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Stock Market operators express concerns over delisted firms

• There are worries over NSE’s protection of investors’ funds
• Growing poor investor confidence in capital market 

Web Editor | ConsumerConnect

With the increasing wave of companies delisting from the Nigerian Stock Exchange (NSE), there is a need to create incentives to encourage listed firms to remain, and attract new ones into the fold.

Just like in other stock markets across the world, before a company is listed on the Nigerian Stock Exchange, there are certain requirements they must meet.

After listing, there are also standard requirements they must meet. These include among others, regular dissemination of information about the financial performances and any changes that can affect their operations.

However, a company can be delisted either voluntarily or involuntarily when a company ceases operations, declares bankruptcy, merges, does not meet listing requirements, or seeks to become private.

According to Investopedia, some companies can voluntarily request to be delisted when they choose to become privately traded and identified, using a cost-benefit analysis, that is the costs of being publicly listed exceeding the benefits.
Requests to delist often occur when companies are purchased by private equity firms and will be reorganised by its new shareholders.

These companies can apply for delisting to become privately traded. Also, when listed companies merge and trade as new entities, they formally request to be delisted.

For involuntary delisting of a company, the reasons include violating regulations and failing to meet minimum financial standards.
Financial standards include the ability to maintain a minimum share price, financial ratios, and sales levels. When a company does not meet listing requirements, the exchange issues a warning of non-compliance. If non-compliance continues, the exchange delists the company’s stock.

In Nigeria, as at last week, about 110 companies had delisted from the Nigerian Stock Exchange (NSE) in the last 17 years, either voluntarily or involuntarily and this has become a source of worry to both regulators and shareholders.

While the Securities and Exchange Commission believes delisting by quoted companies especially multinationals poses a threat to the development and growth of capital market, shareholders bemoan that the action has not given investors the desired benefits as it lacks protection of shareholders’ funds.

110 firms delisted in 17 years
A total of 110 quoted companies have been delisted from the official list since 2002, according to a report obtained from the Exchange.

Investigation showed that while some firms were delisted for violating post-listing requirements or due to merger and acquisition, others chose to delist voluntarily when they no longer had the capacity to continue to play in the market.

It was also found out that most of the companies delisted voluntarily from the bourse had cited harsh economic climate and parent company buy-out as reasons.

Some of these companies that have been delisted due to one reason or the other include Pinnacle Point Group Plc, Afroil Plc, Starcomms Plc, Big Treat Plc, Starcomms Plc, Nigeria Wire & Cable Plc and Nigerian Sewing Machine Manufacturing Plc.

Others are Stokvis Nigeria Plc, Jos International Breweries, West Africa Glass Industries Plc, Navitues Energy Plc, Nigerian Ropes Plc, P.S Mandrides Plc, African Paints (Nigeria) Plc and Afrik Pharmaceuticals Plc, among others.

Seven companies have been delisted in 2019. They include Great Nigeria Insurance Plc, Diamond Bank Plc, New Rest ASL Nigeria Plc, First Aluminum Nigeria Plc, Skye Bank Plc, Fortis Microfinance Bank Plc and Dangote Flour Mills Plc.

Regulators’ worry
Worried by the increasing development, the NSE and SEC expressed commitment to tackling the issue and ensuring listing of multinationals.

Ms Mary Uduk, Acting Director-General, SEC, said that delisting by quoted companies posed a threat to the development and growth of the Capital market.

“Increase in delistings by public companies poses a threat to the market in view of the fact that quite a number of them are highly capitalised,” she said.

Uduk said some highly capitalised companies had delisted, thereby affecting the growth of the market.

She pointed out that some companies had complained of tax issues, noting that the Commission would engage government to address the issue at the completion of the committee’s mandate.

She said that the apex capital market regulator would work in line with the committee’s recommendations.

“If they are regulatory issues more rule amendment, we are open to it but our rules must be in line with international best practices,” Uduk said.

Uduk said that the Commission was collaborating with the Corporate Affairs Commission (CAC) to obtain the list of companies not quoted on any of the exchanges in the country.

She said: “We look at it from two perspectives: voluntary delisting and regulatory delisting. What are we doing as regulators to influence and encourage more listings in the market?

“We had a committee and that committee has made recommendations and we are at implementation stage now. What we are doing is to look at how to encourage listing based on sector approach.

“What one sector needs, may be different from what another sector needs. We are engaging with them and have itemised issues and now implementing. We are trying to see that we encourage listing via incentives,” she stated.

The Acting Director-General added, “we are also trying to address the issue of time to market, so that they are not discouraged as they are converging to come to the market, so that they are able to raise the funding within the shortest time possible.

“We are still having engagements with them; we are getting more companies listing. You are aware of all the listings we have had this year.”

Dissenting voices
While the regulators believe the companies were being delisted for inability to comply with the listing requirements, especially in the areas of timely and accurate rendition of operational and financial accounts and other corporate governance issues, shareholders are rather bemoaning the development, saying it does not augur well for average investors and the nation’s capital market.

Reacting to the development, shareholders lamented that it was not protecting shareholders’ funds.

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

Mr. Boniface Okezie, Chairman, Progressive Shareholders’ Association of Nigeria, said: “Unfortunately, the Nigerian Stock Exchange is not communicating with shareholders. As they delist these companies, they don’t care about the fate of shareholders that they are meant to protect.”

Okezie argued that while the exchange said it was protecting the shareholders, the move have been to the detriment of shareholders in the long run, especially if the companies were going concerns but having difficulties submitting their financials.
He, who described the move as hostile, said there were many questions left unanswered.

He said: “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.”

The shareholders’ Chairman said that market regulators must pursue friendly policies and initiatives to push the market forward.

He related that banks’ nationalisation to a large extent affected investor confidence in the market.

He said that the current leadership of SEC and NSE had done well with introduction of various initiatives and zero tolerance for fraudulent capital market operators.

Shareholders under the aegis of Independent Shareholders Association of Nigeria (ISAN), who also bemoaned the development, said it did not augur well for average investor and the nation’s capital market.

Sir Sunny Nwosu, National Coordinator Emeritus, Independent Shareholders’ Association of Nigeria (ISAN), 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.”

He said that there was need for friendly policies and regulation by capital market regulators.

Nwosu said that lack of proper compensation to investors that lost their funds during the market meltdown contributed to poor investor confidence in the market, whereas brokers were given forbearance package.

Mr. Moses Igbrude, ISAN’s immediate past Publicity Secretary, noted that issue of penalties must be re-addressed by market operators for confidence building.

Igbrude said that some companies had delisted from the Exchange due to penalties while new companies were afraid to list.

Conclusion
Though the 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 is also advisable for the regulators to review the current listing and post-listing requirements of the exchange.

This measure is to encourage the listed companies and create a mechanism that allows free entry of new ones. (New Telegraph)

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