Exchange Commission (SEC) and Corporate Affairs Commission (CAC) gave final approval for the demutualisation of the Nigerian Stock Exchange (NSE), bringing to reality the bourse’s dream of many years.

The approval by the two commissions completed the demutualisation process of NSE, transforming it into a profit-making and limited liability company.

Demutualisation is a process by which a private, member-owned company legally changes its structure, in order to become a public-traded, profitmaking company owned by shareholders. In a demutualisation process, members may receive structured compensation or ownership conversion rights in the form of shares in the new for-profit company. Demutualisation will, therefore, enable the company conduct its business activities as a profit making entity. It would also mean a change in operational structure and leadership. Improved corporate governance

Under the demutualisation plan, a new non-operating holding company, the Nigerian Exchange Group Plc (NGX Group) has been created. The Group has three operating subsidiaries, namely: Nigerian Exchange Limited (NGX Limited), the operating exchange; NGX Regulation Limited (NGX REGCO), the independent regulation company; and NGX Real Estate Limited (NGX RELCO), the real estate company.

The demutualisation of NSE brings to a conclusion an aspiration that was conceived many years ago. The belief is that the Nigerian capital market should play a role commensurate with Nigeria’s status as Africa’s largest economy. As such, The Exchange thought deeply on how to expand the market in such a way that it is reflective of the size of the Nigerian economy and demutualisation was the clear path to take because it gives us the flexibility to access capital, improve our corporate governance structure and expand our business across various verticals and geographies.

The development has been welcomed by economic and financial analysts as well as capital market stakeholders, who believe it would lead to the growth of the market and the economy.

Essentially, demutualisation allows the NGX to position to provide liquidity to NSE members, allowing the capital market ecosystem grow at the same pace of the economy. Furthermore, this move will see The Exchange evolve with the trend of global exchanges such as the New York Stock Exchange and London Stock Exchange who have experienced significant periods of dramatic growth following their demutualisation.

Certainly, it has been a long journey beginning with members of the NSE approving the demutualisation scheme of The Exchange at an Extraordinary General Meeting (EGM) in March 2017. This was followed by the signing of the Demutualisation of The Nigerian Stock Exchange Bill into law in August 2018 by the President Muhammadu Buhari. In December 2019, SEC in a no-objection letter gave its consent to the NSE which led to the court-ordered meeting and EGM in March 2020, where members unanimously agreed to the requisite resolutions to convert from a not-for-profit entity limited by guarantee into a profit-making, public limited liability company owned by shareholders.

In May 2020, The Federal High Court, Lagos, granted an order authorising the scheme of arrangement for the demutualisation exercise finally leading up to the final approvals from the SEC and Corporate Affairs Commission (CAC). With these approvals, NSE can now activate its Transition Plan to a new operational structure and holding company.

Globally, many member-owned exchanges are demutualising to unlock their true value and diversify operations. With demutualised NGX well positioned to enable strong economic growth and contribute to the development of the Nigerian capital market as it will make Nigeria more attractive to foreign investors.

NSE Council President, Otunba Abimbola Ogunbanjo, said: “Successful demutualisation was one of my fundamental objectives when I assumed the Presidency of The Exchange. The SEC’s decision today to approve the NSE’s demutualisation plans brings this aspiration to a successful conclusion in a process that included the passage of the Demutualisation Act through the National Assembly. We are elated that this milestone has been achieved as we celebrate the 60th anniversary of the commencement of trading at the Exchange and now look forward to the future public listing of its shares on NGX Limited. On behalf of the NSE, I would like to warmly thank all those that have worked assiduously to achieve this watershed event on our journey to make the NSE a multifaceted exchange that extends across various markets and geographical regions.”

New Group CEO of NGX Group Plc, Oscar N. Onyema, said: “The Nigerian capital markets should play a role commensurate with Nigeria’s status as Africa’s largest economy. At the Nigerian Stock Exchange, we have a vision that the new group will become the premier exchange hub for Nigerian businesses and for the African economy. We are implementing a series of measures towards this goal, demutualisation being a critical milestone. The completion of demutualisation is a truly significant moment, and we welcome the new possibilities that have opened up for us today.”

Demutualisation of the NSE is pivotal in that it creates new strategic opportunities that will enable the Group realise its vision of becoming Africa’s leading capital market infrastructure provider. The creation of a holding company and a new capital structure will also enable NGX Group Plc to form new dynamic relationships, drive strategic partnerships and gain capital raising flexibility. It will be recalled that NSE members approved at its last AGM, the listing by introduction of NGX Group Plc on NGX Limited.