Lately, some of the storied companies listed on the NGX Exchange (formerly the Nigerian Stock 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. This current voluntary delisting is for a variety of reasons; however, the main reason is that the NGX is no longer an effective ‘market place.’
A ‘market place’ is where issuers raise capital and investors trade their shares actively. These two important features of the ‘market place’ are no longer the attributes of the NGX Exchange as it has become unattractive to issuers and investors. Even market participants are also complaining.
The complaints seem to be the issue of running the NGX Group with transplanted and borrowed ideas that have not been domestically re-adapted.
I have always argued that there is a reason people still drive on the right hand side of the road in the United Kingdom and Japan. We must seek to understand what our local practices are and adapt borrowed ideas to accommodate them before insisting on wholesale application.
The trouble with the current management of the NGX group is that they are impervious to suggestions they don’t like. They dig in based on their narrow understanding of issues. They get personal and you can easily become an enemy for suggesting anything contrary to their viewpoint.
This current management came in after the crash of the market in 2010. This 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 experienced growth and created new markets; attracting issuers and investors with their new ideas.
The numbers NGX publishes may seem healthy; however, there is more to the story. Recent listings are not to raise money. Issuers who want to raise money now go to the FMDQ where they know it can be done quickly and efficiently.
The new listings that come 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 bought mostly 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 just may be lucky to find buyers for their holdings when they want to sell. They mostly 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 the innocent retail investors. When they have some profit, they sell their positions and leave the retail investors holding the bag. The current investors in the market are mostly professional traders who have the ability to profit from the market no matter where the market is trading. So, a 38 per cent current return on the NGX looks like a winner. This is mostly in the banking index that shows the signs of a real market.
The general market is characterised by shallow trading and the gains shown in the value of the shares are unrealisable in most cases because the concentration of most of the shares lies with a few owners who hold their shares and hardly trade them.
I suggest that NGX take a rule change to the Securities and Exchange Commission to make all listed companies leave a float of at least 30 per cent in the market. NGX should include in their listing requirements that major shareholders hold no more than 70 per cent of shares in a listed company. Of recent, we are seeing a few companies accounting for over 80 per cent of the market capitalisation owned by a few individuals who profit from this reported 38 per cent return.
The problem 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 to enhance their positions.
The banking index is the only index that resembles a market and it is mainly because that is where there are many investors trading their positions. Investors see the banking index as the only game in town. They have crowded into these bank shares, thereby pushing their prices up.
The current situation did not just happen. The slow growth and unattractiveness of the NGX today is a result of costly regulation and policies that are not providing benefit in equal measure.
