Recently, the Nigerian Stock Exchange wielded the big stick and sanctioned 48 erring companies that had violated the post-listing requirements. In this write-up, CHRIS UGWU examines the impact of the suspension on the market
Stock markets all over the world are information-driven.This is because investors do not see the physical products such as shares and stocks of companies they are buying, rather, they take investment decisions based on information about the companies issuing those shares and stocks.
Having so much conviction and confidence in the information received from quoted companies, coupled with investment advice from their stockbrokers, investors stake their funds in shares in the stock market.
The importance of information to the market cannot be over-emphasised, and stock exchanges the world over set listing and post-listing requirements for companies seeking quotation.
The Nigerian Stock Exchange (NSE) is not an exception. In a bid to stem the tide of lapses in corporate governance in quoted companies, there are listing and post-listing requirements issued by the NSE and the Securities and Exchange Commission (SEC), to be met by those companies. One of the standard requirements include regular dissemination of information about the financial performances and any changes that can affect their operations.
Regrettably, some quoted companies have not been adhering strictly to these corporate governance ethics, thereby keeping investors in the dark about their financial health, an action which has led many investors to make wrong investment decisions, one of which is investing in moribund companies which hitherto did not furnish the stock market with their financial standings.
However, the exchange, in keeping to its regulatory role recently wielded the big stick by placing Transnational corporation Plc. (Transcorp), Nigerian Bottling Company (NBC), Forte Oil Plc. and 45 others, following their inability to present their financials to the market for verification within the time stipulated by the exchange.
The suspension of the companies which also showed weak adherence to sound corporate governance, was part of the NSE’s drive to sanitise operations in the equities market and further ensure investors’ confidence.
Others suspended include; FTN Cocoa Processors Plc., Jos Plc., Ipwa Plc., Premier Paints Plc., Omatek Plc., Scoa Nigeria Plc., Transnational corporation Plc., Cappa & D’álberto Plc., Nigerian Wire & Cable Plc., P.S Mandrides and Co. Plc., Great Nigeria Insurance Plc., Nigeria Bottling Co. Plc., Union Dicon Salt, UTC Nig. Plc., Ikeja Hotel Plc., Etranzact, Resort Savings & Loans Plc., Longman Plc., International Energy Insurance Plc., Guinea Insurance Plc., amongst others.
In a statement by the NSE made available to Leadership Sunday at the weekend, the Exchange noted that the companies were placed under “technical suspension”,meaning there will be trading, but no movement on their share prices.
The NSE explained that the sanction which commences from July 1, 2011, arose from the quoted companies’ failure to submit their financial statements for the year ended December 31, 2010.
The NSE said this was a clear violation of the post-listing rules of the exchange as contained in Key Issue No. 5 (annual account procedures), which states that, “audited annual accounts of companies ought to be submitted within three months of year-end”.
It would be recalled that the NSE had reiterated in several fora that the investing public needed timely financial information from listed companies, in order to facilitate stock transactions that are based on market fundamentals, just as this is essential for fair price discovery and investor confidence in the capital markets.
“Pursuant to Article 90 of The Exchange’s rules, which states that The Exchange may at its discretion at any time suspend or lift suspension in trading in particular securities, these companies’ stocks will be on Technical Suspension for the next one month; after which The Exchange reserves the right to take further action”.
The NSE had also recently suspended some 60 leading brokerage firms and Issuing Houses over failure to shore up their capital base to the tune of N70m.
The Nigerian Stock Exchange (NSE), had also in September, 2010, suspended some quoted companies while others were placed on the watch list.
The council of the NSE approved the suspension of 43 companies for failure to adhere to post-listing requirements of the exchange. While 15 of the companies got full trading suspension, 28 others had their share prices frozen until they comply with the requirements. Also, 11 companies under the emerging markets sector were placed on the ‘watch list’.
The NSE said that the action was in pursuant of the investor-confidence building efforts of the Exchange. According to the NSE, the affected companies had defaulted in post-listing requirements, especially in financial reporting of their operations and payment of annual listing fees.
Reacting to last week’s action of the NSE, operators and shareholders commended the Exchange, saying the steps so far taken were in the right direction.
The president of the Chartered Institute of Stockbrokers, Mr. Mike Itegboje, said the sanction would boost investors’ confidence in the market, because it was sending a signal that the NSE’s management understood the need for investors to get companies’ financial reports on time.
An equity analyst at Resource Capital, a portfolio management firm, Mr. Dimeji Akintayo, said sanctions on affected companies were proof that the Exchange was determined to revive confidence in the market.
