The Nigerian Stock Exchange (NSE) may impose monetary sanctions on 14 quoted companies over their failure and inability to comply with the NSE’s minimum post-listing requirement with regards to the free float of shares to the investing public.
Free float rule stipulates the minimum number of shares required by promoters of public companies listed on the Nigerian Stock Exchange to be released to the investing public for trading at the stock market.
The companies that have free float deficiencies include: AG Leventis Plc, African Paints Plc, Capital Hotel Plc, Caverton Offshore Support Group Plc, Champion Breweries Plc, Chellarams Plc, Ekocorp Plc, E-Tranzact International Plc, Great Nigeria Insurance Plc. Others are Infinity Trust Mortgage Plc, Interlinked Technology Plc, The Tourist Company of Nigeria Plc, Transcorp Hotels Plc and Union Bank of Nigeria Plc.
Nigerian Stock Exchange Companies listed on the Exchange are required to maintain a minimum free float of their shares for the set standards under which they are listed in order to ensure that there is an orderly and liquid market for their securities.
Free float rule The free float requirement for companies on the Alternative Securities Market, ASEM Board, is 15 percent of market capitalization, Main Board is 20 percent of market capitalization, same as companies on the Premium Board is 20 percent of market capitalization or above N40 billion on the date the Exchange receives the Issuer’s application to list.
An information posted on the NSE website stated: “The following companies mentioned that have free float deficiencies have applied for waivers from the Quotations Committee of Management specifically provided compliance plans with tentative timelines to support their requests.
“The Quotations Committee of Management considered and approved an extended timeframe for the companies to regain compliance with the listing requirement. The companies are however required to also provide quarterly disclosure reports to the Exchange detailing their level of implementation of the compliance plans.”
Analysis of companies with free float deficiencies
Findings revealed that AG Leventis has free float of 11.64 per cent and deficiency of 8.36 per cent or 1.901 billion shares with compliance due date of July 2017; African Paints 9.82 per cent of free float and deficient of 10.18 per cent or 381.969 million shares with compliance due date of December 31, 2017; Capital Hotel Plc 2.62 per cent of free float and deficiency of 17.38 per cent or 10.274 billon shares with compliance due date of October 31, 2017; and Caverton Offshore 17.40 per cent and deficiency of 2.60 per cent or 500.651million shares with compliance due date October 31, 2017.
Others are Champion Breweries Plc 17.30 per cent of free float and deficiency of 2.70 per cent or 1.222 billion shares, though undergoing restructuring; Chellerams Plc 14.87 per cent of free float and deficiency of 249.402 million shares with compliance due date of February 28, 2018; Ekocorp Plc 11.84 of free float and deficiency of 8.16 per cent or 343.630 million shares with compliance due date of October 31, 2017; and E-Tranzact International Plc 5.65 per cent free float and deficiency of 14.35 per cent or 10.667 billion shares with compliance due date of October31, 2017.
Also Great Nigeria Insurance at16 per cent of free float has deficiency of 4.00 per cent or 956.871 million shares with compliance due date October 31, 2017; Infinity Trust Mortgage 3.50 % of free float and deficiency of 16.50 % or23.831 billion shares with compliance due date of May 31, 2018; Interlinked Technology 14.50 % of free float and deficiency of 5.50% or 89.782 million shares; The Tourist Company 3.58 % of free float and deficiency of 16.42% or 10.303 billion shares, while delisting in progress; Transcorp Hotel 6.00% of free float and deficiency of 14% or 17.734 billion shares with compliance due date of December 12, 2017 and Union Bank Nigeria Plc 14.94% of free float and deficiency of 5.16% or 9.863 billion shares with compliance due date of June 30,2017.
Meanwhile, further analysis showed that AG Leventis has applied for an extension of compliance date; Capital Oil is under regulatory watchlist; Champion Breweries has obtained NSE’s Quotation Committee of Management approval and is currently restructuring; Great Nigeria has concluded the first leg of the transaction for free float and Management of NSE has engaged the company on the next stage; The Tourist Company of Nigeria is under regulatory watchlist, while Union Bank has applied for an extension.
