Members of the Nigerian Stock Exchange (NSE) will tomorrow (Tuesday) through a voting process pass requisite resolutions to make the bourse the 57th exchange to demutualise amongst the 70 members of the World Federation of Exchanges (WEF) as at June 27, 2019.
A convened mandatory Court-Ordered Meeting (COM) of the Exchange’s members as well as an Extraordinary General Meeting (EGM) holds in Lagos tomorrow, March 3, 2020, where members will respectively pass requisite resolutions for demutualisation of the Exchange and also pass the resolutions for the appointment of inaugural board members of Nigerian Exchange Group plc.
The “Demutualisation of the Nigerian Stock Exchange Act 2018” at the National Assembly facilitates the conversion and re-registration of the NSE from a company limited by guarantee to a public company limited by shares in order to adopt and efficiently implement the global practice of demutualisation of stock exchanges.
A demutualised exchange comes with benefits and opportunities to its members and other stakeholders.
It changes the structure of the current owners; makes dealing member firms become shareholders; and brings in a new era of corporate governance on the exchange. The financial advisers are Chapel Hill Denham Advisory Limited and Rand Merchant Bank Nigeria Limited.
National council members’ views
On the Exchange’s quest to demutualise, Oscar N. Onyema, chief executive officer, NSE, said the effort at seeing the demutualisation to completion was fuelled by the commitment to develop a more agile Exchange that is better able to support Nigeria’s economic growth.
“We are confident that post-demutualisation, the NSE will be better equipped to diversify our operations and evolve into a more competitive, robust and liberalised stock market,” he said.
Abimbola Ogunbanjo, president, National Council of the NSE, said the council “considers the terms of the scheme to be fair and the optimal approach to achieving the demutualisation of our Exchange”.
Proposed and approved share allocation between dealing and ordinary members
The NSE currently has 432 members comprising 255 dealing members and 177 ordinary members. The National Council of the Exchange unanimously proposed and approved a share allocation of 78 percent and 22 percent, respectively, between dealing and ordinary members based on the distribution rationale.
A total of 1.964 billion ordinary shares – representing circa 98 percent of the Issued Shares of the NSE and the balance of the Issued Shares following the reservation of the Claims Review Shares – will be apportioned between dealing and ordinary members.
Accordingly, each dealing member shall receive 6.007 million ordinary shares of 50 kobo each in Nigerian Exchange Group plc credited as fully paid; and each ordinary member shall receive 2.441 million ordinary shares of 50 kobo each in Nigerian Exchange Group plc credited as fully paid. The Exchange reported a net asset value of N25.6 billion as at December 30, 2018, and this has been factored into the valuation that has been undertaken.
Securities dealers can’t wait to see it happen
The Association of Securities Dealing Houses of Nigeria (ASHON) had embarked on series of initiatives to prepare for demutualisation of The Nigerian Stock Exchange.
ASHON reconstituted its Governing Council in line with the tradition of seamless change of baton for enhanced professionalism as the wind of demutualisation is on the horizon, its chairman, Oyinyechukwu Ezeagu, had noted.
“We represent firms that will transit from members to shareholders of the Exchange. We are gearing up to this new responsibility and the benefits to flow from the laudable venture. Our members are being repositioned to operate under the demutualised Exchange. ASHON’s members are currently the owners of The Nigerian Stock Exchange,” Ezeagu said.
He said ASHON had embarked on strategic restructuring to bolster the members’ image, consolidate a formidable team and review internal processes, among others.
“The process of demutualisation of the NSE is approaching a climax. It is important that we prepare ourselves for the change in status which comes with some responsibilities and new realities. All our members representing us both at the Advisory Committee and the NSE Council have been working tirelessly to defend our collective interests in the demutualisation process,” he said.
Garba Kurfi, managing director, APT Securities and Funds Limited, reckons that a demutualised Exchange would boost economic activities and activate idle capital in the market.
“It is a good thing and all of us are going to be happy at the end of the day because it is going to unlock more capital for the market. For instance, if I place shares as collateral, I can trade and make money. We are pleased this is coming after so much delay, this will change the economy’s perspective as well,” said Kurfi, who is also a renowned stockbroker.
“The issue of demutualisation started many years ago but we are still talking about it in 2020. It is already a history in Nairobi-Kenya. However, it is better late than never,” he said.
Demutualisation of the NSE has been subject of discussion for years
The demutualisation of the Exchange has been the subject of discussion in the Nigerian capital markets for a number of years. Approval-in-Principle for the demutualisation of the NSE was granted by The Exchange’s Council in June 2002. The subsequent global financial crisis (in 2007/2008) was a militating factor against the demutualisation process.
