June 27, (THEWILL) – The fate of over N11 billion investors’ assets ‘trapped’ in five quoted companies is laced with uncertainty. This followed the decision of the relevant arms of the Nigerian Exchange (NGX) Group to delist the shares of the affected companies from the stock exchange for listing compliance deficiencies. The NGX Regulation Limited, the regulating arm of the NGX Exchange Group, in a recent announcement notified the public about the development.
In a statement signed by the NGX Regulation Company Secretary, Eseose Okiwelu, the regulatory body disclosed that four of the affected companies, referred to as issuers, have been approved for delisting, effective June 14, 2021. These are Evans Medical Plc, Nigerian-German Chemicals Plc, Roads Nigeria Plc and Unic Diversified Holdings Plc. The process of delisting another issuer, Aso Savings & Loans Plc, is ongoing baring intervention of the unseen hands of Providence.
Investigation by THEWILL revealed that the five companies belong to the league of dormant equities earlier reported by this newspaper in February.
The dormant equities, numbering 53 (companies), cut across 8 sectors of between 2 and 15 companies each, with market capitalization ranging from N5 billion to N114 billion per sector among the 144 companies listed on the Equity Main Board. The stocks of the affected companies recorded no price movement (either buying or selling) in 2020 – thus reflecting a state of dormancy during the review period.
At the then exchange rate of N379/USD at the Investors’ & Exporters’ Foreign Exchange (I&EFX) Window, this was the equivalent of about $1.05 billion.
Practically, the values of the dormant equities were static in the ‘opening’ and ‘closing’ share prices as well as market capitalization in their Year-to-Date (YTD) figures as at December 31, 2020 – recording no capital gain or dividend during the period. The implication is that the equities created no material gains for their investors, added no value to the companies, no fee income for the Stock Exchange and no impact on the economy generally during the period.
The NGX Regulation explained that the sanction against the affected companies was as a result of their failure to comply with the extant regulatory rules concerning statutory filing of reports. It further stated that adequate notification was given to the companies during the period for them to regularize their accounts but they failed to comply.
It said The Exchange had engaged the Issuers “with a view to returning them to full with its post-listing obligations. However, these efforts were unproductive and caused The Exchange to issue delisting notices to Evans Medical Plc (Under Receivership) dated 18 January 2016; Nigerian-German Chemicals Plc, and Roads Nigeria Plc dated 16 July 2018, and Unic Diversified Holdings Plc dated 13 June 2019. These Issuers still did not take appropriate steps to cure the identified deficiencies.”
The Exchange further explained that similar action was taken in the case of Aso Savings & Loans Plc but that it has been given some time to amend the compliance deficiencies.
“The Exchange stayed action on the delisting process in view of Aso Savings’ restructuring programme and gave certain conditions to Aso Savings to return its listing on The Exchange, including filing of its outstanding financial statements”, the public notice stated.
According to an investigation by THEWILL, some of the companies were affected by the downturn in the economy, while others were plagued by mismanagement. One suffered dehydration of prolonged huge debt owed by the government. However, all the companies, like their counterparts on the healthy side of the market, suffered the stings of inflation, devaluation of the local currency and high operating cost. Some of them have not held their Annual General Meetings nor filed returns with The Exchange for up to 12 years, a development industry experts described as abnormal.
The central effect of the development is the possible loss of investors’ assets in the companies. While the funds cannot be deemed to have been lost as the companies are still going concerns and not liquidated, having such assets ‘trapped’ in dormant equities which do not yield value, is as good as lost. The Exchange said that the affected Issuers have been duly notified of these enforcement actions and that the publication of the development served as notification to the general public. It drew the attention of shareholders and investors in the Nigerian Capital Market to take particular note of the affected companies.
Some shareholders and Capital Market experts who spoke to THEWILL commended The Exchange for taking the steps to sanitize the system, while others blamed the regulatory authorities and the government for what they called “avoidable” damage to the market. The likelihood of investors losing their assets in the companies and the negative impact on The Exchange, which only last December emerged the best performing Stock Exchange in the world, was a source of concern.
Prof. of Capital Market, Uche Uwaleke and President, Capital Market Academics, observed that the NGX Regulation company has taken the right step by invoking the relevant clause in the Exchange rule book. He predicts more delisting to strengthen the capital market.
“The delisting of the companies by the Nigerian Exchange is in the overall interest of the capital market. It sends the right signals to local and international investors including issuers that market regulation will not deteriorate following the Demutualization of the Stock Exchange. By delisting companies notorious for flouting post listing requirements, the clear message is that the Exchange will not sacrifice regulation on the altar of revenue earned from listed companies.
“Much as The Exchange desires more listings, it is vital to emphasize the importance of complying with post-listing requirements which require companies to submit timely financial reports. Given that stock prices ought to reflect available information concerning a company, not making their financial reports available to the public through the Exchange despite repeated warnings distorts share valuations and negatively affects the efficiency of the capital market.
“For their shareholders, delisting would mean the loss of liquidity with respect to the affected companies’ shares as they can no longer be traded in the secondary market. This is one of the risks associated with investing in equities,” Uwaleke said in a note to THEWILL.
On his part, National Chairman, Trusted Shareholders’ Association of Nigeria (TSAN), Alhaji Mukhtar Mukhtar, noted that delisting of the companies for compliance deficiency is legal and backed by law. He however blamed the regulators and the government for not playing their expected role:
“The regulators are always getting it wrong. How can they just delist companies without making necessary moves to recover investors funds? How can the regulators not initiate criminal proceedings against the directors, management and officials of those failing entities? Why should they always go scot-free?”
The penalty for default in timely disclosure of financial performance is punitive. The rules state that: “Any late submission of accounts shall attract a fine of One hundred thousand Naira (N100,000) per week from the due date until the date of submission. A listed company which contravenes any of the provisions of the Listing Rules and General Understanding and fails to pay the penalty imposed on it for such contravention on or before the due date shall be liable to a further fine of three hundred thousand Naira (N300,000) in addition to twenty-five thousand Naira (N25,000) per day for the period the violation continues.”
About the Author
Sam Diala is a Bloomberg Certified Financial Journalist with over a decade of experience in reporting Business and Economy. He is Business Editor at THEWILL Newspaper, and believes that work, not wishes, creates wealth.
