The Nigerian Stock Exchange may sanction Union Bank of Nigeria Plc, and 17 other quoted companies at the nation’s bourse for violating its free float requirements.
This comes on the heels of rising infractions by notable equities. The defaulting companies include those that are listed on both the main board of the Nigerian Stock Exchange, as well as those on the Alternative Securities Market.
The NSE requires companies on its main board to have a free float of 20 per cent; those on ASEM are required to have a 15 per cent free float. All of the 18 companies on the latest report by the NSE failed to meet this requirement.
The free float rule stipulates the minimum number of shares required by promoters of public companies listed on the NSE to be released to the investing public for trading at the stock market.
Defaulting firms’ percentage of shares
Some of the defaulting firms and their percentage of free floats, as captured by our correspondent, are: Transcorp Hotels Plc, 6per cent; Union Bank of Nigeria Plc, 14.94per cent; Portland Paints and Products Nigeria Plc, 14.57per cent; Global Spectrum Energy Services Plc, 7.01 per cent; and CWG Plc, 15.97 per cent.
Others are: Aluminum Extrusion Plc, 17.73 per cent: Union Dicon Salt Plc, 18.00 per cent; Austin Laz & Company Plc, 5.51 per cent; Great Nigeria Insurance Plc, 16 per cent; Champion Breweries Plc, 17.17 per cent; and A.G. Leventis Plc, 11.64 per cent, among others.
Operators, analysts insist on good corporate governance
Market pundits, who spoke with The Point, said these firms were required to maintain a minimum free float of their shares for the set standards under which they were listed in order to ensure that there was an orderly and liquid market for their securities.
The Managing Director/CEO, Sofunix Investment and Communications Limited and a Chartered Stock Broker, Mr. Sola Oni, said, “The NSE requires a quoted company to have a minimum 20 per cent of its paid up share capital as free float or at least the value of its free float should be equal to N40 billion 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. However, companies that fail to comply with the requirement have breached part of The Exchange’s Post Listing Requirements, which they signed to uphold.
“It portrays them as not transparent and reduces effective public participation in the companies’ ownership. This can attract sanctions from the Exchange. On the part of shareholders, a breach of free float rule obscures the real capitalisation 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.”
An asset management expert, Mr. Godwin Munachi, said not having a free float, constituted a major breach of the NSE’s listing requirements, and lack of corporate governance principle.
“It constitutes an infraction because it is a problem that could have been avoided if only these companies’ shares were not concentrated in the hands of directors and other related insiders. Concentrating companies’ shareholdings in the hands of just a few individuals usually always predispose such shares to manipulation, hence making it impossible to ensure wealth distribution, liquidity and efficient pricing,” he said.
The Managing Director/CEO, APT Securities and Funds Limited, Mallam Kasimu Kurfi, said as long as there was no demand, it would take time to meet up the minimum flotation of 20 per cent of the issued shares.
“You can see that despite the efforts of Dangote, Dangote Cement Plc still did not meet up with the minimum free float of share over the years after listing on the stock market. The better way is to give more time to the defaulters, otherwise they may delist, which is not good for the market.”
The Executive Vice Chairman, High Cap Securities, Mr. 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 a 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.
The National Chairman, Progressive Shareholders Association of Nigeria, Mr. Boniface Okezie, said, “When market regulators fail or choose to bend the laws to favour some players, this scenario will be the case. Before now, core investors were not allowed to own more than 51 per cent or 60 per cent of shares. This will allow for free float of shares, which is exhibiting good corporate governance.”
According to him, in the name of attracting certain companies to list on the 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 the market that makes prices.”
“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 transparency and credibility of the stock exchange,”
he said.
It should be noted that companies whose stocks are categorised under “below listing standard” are so categorised because their CEOs and directors own more shares than they are supposed to.
