Of Delisting and Shareholders Protection

AllAfrica |

Despite the claims by the Nigerian Stock Exchange (NSE) that its plan to delist 21 more companies from its daily official list is to ensure that the NSE is not lending its reputation to companies that do not comply with their obligations, minority shareholders have accused the Exchange of isolating them and questioned the NSE's 2016 $1 trillion market capitalisation ambition, writes Eromosele Abiodun

In an exclusive interview with THISDAY on assuming office as the Chief Executive Officer of the Nigerian Stock Exchange (NSE), Oscar Onyema, promised to deepen the Nigerian stock market by introducing new product, attract more companies to list and work hard to retain existing quoted companies.

He also announced his ambitious plan to take the Exchange's capitalisation to $1 trillion by 2016.

To achieve his ambitions, he said: "I've started a new department called, Listing, Sales and Retention, and it is part of the business development division and their job is to maintain relationship with our existing companies at the board level, investor relations level, C of O level. They will also maintain relationship with professionals like bankers, accountants, and lawyers that advise these companies."

He added: "That's one piece of their job, the next piece is to go out and attract new companies and their performances is measured by certain things including that the quality of the companies they bring in, how many they bring in and whether we are retaining 100 per cent or not. There's now a group at the exchange that their job is to make sure that they get companies to list on the Exchange and ensure that we retain the ones we have at the moment."

Things have changed since then. Rather than retain existing companies as promised, Onyema has delisted over 60 companies in the last two years. Just last week, the NSE announced that it has decided to delist 21 companies for non-compliance with listing requirements. While 15 of the companies are being delisted for failure to file their quarterly and annual financial statements, five others are being delisted for failure to regularise their listing status after being given time to do so.

Those being delisted for failure to file their financial statements include: Investment and Allied Insurance Plc; Goldlink Insurance Plc; Pinnacle Point Group; Adswitch Plc; Afroil Plc, Rokanna Industries Plc; IPWA Plc; West Africa Glass Industry Plc; Nigeria Wire and Cable Plc; Starcomms Plc and Daar Communications Plc. Others are: Mtech Plc; Big Treat Plc; G.Cappa Plc and UTC Plc.

On the other hand, the companies being delisted for failure to regularise their listing status are: Jos International Breweries (JIB) Plc; Golden Guinea Plc; Stockvis Plc; Capital Oil Plc and Nigeria Sewing Machines Plc.

Minority shareholders' burden Recent data obtained by THISDAY revealed that between January 2002 and June 2013, no fewer than 63 companies have 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, analysts believe these companies at one time held annual general meetings, had public offerings where monies where and never put to use.

"Sponsors of these companies are walking the streets as free men; some have even come back with different companies to raise monies. For the NSE to now claim that they are trying to avoid been attached with the delisted companies inadequacies is fallacious," said a market watcher.

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 and the years/mood 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 bull market Baico Insurance Plc had 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 Nigerian Stock Exchange.

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).

Oscar Onyema/CBN reform 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).

NSE's impossible mission A review on the events above clearly shows that the NSE's aim to join an elite club of stock markets with a market capitalisation of $1 trillion by 2016 is not realisable. This is because to achieve this dream the NSE must rise by 1,241 per cent, from its current market capitalisation of $79 billion.

Nigeria has the second largest equity market in Sub-Saharan Africa (SSA), after South Africa. The NSE accounted for 7.7 per cent of total market capitalisation in SSA in 2012. Only 15 Nigerian companies are among the 100 largest in SSA while only two Nigerian companies are rank among the top 25-Dangote Cement Plc and Nigerian Breweries Plc.

Twelve stock markets across the world now enjoy a trillion-dollar status, led by the United States. Others in this club are UK, Japan, China, Canada, Hong Kong, Germany, France, Switzerland, Australia, South Korea, and Brazil.

Recent rebasing figures show that Nigeria is far away from a trillion dollar economy. To have a trillion dollar capital market it probably makes sense to be a trillion dollar economy. Of the countries in the trillion dollar stock market club only Switzerland and Hong-Kong have economies that are less than $1 trillion in size. Again, Nigeria's $523 billion economy, would have to double in two years (or 100 per cent rise by 2016) to achieve the level of economic activity that underpins a trillion dollar capital market valuation.

