The Nigerian Stock Market is set to lose over N295 billion of its capitalisation before the end of next year if the list of companies offering to delist from the Nigerian Exchange Limited come true. In this report, FESTUS OKOROMADU reviews the implications on the nation’s economy.
The year 2023 will definitely go down in history as one that has tested the claims of the Nigerian Exchange Limited as an engine room to fuel sustainable economic growth and development through the provision of climate for companies and institutions to assess capital.
The Exchange has hitherto promised to promote good corporate governance and sound business processes which assist listed companies in enhancing their long-term prospects and survival, thereby enabling trans-generational transfer of wealth.
However, the flurry of listed companies opting for delisting (exiting from the NGX) calls to question the validity of the NGX’s value proposition in the face of a challenging economy.
Data obtained from the NGX shows that within a space of eight months, eight companies listed on the daily official list of the Exchange have opted for delisting.
While some have perfected the process and have exited others are ongoing.
But more worrisome is the fact that multinationals are not left out of the exodus from the Nigerian capital market exercise.
It all started early in the year, precisely in March, when Oando Plc filled a notification at the NGX and Johannesburg Stock Exchange Limited (JSE Limited) that it had received an offer from its core shareholder, Ocean and Oil Development Partners Limited to acquire the shares of all minority shareholders in Oando (Scheme Shareholders).
The Company will subsequently be delisted from NGX and JSE and re-registered as a private company (the transaction).
Under the Scheme, each Scheme Shareholder shall be entitled to receive the sum of N7.07 in cash or its equivalent in South African Rand for every ordinary share held by the qualified Scheme Shareholders at the Effective Date of the Scheme (“Scheme Consideration”).
“We are calling on SEC, NGX and other regulators to organise a stakeholder meeting to find answers and solutions to the rising spate of delisting, or else more firms will quit, and our stock market will become a ghost of itself”
The management of NGX in April announced the suspension of trading in the shares of integrated oil & gas offshore support vessel services company, Global Spectrum Energy Services Plc.
“The suspension is necessary to prevent trading in the shares of the company in preparation for the delisting of the securities of the company in line with the approval obtained from Nigerian Exchange Limited,” the NGX said.
However, the process dates back to 2022 when the Company Secretary, Adetola Raheem notified the NGX that the company’s decision to delist from the Nigerian capital market was made during a meeting of the board of directors of Global Spectrum Energy Services Plc on February 28, 2022.
In May, two financial firms, Union Bank of Nigeria Plc and Coronation Insurance Plc notified the NGX of their intentions to delist due to acquisition and the decision of the new core investors to operate as a private entity.
Thus, Titan Trust Bank Limited, the core shareholder of Union Bank Plc, informed the NGX of its offer for the acquisition of all the shares held by the minority shareholders in Union Bank.
Titan Trust Limited acquired a 93.4 percent interest in Union Bank in December 2021, after initially acquiring 89.4 percent from a pool of stakes belonging to major investors, executed through a Share Sale and Purchase Agreement between its majority shareholders.
Coronation Insurance Plc on its part announced that Coronation Capital (Mauritius) Limited on behalf of itself and other related parties, (together, the “Core Shareholders”) have approached the Board of Directors of the Company with an intention to acquire the shares held by other shareholders of Coronation Insurance.
They offered to acquire the shares at a price of 65 kobo per share and subsequently delist the Company from NGX.
In July, Ardova Plc delisted its shares from the NGX ending a 53-year-old listing after its predecessor, African Petroleum was admitted to the stock market.
The delisting on July 26 is pursuant to the scheme of arrangements between Ardova and holders of its fully paid ordinary shares as approved by the Securities and Exchange Commission and sanctioned by the court.
The same month, Capital Hotel Plc announced plan to delist from the trading platform of the Nigerian bourse, with N8.692 billion as market value
The purpose of delisting according to the company is to enable it to explore strategic opportunities, alliances and collaborations that can bolster earnings and/or provide synergized benefits with little or no regulatory obligations.
Next was the shocking revelation from GlaxoSmithKline Consumer Nigeria Plc of its plan to cease operations in Nigeria.
The Company Secretary, Frederick Ichekwai, in a notification sent to the NGX dated August 3, 2023 said the board’s decision followed the parent company, GSK UK plan to exit the country.
“The GSK UK Group has informed GlaxoSmithKline Consumer Nigeria PLC of its strategic intent to cease commercialization of its prescription medicines and vaccines in Nigeria through the GSK local operating companies and transition to a third-party direct distribution model for its pharmaceutical products.
“The Haleon Group has also separately informed the Board of its intent to terminate its distribution agreement in the coming months and to appoint a third-party distributor in Nigeria for the supply of its consumer healthcare products.
“For the above reasons, and having, together with GSK UK, evaluated various other options, the Board of GlaxoSmithKline Consumer Nigeria Plc has concluded that there is no alternative but to cease operations,” he said.
On delisting plans, the Board said it is conscious that shareholders will have many questions; “We have been working assiduously with our professional advisors to agree on next steps and we will be shortly submitting to the Securities and Exchange Commission (“SEC”) a draft Scheme of Arrangement which may, if approved, see shareholders other than GSK UK, receive an accelerated cash distribution and return of capital.”
The decision of GSK Consumer Nigeria Plc to pull-out of the country and vis-à-vis the NGX implies the loss of N15.5 billion or 0.042 percent of the Exchange’s market capitalisation.