While reacting to the NSE’s position a source close to Transcorp said: “The company is aware of the free float deficiency and Management is working closely with the Stock Exchange to meet the free float requirement. We could have done this earlier before now but the market has not been favourable since last year but we hope that once the market is favourable, we will float more shares to the general public.”
Operators, shareholders reaction
Commenting on this, Managing Director/CEO, APT Securities & Funds Limited, Mallam Kasimu Kurfi, stated: “The situation depends on the market demand as long there is no demand it will take time to meet up the minimum flotation of 20 percent of the issued shares. You can see that despite the effort of Dangote, still, Dangote Cement Plc did not meet up with the minimum free float of share over years after listing on the Exchange. The better way is to give more time to the defaulters otherwise they may delist which is not good for the market.”
Also commenting the Executive Vice Chairman, High Cap Securities, David Adonri said: “The Inability of the companies to comply with the free float is worrisome. It is to ensure that stocks ownership in public companies is not concentrated in few hands and to prevent price manipulation and dearth of liquidity. The earlier the defaulters comply, the better it is for the integrity of the capital market.
In his own remark, Managing Director/CEO, Sofunix Investment and Communications Limited and a Chartered Stock Broker, Sola Oni said: “The NSE requires quoted companies to have a minimum 20 percent of its paid-up share capital as free float or at least the value of its free float should be equal to forty billion naira on the day the company is admitted to the Daily Official List of the Exchange. The philosophy of free float is to hedge against high level of lock-in shares held by the company’s promoters.
But, companies that refuse to comply with the requirement have breached part of The Exchange’s Post Listing Requirements which they signed to uphold. It reveals that they are not transparent and reduce effective public participation in the companies’ ownership. This can attract sanctions from the stock Exchange.
“On the part of shareholders, a breach of free float rule obscures the real capitalization of such companies. It makes it difficult for shareholders to know the actual total value of a company for the purpose of investment decision. This particularly affects stockbrokers and other investment advisers in their advisory services on such companies.”
Reacting, the spokesperson for Independent Shareholders Association of Nigeria, ISAN, Moses Igbrude said: “When market regulators failed or choose to bend the laws or their regulations to favour some players this scenario will be the case. Before now, core investors were not allowed to own more than 51 percent or 60 percent. This will allow for free float of shares. In the name of attracting certain companies to list on Stock Exchange, the regulation was removed and the implication is what we are seeing in the market. The regulators also forgot that the strategic investors don’t trade their shares and it is the free float of shares in market that make prices.
The removal or non-compliance to rule is one of the reasons why most delisted companies opted for that option, it made it a lot easy for a company with the intention to delist to gradually increase its percentage holdings over time by using their cronies to mop the shares. Share price of such stocks can easily be manipulated and it doesn’t reflect the true market price, the likes of AG Leventis. Dangote group of listed companies falls in this category. I strongly advise the NSE and SEC to have the boldness and confidence to address this issue if they really want to have a global or international market as they want us to believe. A free float of companies’ shares is one major criterion to measure transparent and credibility of Stock Exchange.”
Another shareholder and activist, Alhaji Gbadebo Olatokunbo said: “The initial rule was that core investor will not hold more than 60 percent of the issued capital. Maybe the Nigerian Stock Exchange later knew that the policy wasn’t practicable and then relaxed because I don’t know why after being quoted, you still want to enforce such policy.
But for companies holding so much like 50/70 percent and above, my take is yes. Yes, because if you don’t, they (companies) will wake up from the wrong side of the bed one day and decide to buy-back from local investors. It had happened in many companies e.g. Nigerian Bottling Company, NBC, 7up, Chellerams etc. I think companies should, if not must not hold more than 20/30 percent of their stocks after few years of quotation on NSE, our rules/regulations need periodical reviews on citizen participation.”