Retail investors in lurch as fresh delisting plans near conclusion

Investors grumble over ‘unfair’ share buy-back arrangement
Though the federal government promised to revamp the economy with policies and regulations, 2024 appears gloomy for the Nigerian equities market going by the number of delisting plans awaiting final approval.

Analysts and investors, who spoke to The Guardian, confirmed the rising worry and warned of dire consequences on the economy if the government does not act fast to save the situation.

Last year, companies, especially manufacturers, battled a foreign exchange crisis, which resulted in their inability to cover rising costs of production from sales. Dipping purchasing power also caused poor sales, thus affecting the fortune of the companies.

In the year, 11 firms valued at N500 billion were delisted from the exchange. It increased the number of firms that delisted since 2002 to 135 as per data from the exchange.

The renewed foreign exchange crisis has fuelled the anxiety over more delisting, which will potentially reduce the number of listed firms and narrow the market.

While the market has not yet recovered from the shocks of 2023, Cadbury Nigeria Plc has announced an offer to swap its $7.7 million (N7.03 billion) debt owed to Cadbury Schweppes Overseas Limited for more equity.

Currently, the company is facing challenges servicing foreign currency-denominated loans due to persistent foreign currency scarcity in the country.

Shareholders believed that the development was an indication that the firm may be warming up to join the league of multinationals that have exited the market.

A reliable source hinted that the bourse would witness massive delisting of firms under the manufacturing, consumer goods and oil and gas sectors this year as some companies are currently seeking regulatory approval to finalise the process before the end of the year.

Aside foreign exchange crisis, which had a significant negative effect on manufacturing companies, total sales are becoming grossly inadequate and have dropped significantly due to poor consumer spending, sources close to some of the companies said.

The source said the country is in dire need of policy reforms that would encourage Nigerians to patronise locally-made goods to improve sales of manufacturing companies operating in Nigeria. This, he said, could be a game-changer; otherwise, the country will see more delisting this year than at any other time in history.

More worrisome is the fact that the primary market segment for initial public offerings (IPOs) has remained inactive on the Nigerian Exchange Limited (NGX) since 2012. This means the exit of older operations would continue to shrink the market, which experts warned could trigger a market bubble.

Also worrisome is that fact they offer price arrangements from majority shareholders. Minority and retail investors are left in the lurch with no option but to offer their shares at a discount, especially in a circumstance of voluntary delisting is currently eliciting discordant tunes from investors.

Investigation reveals that most majority shareholders opting for delisting would want to buy out minority shareholders at next to nothing.

On the other hand, many directors of listed firms have not prioritised regulation and compliance in the face of rising business risks and uncertainty.

Hence, the majority has failed to comply with the post-listing requirements of the exchange as seen from their refusal to file their financial reports to the regulatory authority despite repeated warnings of impending sanctions.

This is because regulators have failed to strengthen engagement with the board of listed firms by monitoring their activities and encouraging companies to maintain their listing status.

For instance, the NGX slammed N823 million fine on 36 firms in three years for failure to comply with the post-listing requirements of the exchange.

Among the 36 firms fined, 12 companies were sanctioned N44 million in 2023 while 14 were sanctioned N170.6 million in 2022. The NGX imposed N586 million monetary sanctions on seven firms in 2021 while three firms were sanctioned N22.9 million in 2020.

The latest sanction took place in April and August 2023. In April, four quoted companies paid N11.7 million for failure to file their 2022 financial statements within the regulatory time.

Shareholders have reported corporate governance lapses in boards of some multinationals, especially regarding asset stripping but noted that the regulators have not made any efforts to investigate the matter.

President of New Dimension Shareholders Association of Nigeria, Patrick Ajudua lamented that shareholders are counting their losses with the renewed move by companies to delist voluntarily from the exchange and rising capital flight.

He pointed out that the debt-to-equity decision is a way to dilute the holdings of Nigerian shareholders and increase the holdings of core investors.

For Cadbury, he said the core investors currently have 74.97 per cent holdings and post-conversion will result in 79.38 per cent, thereby giving them the right to take over the company and delist from the market.

He warned that any attempt to short-change minority shareholders in any delisting process would be outrightly rejected.

Further, Ajudua urged the regulators to reverse the trend by strengthening engagement with the board of listed firms, monitoring their activities and encouraging companies to maintain their listing status.

“We recognise the impact of foreign exchange loss on companies’ profitability. Government must replicate interventions and successes recorded in the airline industries in manufacturing.

“The regulator must also engage the government with the aim of providing dollar to offset various outstanding obligations to their foreign creditors.”

A professor of economics, at Babcock University, Segun Ajibola, said the non-availability of foreign exchange has a serious effect on a highly import-dependent, consumption-based economy like Nigeria.

He pointed out that the Nigerian situation is laced with conspicuous consumption habits and untamed appetite for imported consumables, which combined make the economy of Nigeria highly vulnerable to the vagaries in the foreign exchange market.

According to him, what some key corporate entities and multinationals are facing today in pledging their shares to defray offshore FX obligations may be a variant of what corporate Nigeria herself is going through.

Ajibola argued that the only solution lies in correcting the misalignment in the foreign exchange market.

“If local refineries work, lots of foreign exchange will be conserved. If there is discipline in the market and infractions are appropriately punished irrespective of who is involved, there will be more sanity.

“If Nigerians imbibe the culture of consuming what is produced locally, and producing what is consumed locally, the situation will be better. Lots needs to be done to encourage the real sector and empower the operators to produce locally, some hitherto imported items.

“Imagine the current official endorsement of accessing foreign exchange from the official market to import toothpicks, biscuits, African prints, rice, perfumes, rather than vigorously promoting local capacity for their production.”

Ajibola said there is a need for the government to stimulate the supply side to prevent doomsday.