Victor Ogiemwonyi, a retired investment banker, is a former Governing Council member of the Nigerian Stock Exchange (NSE), now Nigerian Exchange Group (NGX Group). He sent this contribution from Ikoyi, Lagos. He can be reached via comment@businessamlive.com
Lately, some of the storied companies listed on the Nigerian Stock Exchange (now NGX Exchange) including 7Up, NBC, PZ, Union Bank, Oando, have all delisted or are on their way to delisting.
There has been a sudden increase in Listed Companies on the NGX delisting voluntarily and going private. While it is not unusual for some companies to delist, from time to time, the current trend is worrisome.
They are delisting voluntarily for a variety of reasons, but more recently, the main reason is that the NGX is no longer an efficient “Market Place” …where issuers raise capital and investors trade their shares actively….
These two important features of the “market place” are no longer attributes of the NGX Exchange, and it has thus become unattractive to issuers and investors. Even market participants are also complaining.
Their complaints, mostly, seem to be around issues of running the NGX Group on transplanted ideas that have not been domestically re-adapted.
I have always argued that there is a reason why people still drive on the Right Hand side in the United Kingdom and in Japan. We must seek to understand what our local practices are, and shape borrowed ideas, to accommodate them, before insisting on their wholesale application.
The trouble with the current Group Management of the NGX Group is that they think they are the best thing since sliced bread. Hence, they are impervious to suggestions that they don’t like. They dig in based on their own narrow understanding of the issues. They get personal, and you easily become an enemy, for suggesting anything contrary to their viewpoints.
In the last 10 years, new listings have dried up, just as liquidity has also evaporated, and many investors have equally looked to other places to invest.
This current management came in after the crash of the market in 2010. This ideally should have been an opportunity that should have resulted in rapid growth and recovery, like other stock markets. All we have seen is slow growth. In the same 10 years, FMDQ, the other Exchange, seems to have found growth and created new markets, attracting issuers and investors with their new ideas.
The numbers the NGX publishes may seem healthy, but there is more to the story. Recent listings are not to raise money, issuers who want to raise money now go to FMDQ, where they know it can be done quickly and efficiently.
Those new listings that come, far and in between, to the NGX, come merely to give their companies market value, a price for their shares.
Even when they sell a few shares to the investing public, they are mostly bought by retail investors, who don’t have much information about the market, or the shares they are buying. Some of the retail investors who fall into this trap, find out they cannot make any money, and sometimes may just be lucky to find buyers for their holdings, when they want to sell. They, for the most part, always lose money.
Some of the recent listings are so ridiculously priced, they represent value only to the major owners. They don’t get found out because they need only a few investors, who buy to validate their price.
Most of the initial buying group of investors for these new listings are speculators, who trap innocent retail investors.When they sense a profit opportunity, they sell their positions and leave the retail investors holding the bag.
The investors in the market now, are mostly professional traders, who have the ability to profit from the market, no matter where the market is trending. So, a 38 percent current return on the NGX looks like a winner. This is mostly on the Banking Index that shows the signs of a real market.
The general market is a shallow trading one and the gains shown in the value of the shares, are unrealizable in most cases, because of the concentration of most of the shares in a few owners, who hold their shares, and hardly trade them.
In order to have a market, you must have many people trading there to create opportunities.
I suggest that NGX makes a rule change to the Securities and Exchange Commission (SEC) to ensure all listed companies leave a float of 30 percent in the market. Make major shareholders hold no more than 70 percent in listed companies.
In recent times, we are seeing a few companies accounting for over 80 percent of the market capitalisation, owned by a few individuals who profit from this reported 38 percent return.
The problem, however, is that only a small portion of these large stocks are available for trading. So, any small movement, profits the large owners. If the prices move up, they profit, when the prices fall, these same large shareholders get into the market, and scoop up large portions, to bring the prices back to profitable levels for them and enhance their positions.
The Banking index is the only index that resembles a market, mainly because that is where there are many investors trading their positions. Investors see them as the only game in town, and have crowded into these Bank shares, pushing their prices up.
Thankfully, the large number of investors trading these stocks alongside occasional profit taking, keeps the prices in line.
The current situation did not just happen. The slow growth and unattractiveness of the Nigerian stock market today, is a result of costly regulation and policies that are not providing benefit, in equal measure.
This current police regulatory environment has a lot to do with insensitive management, who are overpaid for the value they create.
We must, however, recognise the great work done in enhancing the technology infrastructure of the Exchange. Mr. Bajomo, and his transformation team, did a great job.
The new management team, at the Exchange level, seems to be doing well. The group level management, and the Exchange, will need to do more to retain current listed companies, attract new issuers and continue to hold investor interest.
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