At that time, there were no formal rules or guidelines that would govern the process. A 15-member Committee on the Nigerian Capital Markets (the Dotun Suleiman Committee) was inaugurated by the Securities & Exchange Commission (SEC) in September 2008 to make recommendations for the development of the Nigerian capital markets. The Suleiman Committee recommended, amongst others, that the demutualisation proposed by the Council of the NSE be supervised by the SEC.
In September 2011, another 21-member sub-committee of the Capital Markets Committee (the demutualisation sub-committee) was inaugurated by the SEC and given the remit to examine the operations of the Exchange and make recommendations for the demutualisation.
The demutualisation sub-committee recommended that the SEC provide a robust enabling framework on demutualisation. This recommendation culminated in the commission’s announcement of the Rules on Demutualisation of Securities Exchanges in Nigeria on April 12, 2015 (Demutualisation Rules).
The Demutualisation Rules were issued pursuant to Section 313 of the Investments and Securities Act, 2007. The executive management of the NSE announced on October 10, 2015 that advisers – financial, legal and tax – had been appointed in respect of the process for the demutualisation of the NSE, thus ‘kick-starting’ the formal process that will result in the Exchange’s demutualisation.
The Council of the Exchange subsequently also established a demutualisation committee that would – in conjunction with the executive management of the Exchange – oversee all matters in connection with the demutualisation process as well as review actions proposed in respect thereto.
The Council of the Exchange has proposed that the matter of demutualisation be formally discussed at the proposed EGM, with the intent that members of the NSE will approve the demutualisation as well as empower the Council and the executive management to proceed to conclude the overall terms of the demutualisation. The specific terms of the demutualisation – which will be the basis on which The Exchange is to be demutualised – will be proposed for the approval of the members.
Members of the NSE had approved for the Exchange to embark on the demutualisation scheme at an Extraordinary General Meeting (EGM) in March 2017. This was followed by the signing of the Demutualisation of The Nigerian Stock Exchange Bill into law in July 2018. In December 2019, the SEC in a No Objection letter gave its consent to the NSE’s planned conversion from a not-for-profit entity limited by guarantee into a profit-making, public limited liability company owned by shareholders.
The Exchange will be converted to a company limited by shares
On demutualisation, the Exchange will be converted from a company limited by guarantee to a company limited by shares, consequent upon which The Exchange will be registered, under the name Nigerian Exchange Group plc. The Memorandum and Articles of Association of the re-registered Exchange shall also be amended to indicate the new name, Nigerian Exchange Group plc. In addition to other steps that will come earlier, the NSE will on March 26, 2020 register plc (HoldCo) shares with SEC while on March 30, 2020, it will allot HoldCo shares and file allotment registration at Corporate Affairs Commission (CAC).
The said share allocation follows extensive consultations with respective stakeholder groups and the careful consideration of the contributions of members to the development of the NSE.
Prior to the allotment of the scheme shares, 2 percent of the issued share capital will be reserved for purposes of allotment to parties who are adjudged as being entitled to shares in the demutualised Exchange, pursuant to the provisions of the Demutualisation Act 2018.
Nigerian Exchange Group plc will be a public limited company retaining incorporation date of September 15, 1960 and registration certificate number RC 2321 registered under the laws of the Federal Republic of Nigeria.
Upon re-registration, Nigerian Exchange Group plc will become a non-operating holding company, with interests in Nigerian Exchange Limited and all the other subsidiaries currently owned by the NSE.
On transfer of assets and winding up, all the assets, liabilities and undertakings including real property and intellectual property rights of the Exchange – with the exception of the securities exchange licence and all assets and appurtenances in relation to the securities trading business of The NSE – shall be retained by Nigerian Exchange Group plc.
Subsequently, NSE Consult Limited, NSE Nominees Limited and Coral Properties Limited – existing subsidiaries of The NSE – will be voluntarily wound up and the assets of NSE Consult transferred to Nigerian Exchange Group plc pursuant to section 457 of the Companies and Allied Matters Act, 2004.
The Exchange has a 99.8 percent holding in NSE Consult Limited, a 99.9 percent holding in Coral Properties Limited, and a 99.9 percent holding in NGX Real Estate Limited. Also, the Nigerian Stock Exchange has a 83.3 percent holding in NSE Nominees Limited.
Iheanyi Nwachukwu