As if that was not enough, on September 4, 2023, PZ Cussons Nigeria Plc wrote to inform the NGX of plans to transit to a limited ability company using a new entity, PZ Cussons (Holdings) Limited to acquire shares held by other shareholders of PZ Cussons Nigeria Plc.
Justifying the decision, the PZ Cussons Group said they believe the transaction is necessary in order to enable them to significantly simplify and strengthen operations in Nigeria creating the foundations for the Nigerian business to deliver against its strategy, building a more agile and innovative business.
Unlike GSK, PZ Cussons noted that it has been present in Nigeria since 1899 and expects Nigeria to remain an important market for the Group for many years to come.
While the dust raised by the announcement of PZ Cussons Nigeria Plc planned delisting was yet to settle, the board of Capital Hotel Plc, on September 25, 2023 disclosed intent to voluntarily delist from the NGX.
On the transaction rationale, the Company Secretary, Alex Ugwuanyi, said, “The delisting of the Company provides the Company with the opportunity to strategize for better performance, minimize costs, and stay competitive within its industry.”
It is important to state that PZ Cussons Plc is currently the 36th most valuable stock on the NGX with a market capitalization of N75.8 billion, translating to 0.203 percent of local bourse capacity.
Investors blame regulators
Commenting on the development, President of Independent Shareholders Association of Nigeria, Moses Igbrude, said the directors of the delisting firms in interaction with leaders of shareholders groups cited the high cost of listing as a major factor fuelling the renewed delisting.
“My interaction with some of these firms indicated that the cost of listing, the fees they pay to the SEC, NGX, Registrar, CAC and even IFRS is eroding their bottom line.
“This is in addition to the harsh operating environment and infrastructure challenges in Nigeria. The regulators have failed to find out what their challenges are to see how they can assist them to reduce their cost of operations.”
He however expressed concerns saying the situation where big and multinational companies are delisting from the Exchange shows a fundamental flaw and calls for questions.
“We are calling on SEC, NGX and other regulators to organise a stakeholder meeting to find answers and solutions to the rising spate of delisting, or else more firms will quit, and our stock market will become a ghost of itself,” he stated.
On his part, President of New Dimension Shareholders Association, Patric Ajudua attributed the current situation to failure of regulatory authorities in holding quoted companies accountable in the area of corporate governance.
He cited the example of PZ Cussons, claiming that the firm is engaged in asset stripping, a case they have reported to the Securities and Exchange Commission as well as the NGX but the regulators have failed to investigate the matter.
Asset stripping is the practice of taking over a company in financial difficulties and selling each of its assets separately at a profit without regard for the company’s future.
Ajudua said, “The SEC has abandoned its oversight functions in preference to imposing high penalties/fines on these companies. Their major role is to monitor the activities of the firms every quarter through unscheduled visits/interactions to find out if they are truly observing good corporate governance.
“I seriously doubt if SEC acts on the whistle-blowing report because in the case of PZ Cussons, shareholders have called their attention to the regulator on the asset stripping going on in the company before now and nothing was done about it.”
Co-founder of Nigeria Shareholders Solidarity Association, Gbadebo Adetokunbo, listed factors fuelling the delisting of companies from the stock market to include; board disagreements, overseas parent policies, indiscipline by management/board of directors and corruption among others.
“It is quite unfortunate that ordinary shareholders suffer at the end despite our repeated warning at yearly general meetings and closed-door meetings with management and directors of these companies. If the regulation is now reset to state that bailout bargains must be based on the profit made by the company in the last five to ten years, we will start seeing a reduction in the number of delisting firms,” he argued.
Experts differ
However, a capital market analyst at Chapel Hill Denham, James Ola-Adisa, attributed the flight from the market as a reflection of the current economic reality of the country.
“Companies are trying to delist from the stock exchange because current economic conditions are making it difficult for them to operate. They want to fix their operations without scrutiny from the market, because they may need to make tough decisions that investors may not like. If they are able to make these changes and fix their operations, they may go public again in the future,” he said.
“When the economy is weak, it can be difficult to raise capital through the stock market because valuations are low”
Following the same line of argument, a portfolio manager at FBNQuest, Gbolahan Ologunro, insisted that the recent economic downturn is responsible for the delisting flurry.
“When the economy is weak, it can be difficult to raise capital through the stock market because valuations are low,” he said.
He pointed out that, “Delisting from the stock market is expensive, especially when the economy is doing poorly. Companies that are struggling to break even or make a profit may find that the costs of listing, compliance, and other fees outweigh the benefits.”
Economic implications
General speaking, the capital market is believed to operate under the free entry free exit principle of capitalism, but when juxtaposed on the axiom that the capital market is the barometer for measuring the economic well-being of a nation, the emerging trend the delisting flurry then pose a serious concern for the Nigerian economy.
More so, when it is coming at a time when the country is in need of foreign investment and experts are calling on the market regulators to create diverse strategic initiatives for attracting new listings as well as government patronage to deepen the market, it is very dangerous for the economy.
Obviously, the new trend has its negative implication on the economy, apart from being a tool for measuring how wealthy a nation is, the capital market is a serious option for wealth creation.
The daily trading of shares offers opportunities for interested investors to be proud part owners of listed companies as well as serve as a channel for saving for the future.
It’s unfortunate that while the Johannesburg Stock Exchange has over 290 companies listed on its board, while the Egypt Stock Exchange has over 200 companies listed, the NGX with merely 150 listed companies on its board with barely 70 of them traded actively daily is witnessing a hemorrhage. All hands must be on deck to rescue the NSE vis-à-vis the economy from this dangerous trend.
