N700b private placement remains in limbo 11 years after
Regulators keep mum as hopes dim
It’s about 11 years now that investors pooled together a N700 billion in a well advertised private placements of companies operating at the capital market, but till date, both the capital and interest earnings remain uncertain and the regulators have chosen not to say anything.
But the investors, still hopeful of positive intervention, have sued for a review of laws guiding private placements by companies, as well as the prospectus for offering, while urging regulators to “wield the big stick” on companies that reneged on the promise to list their shares in the secondary market of the exchange to generate returns for investors.
The renewed call, which is coming 11 years after, may not be unconnected to the high level of liquidity squeeze that gripped the equity market after the global recession.
But the Securities and Exchange Commission (SEC) said the trapped funds in Nigeria’s capital market, especially when it happens in less than transparent manner, is considered a failure of regulation, part of which contributed to the market crash eight years ago.
According to the commission, continued scam in Nigeria’s ailing capital market could also erode confidence and deprive the Nigerian Stock Exchange (NSE) of the much-needed recovery in recession time.
Private placement is a common method of raising capital through offering equity shares, which can be done either by private companies wishing to acquire a few select investors or by publicly traded companies as a secondary stock offering.
Specifically, the investors lamented that because the existing law does not permit SEC to regulate private companies’ placement, a large portion of the money was diverted into other investments outside the objectives declared in the prospectus.
Checks by The Guardian revealed that the companies were successful in their bids, but a good number of them have changed their franchise and registrars to avoid any trace of location.
They maintained that if the laws are now reviewed in such a way that companies seeking private placements are mandated to list shares after issuance within a stipulated period, it would boost compliance level, restore investors’ confidence and forestall future occurrence.
The President of Standard Shareholders Association, Godwin Anono, in a telephone interview, wondered why the apex market regulator exonerated itself on the private placement offering.
According to him, with the commission mentioned on the offer prospectus of these companies, it therefore, gives SEC the authority to regulate their activities or at least, ask questions about the state of the funds raised.
“SEC is just dodging from responsibility. There is no way private placement will be executed without involving the SEC. Look out for every prospectus, you will see SEC being mentioned and on the day of yearly general meeting, you will also see a representative from the commission,” he said.
He therefore, suggested that the SEC, as a matter of importance, must review the private placement laws and include, as part of the prospectus, a deadline for listing.
“SEC should give them deadline and any company that fails to comply must be sanctioned. That will hasten them to list and boost the compliance level,” he said.
The President, Constance Shareholders’ Association of Nigeria, Mallam Shehu Mikail, said the call for the SEC to include regulation of private placement as part of its functions has long been overdue.
“I believe if SEC will start regulating the private placement, the interest of Nigerian investors will be well protected because the process, which most of the companies coming for offering follow does not show any sense of creditability and transparency in terms of agreement and at the end, investors lose their money,” he said.
The Publicity Secretary of the Independent Shareholders Association of Nigeria, Moses igbrude, said: “Private placements are high risk investments, though with high returns, if it successful. But it is meant for high networth investors who can afford to hire professionals to advise them on the issue.
“In the United States, you must be in certain income class before the law allows you to get involved in private placement. My advise to SEC is to look at the advantages and disadvantages to the market and the entire economy and ascertain ‘who and who’ is qualified to participate in private placement and conditions for such transactions,” he said.
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