Shareholders plot war against SEC, NSE

FELIX OLOYEDE|

Against the recent decision of the Nigerian Stock Exchange (NSE) to delist a number of companies from its official ticker board minority shareholders in these companies have raised concern over their legal and financial positions as many of them recall the adverse situations they have found themselves following previous such decisions by the NSE. Indeed, Business Hallmark investigations reveal that a number of shareholders have begun to moot the idea of a class action against the Exchange and the delisted companies to protect their collective interests.

A number of the shareholders spoken to complained that more often than not when companies are delisted from the Exchange they the minority shareholders lose tons of money as a result of a lack of open trading market in the shares and the loss of market oversight of the boards of such delisted companies.  They note that once companies are delisted the Securities and Exchange Commission (SEC), which regulates the official equities market, stops its monitoring function resulting in smaller shareholders being fleeced by larger equity holders. They point to such examples as Aboseldehyde, Onwuka HiTek, Nigeria Ropes, and Dunlop Nigeria Plc as older instances of the unfair treatment of minority shareholders of delisted firms.

At least 90 companies have left the capital market since 2002. NSE recently delisted 17 companies “for persistent non-compliance with post-listing rules” in May 2017. 77 percent of the 90 companies delisted in the last 15 years were for regulatory reasons, 13 percent left the bourse voluntary, 7 percent merged with other companies, while 3 percent were nationalized by the Central Bank of Nigeria (CBN) in 2011.

Mr Boniface Okezie, Chairman, Progressive Shareholders Association of Nigeria (PSAN), noted that shareholders do not know their fate in companies that are officially removed from the stock market. Some of them stay in operation while others simply disappear down a dark hole.

“We have regulators who have gone to sleep and that is the problem; the regulators should fight for shareholders of those companies and know what is going on,” he posited.

He explained that companies that voluntary leave the exchange often buy back their shares from investors who do not want to continue with the company. The challenge has been with organizations delisted by the NSE.

“Our interest in delisted companies for regulatory reasons is not protected. It is the Security and Exchange Commission that should guard our interest, but unfortunately it is not doing that,” said Okezie.

Mr Olufemi Timothy, President, Nigeria Shareholders Renaissance Association told Business Hallmark in a telephone conversation that “Once your company is delisted your investment is gone. They would tell you to go after it yourself. That is why people are disinterested in investment in Nigeria, because minority shareholders’ interests are not protected.”

“When company cease to be going-concern there’s nothing any investors can do, shareholders are the risk bearers. Once the regulators go ahead and delist, it denies us the opportunity to trade in our shares on a daily basis. And once that happens in most cases that ends our investment in such companies. It is very unfortunate.’’ says Timothy.

‘Regulators seem to be less concerned because they don’t have anything to lose. It is just unfortunate that our hard earn money will just waste,” argued Mrs Bisi Bakare, leader, Pragmatic Shareholders Association in response to a Business Hallmark text message.

But Dr Adi Bongo, member of Faculty, Lagos Business School argues that the Exchange does not just delist for the fun of it, but because of bad performance, according to him, “Investment in the capital market is a gamble. If you are lucky and the company performs well, you reap the superior returns and you are happy. But if you are unlucky and the company does not do well, you lose the value of your investment and lick your wounds,” he explains.

Taking a different tack Mr Johnson Chukwu, Managing Director, Cowry Assets Management Company Limited, noted that the delisting of companies that fail to meet regulatory standards is proof that there are high standards in the local capital market.

“This should give investors the confidence that companies that listed are obeying regulations,” he observed.

Chukwu noted that investing in equities of a quoted company is a residual interest, which means that shareholders investments in a moribund company, which is delisted, are lost. “When a company fails because it is solvent, it behooves on government to prosecute the management of such company and make sure they are sanctioned or punished. And if it is because of poor management, it is the duty of shareholders to have disengaged the management before it gets to that level.”

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Barrister Emmanuel Cobham, Director-General, Nigerian Association of Chambers of Commerce, Industry, Mines and Agriculture (NACCIMA) believed there are many laws that takes care of investors’ interest in the country, but the challenge has been implementation of these laws.

NSE delisting process requires that the majority shareholder or core investor of an organization that is voluntary delisting from the capital market to “set aside sufficient funds to payoff any shareholder who does not want to remain a member of the Company in its unlisted status.” But there is no such provision for shareholders of companies are expunged by the regulator.

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PROCESS FOR DE-LISTING A COMPANY FROM THE DAILY OFFICIAL LIST

1. Directors meet and pass resolution to de-list the Company.
2. Resolution for de-listing proposed for approval of shareholders at Annual General Meeting/Extraordinary General Meeting. (i) Draft notice containing proposed resolution to be submitted to The Nigerian Stock Exchange for vetting and approval. (ii) Publish in at least 2 National Dailies at least 21 days before the AGM/EGM. (iii) The Nigerian Stock Exchange to be represented at the AGM/EGM to observe proceedings.
3. Simple majority of members present in person or by proxy required to approve de-listing.
4. The majority shareholder/core investor must set aside sufficient funds to payoff any shareholder who does not want to remain a member of the Company in its unlisted status.
5. Funds must be kept with a Custodian acceptable to The Exchange (e.g. CSCS Ltd).
6. Price at which unwilling shareholders are bought shall not be less than the highest price at which the Company traded in the 6 months preceding the date of the AGM/EGM where the resolution to de-list was passed.

REGULATORY DE-LISTING 1. De-listing is wielded as the ultimate sanction on a Company for persistent non-compliance with post-listing rules.

2. Listings Regulation Department submits recommendation to Management of The Exchange for de-listing of errant company(ies) with basis for the action.
3. Company notified directly or through press statement that de-listing is being contemplated.
4. Proposal for de-listing is cleared with the Council of The Exchange/Quotations Committee.
5. Market is informed.
6. Company is de-listed.