CWG Plc, Global Spectrum Energy Services Plc and Portland Paints & Product Nigeria (PPPN) Plc have less-than-required minimum volume of shares for public trading in the stock market, a major infraction that may adversely affect liquidity and efficient price discovery on the companies.
A report by the Nigerian Stock Exchange (NSE) indicated that the three companies have free float deficiencies, a reference to over concentration of the shareholdings of the companies in the hands of directors, other insiders and related persons.
Under the rules at the Exchange, companies listed on the main board are required to have a minimum free float of 20 per cent of their market capitalisation, implying that 20 per cent of the companies’ shareholdings must be available for minority retail shareholders. CWG, Global Spectrum Energy Services and PPPN are listed on the main board of the Exchange.
PPPN, a subsidiary of UAC of Nigeria (UACN) Plc, slipped into deficiency after a 2017 rights issue, which was undersubscribed by 34 per cent.
CWG has been unable to undertake proposed capital issue as it struggles with declining performance. CWG recorded a net loss of N1.58 billion in 2017, relapsing into a losing streak that had seen the technological company with a pre-tax loss of N1.75 billion in 2015. Key extracts of audited report and accounts of CWG for the year ended December 31, 2017 showed that turnover dropped from N10.166 billion in 2016 to N8.827 billion in 2017. The company recorded pre and post tax losses of N1.511 billion and N1.576 billion respectively in 2017 compared with profit before tax of N142.04 million and profit after tax of N127.68 million in 2016.
Global Spectrum Energy Services, which was listed in November 2017, has neither been able to float new issue nor actively trade existing shares to dilute pre-listing concentration of shareholdings.
Free float, otherwise known as public float, refers to the number of shares of a quoted company held by ordinary shareholders other than those directly or indirectly held by its parent, subsidiary or associate companies or any subsidiaries or associates of its parent company; its directors who are holding office as directors of the entity and their close family members and any single individual or institutional shareholder holding a statutorily significant stake, which is 5.0 per cent and above in Nigeria.
Thus, free float’s shares do not include shares held directly or indirectly by any officer, director, controlling shareholder or other concentrated, affiliated or family holdings.
Stock markets maintain minimum public float to prevent undue concentration of securities in the hands of the core investors and related interests, a situation that can make the stock to be susceptible to price manipulation. Besides, it provides the general investing public with opportunity to reasonably partake in the wealth creation by private enterprises.
According to the report, PPNN has a free float of 14.57 per cent, 5.43 percentage points below minimum requirement; CWG has 15.97 per cent, 4.03 percentage points below minimum requirement while Global Spectrum Energy Services has free float of 7.01 per cent, 12.99 percentage points below the required minimum limit.
Under the extant rules, the deficient companies would have to undertake capital restructuring to reduce the overconcentration and free more shares for the general retail investing public. However, the NSE has not indicated the timeline for the expected capital dilution.
With the three new deficient companies, there are now 15 companies with free float deficiencies at the NSE. These include Union Bank of Nigeria, which has a free float of 14.94 per cent; Capital Hotel, 2.62 per cent; Great Nigerian Insurance, 16.0 per cent; Chellarams, 15.0 per cent; AG Leventis, 11.64 per cent; Interlinked Technology, 14.50 per cent; Infinity Trust Mortgage, 3.50 per cent; Transcorp Hotels, 6.0 per cent; Ekocorp, 11.84 per cent; Champion Breweries, 17.30 per cent; Caverton Offshore Support Group, 17.40 per cent; The Tourist Company of Nigeria Plc, 3.58 per cent and E-Tranzact International Plc, which has a free float of 10.06 per cent.
Failure by deficient companies to restructure their share capital at the expiration of the deadline or secure extension of the deadline may lead to delisting of their shares from the NSE. Free float deadline is usually in deference to application by the management of a company for some period to comply with the free float. However, the company is required to provide quarterly disclosure report to the NSE on the efforts being made to fully comply by the deadline.
By the expiration of the deadline, a company is mandatorily required to have completed partial divestments or dilution of the ‘non-public’ shareholdings to free the required percentage of equity stake for public holding, unless the management of the NSE grants fresh waivers and extensions for the companies. In the extreme instance, a company with deficient public float may opt to delist its shares.
The seven companies in default of the earlier deadline include Capital Hotel Plc, Chellarams Plc, The Tourist Company of Nigeria Plc, Interlinked Technology Plc, Caverton Offshore Support Group Plc, Ekocorp Plc and Champion Breweries.
The trio of UBN, Transcorp Hotels and Great Nigeria Insurance were given extended deadline of May 18, 2020 while AG Leventis, E-Tranzact International and Infinity Trust Mortgage were given up till October 19, 2020, May 17, 2019 and May 17, 2021 respectively.
A source in the know of the approval process said the extension of the deadline was sequel to applications by the directors of the affected companies, seeking waiver and further extension of the timeline for the dilution of the share structure.
The source said the companies had cited prevailing market conditions and corporate procedures for their inabilities to meet the previous deadlines.
