Tag: NSE

ABOUT 24 companies are suffering from over concentration of shares in the hands of core investors and directors. This keeps them below the listing standard at the equities market and may make them susceptible to price manipulation.

The updated regulatory report on the governance status of quoted companies, obtained at the Nigerian Stock Exchange (NSE) at the weekend, indicated that the companies have less than the required minimum number of shares that should be available to minority retail shareholders, a major infraction that may adversely affect liquidity and efficient price discovery.

Minimum number of shares available for the minority retail investing public, known as free float, is a major listing requirement at the stock market. Companies listed on the Exchange are required to maintain a minimum free float for the set standards under which they are listed in order to ensure that there is an orderly and liquid market in their securities.

Under the rules of the NSE, companies listed on the premium board are required to have 20 per cent free float or over N40 billion of their capitalisation in the hands of investing public. Companies 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.

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However, companies on the Alternative Securities Market (ASeM) are required to have 15 per cent free float.

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 five 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.

The deficient companies included AG Leventis, Capital Hotel, Caverton Offshore Support Group, Champion Breweries, Ekocorp, eTranzact International, Infinity Trust Mortgage, The Tourist Company of Nigeria, Transcorp Hotels, Union Bank of Nigeria and Portland Paints & Products Nigeria.

Others included Global Spectrum Energy Services, CWG, Aluminium Extrusion, Union Dicon Salt, Austin Laz & Company, Notore Chemical Industries, Medview Airline, Skyway Aviation Handling Company, Omoluabi Mortgage Bank, Ellah Lakes, Cement Company of Northern Nigeria, Lafarge Africa and Prestige Assurance.

The report showed that several companies have major free float deficiency with less than five per cent of their shares available for public trading. The Exchange indicated that it has given about five companies deadlines to redress the free float deficiency while it is also engaging some 12 companies on their free float deficiency. Also, five companies have sought for the extension of the deadline to redress their deficiency.

According to the report, AG Leventis has free float of 11.80 per cent, Capital Hotel, 2.99 per cent; Caverton Offshore Support Group, 17.30 per cent; Champion Breweries, 17.17 per cent; Ekocorp, 12.64 per cent; eTranzact International, 17.77 per cent; Infinity Trust Mortgage, 3.50 per cent; The Tourist Company of Nigeria, 1.75 per cent; Transcorp Hotels, six per cent; Union Bank of Nigeria, 10.39 per cent while Portland Paints & Products Nigeria has free float of 14.57 per cent.

Others were Global Spectrum Energy Services, 7.01 per cent; CWG, 15.97 per cent; Aluminium Extrusion, 17.99 per cent; Union Dicon Salt,18.00 per cent;  Austin Laz & Company, 19.36 per cent; Notore Chemical Industries, 10.02 per cent; Medview Airline, 14.16 per cent; Skyway Aviation Handling Company, 19.39 per cent; Omoluabi Mortgage Bank, 1.96 per cent; Ellah Lakes, 13.83 per cent; Cement Company of Northern Nigeria, 2.97 per cent; Lafarge Africa, 16.13 per cent and Prestige Assurance, which has a free float of 18.95 per cent.

With the exception of Omoluabi Mortgage Bank, quoted on the Alternative Securities Market (ASeM) and as such required to have 15 per cent free float, all the other companies are listed on the main board of the Exchange and are required to have a minimum float of 20 per cent.

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.

Companies are usually given a timeline to free up shares and cure their free float deficiency. 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 expected 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.

Alternatively, deficient companies may opt to move from the main board to the ASeM or in the extreme cases, opt to delist their shares from the Exchange.

The Exchange, meanwhile, usually tags companies with free float deficiencies with a red alert of “Below Listing Standard”, which implies non-conformity with the requisite listing and corporate governance requirements.