He added that investors need to take informed decisions before choosing which stock to buy. And this could only be achieved if there is adherence of good corporate governance by the quoted companies.
According to the national coordinator, Independent Shareholders Association of Nigeria (ISAN), Sir. Sunny Nwosu going by what the exchange gave as reasons for the sanctions, the companies deserved what they got.
Nwosu noted that the affected companies were supposed to have ensured that they met the requirements, and as such, help shareholders to understand their financial health for investment decisions.
“It is not new and it did not come as a surprise. We have constantly written to the exchange and raised the issue at annual general meetings that there was need to know the status of these companies to enable us take investment position.”
He however noted that the NSE was protecting more of its own interest, rather than that of the investors, as the NSE placed the sanction due to fees owed it.
The president of the Progressive Shareholders Association, Mr. Boniface Okezie, reacting to the development said the sanction could have taken place long ago, adding that it was better for Nigerians to have fewer companies ready to play by the rules than having all the companies in the world that were not ready to satisfy post-listing requirements.
Okezie however said that placing the companies on full or technical suspension for non-compliance with the rules of listing on the NSE was a welcome development, as it would lead to more appropriate pricing of securities.
He said more quoted entities would be compelled to give information to the market on a timely basis, adding that investors’ confidence in the regulatory capacity of the NSE and the market would be enhanced.
A founding member of the Nigeria Shareholders Solidarity Association and one of the leading shareholders’ activists, Alhaji Gbadebo Olatokunbo, said penalising erring companies was a signal that it was no longer business as usual.
“The action is great and it shows that the new NSE management is alive to its responsibilities. Besides, it is a signal to the companies in particular and the capital market in general that it is no longer business as usual. We must always abide by the rules,” he said.
He noted that the sanction would make the companies sit up and post their results when due, thereby providing investors, analysts and stockbrokers the platform to predict the real value of the companies.
The director-general of the Securities and Exchange Commission (SEC), Ms. Aruma Oteh, speaking at a two-day workshop on “Implementation of International Financial Reporting Standard (IFRS) and Code of Corporate Governance for Publicly quoted companies in Lagos”, said that sound corporate governance adherence by both public and private institution was germane to the economic and political growth of the domestic economy.
Oteh said the use of corporate governance as a sign-post for the development and growth of the economy has become sacrosanct if the recent economic global contraption which is still having negative impacts on developing economies is to be averted again.
She explained that having a functioning corporate governance policy in an economy would positively help drive investment, even as investors’ confidence would be galvanised in the stock market.
She stressed that with a sound corporate governance as a working tool among going concerns, the much needed foreign direct investment would flow freely into the country.
Oteh, who said there was need for the efficient allocation of the huge funds in the capital market, noted that without viable corporate governance in place to regulate businesses, the economy and especially the equities market would suffer for it.
In his overview of the code of corporate governance code, a partner with KPMG auditing firm, Mr. Dimeji Salaudeen noted that, “going by history, a re-cap on the crises and challenges of big businesses and the capital markets around the globe, will indicate that there was always a huge contribution that came from the weakness in corporate governance”.
He said, it was extremely important “that we focused on good corporate governance for development of the economy at large. My inspiration for business organisations in the country is that we have the highest standard of corporate governace. If we do what a country like Brazil has done, which is putting the corporate governance index on their stock exchange, we can have companies aspire to measures of corporate governance of the highest standard in the world. That way we can attract and retain capital, whether from local investors and/or foreign investors”, he said.
Speaking on the need for a more practicable code of corporate governance, Salaudeen said the commission would need to ensure a greater partnership and engage shareholders and the financial institutions, and make them understand the provisions of the code as one that is for the greater good.
He reiterated that the commission must, as a matter of urgency, enhance its internal capacity to meet the daunting challenges that might follow the implementation of the code, noting that there was need for regular review to bring more clarity to some gray areas in the code.
The foundation of a successful market is integrity and where there is integrity, investors feel confident that their funds are safe.
However, if investors lose confidence in the capital market, the ability of the market to mobilise and channel long-term funds, which are vital for economic development, will be a mirage.
To build a world class market, the SEC and NSE should focus more on investor protection, the restoration and sustenance of investors’ confidence in the market.
Both local and foreign investors will feel protected and confident to participate when a market is perceived to be fair, efficient and transparent with a strong enforcement regime. The NSE is determined to carve a very credible image for the market. ?