As the Nigerian Stock Exchange proposes a new set of listing requirements, Chris Ugwu in this write-up examines its need in the nation’s fledging capital market.
?
Unlike some of the markets in other climes, since the beginning of the economic meltdown in the mid 2008, the Nigerian capital market is yet to regain its confidence due to the loss suffered by both local and foreign investors.
Sequel to the sustainable depression, some stakeholders had always believed that for the local bourse to restore its past glory as an engine room for economic development, the regulatory environment in the Nigerian capital market would need to be reviewed in order to attract large firms especially from the telecommunications and oil and gas sectors of the economy to list on the Exchange.
Analysts have continued to harp on the connection between critical sectors of the economy and the capital market in order to broaden the market and create avenues for Nigerians to partake in the wealth creation process.
Upstream oil firms like Shell, Mobil, Chevron, Agip and telecommunications firms like MTN Nigeria, Airtel, Glo, and Etisalat are yet to list on the Nigerian market, despite the huge returns these firms have reaped from the economy.
New set of Requirements
However, the clamour for the new set of listing requirements to salvage investment in the stock market from further depreciation,? has led to a new set of listing requirements, with the NSE granting a number of waivers for mining, oil and gas companies and companies with large capital base.
The Exchange, in the draft made available to operators in the capital market, said that mineral companies, comprising mining, oil and gas companies are exempted from fulfilling the requirements that a company seeking listing on the Mainboard must be in operation for at least three years.
The NSE has also exempted companies with market capitalisation in excess of N500 billion from meeting the requirements for public float, which stipulates that the public shall hold a minimum of 20 per cent of each class of equity securities of the company.
According to the NSE, mineral companies are exempted from three year track record requirement, noting however, that the company would be required to produce a Competent Persons Report, CPR, describing the nature and extent of the company’s rights of exploration, geographical characteristics of reserves, estimates of volume, expected extraction volume together with assumptions on forecast revenues and operating costs.
The NSE, however, noted that the interests of the investing public remain paramount in its decision to grant or reject an application for listing.
“The NSE retains the right to grant a listing to an applicant that does not meet all its requirement or refuses a listing to an applicant that does not comply with its listing requirement, on the ground that, in the NSE’s opinion, the grant or refusal of the listing is in the interests of the investing public,” the NSE explained.
In the review of the listing requirements, the NSE is barring companies with loss in the last three years from seeking listing.
According to the NSE, companies seeking listing in alternative one of the Mainboard, should present a cumulative consolidated pre-tax profit of at least N300 million for the last three years, with a pre-tax profit of at least N100 million in two of those years, while those seeking listing based on its second alternative are expected to present a cumulative consolidated pre-tax of at least N600 million within one or two years.
The companies are also expected to present their three year financial statements, prepared in the International Financial Reporting Standards, with the last audited accounts, not later than nine months and a shareholders’ fund of at least N3 billion.
The new rule is also proposing that companies seeking listing be registered as a Public Limited Liability Company; have a minimum of 300 shareholders for equity shares, with the promoters of the companies retaining 50 per cent of the shares pre-Initial Public Offer, (IPO), for 12 months and the securities be fully paid up at time of allotment in line with the Securities and Exchange Commission’s, requirements for minimum threshold for a successful offer.
In the Alternative Securities Market, (ASEM), segment, the NSE is proposing that companies seeking listing in this category present medium term (two years) comprehensive business plan, must have been in operation for at least two years and the presentation of a short-term forecast (one year) with the last audited accounts which must not be later than nine months.
Other requirements for ASEM include, “The public shall hold a minimum of 15 per cent of each class of equity securities, promoters to retain 50 per cent of shares pre-IPO for 12 months; number of the public shareholders shall be at least 51 for equity shares among others.”
Stakeholders’ perception
The NSE Chief Executive Officer, Mr. Oscar Onyema, said that the new listing requirements were part of commitment towards championing Nigeria’s and Africa’s economic growth and development.
He said the NSE has already commenced interaction with key stakeholders in the capital market on ways to develop rules and initiatives that would be beneficial to all stakeholders in the market.
Onyema noted that the new listing requirements were part of a number of initiatives to be introduced by the NSE within the next couple of months, designed to make the Nigerian market a gateway to the African market.
The Managing Director, Cowry Asset Management Limited, Mr. Johnson Chukwu, said that a review of the requirements would make it unattractive for companies to stay away from the secondary segment of the market as they would be aware of the numerous benefits attached to being listed.
“There are complaints in some quarters over the decision by some companies to delist from the NSE,” he said, “my response to that issue is that the authorities ensure a review of the listing and post-listing requirements and law, making it very attractive for companies. If this is done, operators, shareholders and other stakeholders will not be bothered about compelling a company to remain listed.”
The review of the laws, according to him, is based on the need to fully reform the market, through globalisation, diversification and demutualisation.
He expressed the urgent need for the authorities to encourage vibrant sectors of the economy, such as the telecommunications sector, the upstream oil and gas sector, companies in the power sector and foreign companies, to list their shares in the market, helping in no small measure in broadening the market.
To make this possible Chukwu said the current listing and post-listing rules need to be reviewed and necessary incentives created to encourage listing of these companies, which have hitherto refused to be part of our capital market.