N253.6b capital flight upsets stock market stakeholders
• How delisting of 36 firms triggered volatility
• Investors kick, seek tax incentives for quoted firms
The current volatility witnessed in the nation’s stock market is partly due to the delisting of 36 firms valued at N253.6 billion from the daily official list of the Nigerian Stock Exchange (NSE) in the last four years.
The delisting, which occurred from 2015 to date, implies a direct loss of a similar value to investors, who may not be able to unlock such a benefit in the absence of a regular stock exchange.
Analysts, operators and investors at the weekend bemoaned the huge capital flight and the number of companies delisted from the NSE amid general downturn in economic activities.
They said most of the companies delisted from the bourse cited harsh economic climate and parent company buy-out. They noted that the impact of MTN and Airtel listing on the NSE was not felt on the market due to the huge amount of fund that exited the market within the period.
Although, the listing of two telecoms giants in 2019 increased the NSE market capitalisation by N1.83 trillion and N1.36 trillion, the All-share index, which measures the performance of listed equities, has tumbled by 4,314.93 points or 16 .3 per cent in 10 months, from 30,771.32 points at which it opened for trading on Thursday, January 3, 2019 to 26, 456.39 as at Tuesday, November 12, 2019.
The market capitalisation of listed equities however increased by N1,404 trillion or 10.9 per cent from N11,474 trillion to N12,878 trillion.
The stakeholders argued that while the market capitalisation is upbeat due to price appreciation from the two telecoms firms, other stocks have consistently recorded price depreciation.
Meanwhile, the recent decision by the Central Bank of Nigeria (CBN) to restrict individuals and local corporations from participating in Open Market Operation (OMO) auction has reverberated across the capital markets.
The move by the apex bank to shut out local fund managers, limiting their access to Treasury Bills investment, and the sharp drop in money market rates prompted increased patronage of the equities market, as investors’ search for alternative windows heightened.
For instance, as at close of transactions on Wednesday, November 13, 2019, the All-Share Index which stood at 26,339.11 appreciated by 544.22 points or 2.02 per cent to close at 26,883.33 yesterday, November 26, 2019 while market capitalisation increased by N154 billion from N12,821 trillion to N12,975 trillion.
Delisting refers to the removal of a security from active trading. It generally occurs when: a company goes private (voluntary); is bought out (merger and acquisition); declares bankruptcy; or fails to meet listing requirements (compulsory delisting).
Of the 36 firms, 25 were forcibly delisted by the NSE over non-compliance with post-listing requirements of the exchange, eight exited voluntarily while three opted for a merger.
For instance, Diamond Bank and Ashaka Cement, with N56 billion and N38.1 billion market capitalisation, delisted on the basis of merger while Seven up Bottling Company, Cappa and D’Alberto, IHS exited voluntarily with N52.2 billion, N18.7 billion and N16.7 billion market capitalisation.
Constain West Africa, MTECH Communication, MTI, and Nigerian Ropes, with market capitalisation valued at N2.4 billion, N4.5 billion, N2.4 billion and N1.9 billion were forcibly delisted by the NSE.
The exchange however listed only seven new companies: The Initiatives, in 2016; Transcorp Hotels, Global Spectrum Energy Service, Jaiz Bank and Med-View Airline in 2017; and MTN, Airtel Africa in 2019 in the last four years.
Although companies that are delisted are not necessarily bankrupt and may continue trading over the counter if listing requirements are regularised, stakeholders insisted that the huge capital flight has pulled much liquidity from the market.
They maintained that for Nigeria to become a strategic economic frontier in Sub-Saharan Africa and across the globe, it must have a vibrant manufacturing sector that would spur activities in the stock market.
They noted that if the manufacturing sector of any economy does not record significant improvement, companies operating in the environment would find it difficult to grow and make profit. And this would continue to reflect on the company’s financial performance and share prices in the stock market.
The chief research officer of Investdata Consulting Limited, Ambrose Omodion, who warned that such actions are disincentives to market growth, argued that regulators must review transaction costs and grant tax incentives to listed firms, to enable them to enjoy the benefits of being listed as obtainable in the global market.
“These companies exited from the exchange because they are not benefiting directly. This is because the environment is impacting negatively on their bottom-line; they are paying fees to remain listed.
“Again, the cost of meeting exchange requirement is high. The Nigerian government should know that the economy needs the support of the capital market to grow. There is the need for policies that would support investment and reduce cost of transactions,” he said.
He pointed out that there was the need for the whole gamut of the market, including listed firms, to be cautious and avoid any actions that could further erode investor confidence.
The publicity secretary, Independence Shareholders Association of Nigeria, Moses Igrude, lamented that investors, especially domestic retail investors, always suffer significant losses whenever companies are delisted. He therefore urged government to pursue friendly policies and initiatives to push the market forward.
According to him, voluntary delisting is common among foreign firms that believe they have incurred huge debts and need the assistance of their parent companies or want to make huge investment with long-term gestation before dividend is paid to shareholders.
Igrude suggested that regulators should mandate voluntary delisted firms to list on the Over-The-Counter market so that interested investors could retain their holdings in those firms.
Urging capital market regulators to allow listed companies that are not meeting post-listing requirements to remain ‘public focus’, he noted that institutional investors might develop interest in such firms and decide to invest in them.
“We are losing a lot of money in the market. Nobody is thinking of giving forbearance to investors. We need to make some price adjustments, not continue to delist companies because it is not good for average investors,” he said.
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