Shareholders kick Reacting to the news some shareholders of the companies described the move as fraudulent and demanded better protection for ordinary investors in the country.

The shareholders, who lamented that investors, especially domestic retail investors, always suffered significant losses whenever companies were delisted, said there was the need for the Exchange to provide more information about how it arrived at its decision.

Leaders of shareholder groups in a chat with THISDAY questioned why the Exchange that was trying to attract listing would delist more than 20 companies at once and fail to engage investors about the plan.

The Chairman, Progressive Shareholders Association of Nigeria (PSAN), Mr. Boniface Okezie, said, "Unfortunately, the Nigerian Stock Exchange is not communicating with shareholders. If you go ahead and delist as they are planning to do, what is the fate of shareholders that they are meant to protect?"

Okezie argued that while the Exchange said it was protecting the shareholders, the move could be to the detriment of shareholders in the long run, especially if the companies were going concerns but were just having difficulties submitting their financials.

Okezie, who described the move as hostile said there were many questions left unanswered.

According to him, "The NSE needs to go all out to find out the exact state of the companies. To find out if they can overcome their problems in a short while rather than taking the hostile decision to delist them." Okezie also stated that the recent rally in the share price of JIB is worrisome and fraudulent.

"How can regulators allow the shares of a company that has not held annual general meeting, never paid dividend for many years, and never disclosed any positive information in recent times, to rise the way and manner JIB is rising? This is fraudulent and must be checked.

"But the stock was allowed to rise for 26 consecutive days to hit N9.09 per share, showing a jump of 552 per cent. However, profit-taking by some investors reduced the gain to 200 per cent last year," Okezie said.

On his part, the National Coordinator, Independent Shareholders Association of Nigeria, Mr. Sunny Nwosu, said, "Yes, there are some (of the companies) that look dilapidated and there are some for which I think they (the Exchange) should have done a lot of consultation, especially with the shareholders because we have suffered a lot in the system.

"You just see people delisting and we have trustees and others that insured these companies when they came to the market. The trustees are not saying anything to the shareholders, the intervention fund is not saying anything to the shareholders and we have not heard anything from the NSE about what the shareholders will lose."

NSE explains The NSE had in a notice of delisting posted on its website on Monday explained that it decided to delist the companies because of their failure to file quarterly and annual financial statements as required under the Listing Rules.

The NSE explained that its quotation committee met on June 2, 2014 and approved the delisting of some entities pursuant to listing rules of the exchange specifically clause 15 of the general undertaking.

"This regulatory action is necessary in order to protect the investing public from trading in securities of entities with no current information regarding their financial status," it added.

Compliance reports published by the Exchange over time show that the affected companies had failed to abide by aspects of their listing requirements for a while.

When contacted, the Head, Corporate Communications, NSE, Nwando Ajene, explained that the notice was a first step and that no company had been delisted.

She explained that the move was also meant to keep the shareholders informed about what was going on in line with the NSE's goal of encouraging transparency.

She added: "The notice is because they (the companies) haven't complied (with regulatory requirement); some of them haven't submitted results. We haven't heard from some of them; we've gone to them, to knock on their doors. So, it is in their (investors) interest. We are not just trying to delist companies; we are trying to be very transparent."

On the fate of investors in the companies, Ajene said there were clear regulatory guidelines for such processes, which would take all parties into consideration.

Also in an E-mail response to THISDAY's quarries the said the companies are to be delisted because they have consistently not complied with their post listing obligations over a two year period.

"They did not file the obligatory financial information. Thus, investors do not have sufficient financial information about these companies to enable them to make informed investment decisions about the companies.

"Delisting removes the NSE imprimatur of excellence from these companies, thus ensuring that the NSE is not lending its reputation to companies that do not comply with their obligations. It will also enable the NSE to concentrate its efforts on monitoring companies regarding which investors have sufficient information to make informed investment decisions," the NSE said.

It added: "Delisting of a company from the NSE is always a decision taken only after thorough and careful analysis. It is not a decision arrived at hastily and without full consideration of all ramifications. The shareholders of the delisted companies will still be shareholders of the companies, though now non-listed companies.

"They still have all the associated rights and privileges accruable to shareholders of a company. It is pertinent to state here that this is a notice of intention to delist and the companies have up to three months to regularize their listing status with the NSE to avoid being delisted."

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer


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