How delisting erodes investors' confidence in Nigeria's economy

Lingering foreign exchange crisis, inflation, insecurity, high cost of operations coupled with uncertainty and fuel subsidy crisis have continued to take a toll on the operations of firms listed on the Nigerian Exchange Limited (NGX), triggering a gale of delisting.

The stock market which usually reflects the economic condition of a country, in the last few months has seen eight listed companies on the Nigerian Exchange announced plans to quit the market as two have already finalised and delisted from the market.

“Companies are trying to delist from the stock exchange because current economic conditions are making it difficult for them to operate. They want to fix their operations without scrutiny from the market, because they may need to make tough decisions that investors may not like. If they are able to make these changes and fix their operations, they may go public again in the future,” James Ola-Adisa, research analyst at Chapel Hill Denham said.

The exit of the companies in work includes, two of which are British multinationals- GSK Plc and PZ Cussons Plc, Union Bank of Nigeria Plc, the second oldest bank in Nigeria, Capital Hotel, Coronation Insurance and Oando Plc, a Nigerian multinational energy company operating in the upstream, midstream and downstream sector, all of which will whittle down the exchange’s market capitalisation.

The listed ones already delisted from the stock market, include Ardova Petroleum Plc and Global Spectrum Energy services

The total market capitalisation of the delisting companies stood at about N495.23 billion as of the 12th of October 2023.

Gbolohan Ologunro, portfolio manager at FBNQuest noted that the recent economic downturn has discouraged foreign portfolio investors, who are key players in the stock market, as they help to drive up stock prices and provide companies with equity capital.

“Delisting from the stock market is expensive, especially when the economy is doing poorly. Companies that are struggling to break even or make a profit may find that the costs of listing, compliance, and other fees outweigh the benefits. Additionally, when the economy is weak, it can be difficult to raise capital through the stock market because valuations are low,” Ologunro said.

The spate of multinational companies exiting the Nigerian equity market is causing concerns among market players.

However, despite the flurry, VFD, an investment firm, has made its intention known to list its shares on the NGX.

“There are certain benefits to being derived by listing on the stock exchange, one of the main benefits of listing on the stock exchange is the ability to raise capital. This capital can be used to expand operations, shore up finances, or provide working capital.” Ologunro said.

Part of the consequences of the planned exit is that shareholders of the delisting companies will no longer be able to profit from their investment in those entities.

There are also worries that investors in those firms may be shortchanged as the board of directors may only pay them paltry sums for the value of the shares they own in these companies.

“When a company delists from the stock exchange, shareholders lose the ability to earn a return on their investment over the long term. This is because the main benefit of investing in a company is to have a right to share in the company’s future earnings. When a company delists, shareholders are simply paid off and lose all rights to future earnings,” Ologunro said.

For instance, the new owners of Union Bank of Nigeria Plc, Titan Trust Bank Limited, offered to buy out the existing shareholders of Union Bank at N7 per share. In contrast, PZ Cussons offered to pay its shareholders N21 per share.

Firms Analysis

GlaxoSmithKline

In August, GlaxoSmithKline announced plans to discontinue operations in Nigeria, ending its 51-year existence in the country.

The British multinational pharmaceutical and biotechnology company is best known for household brands like Panadol and Sensodyne Toothpaste.

In a corporate filing, the pharmaceutical giant said it would adopt a distributor-led model to supply the country with its products.

“While we expect sustained economic growth in 2023, we cannot overlook some factors which must be duly considered in this quest for economic growth and development in Nigeria. The factors include foreign exchange availability for businesses, insecurity, unemployment, and high cost of doing business, coupled with the uncertainty around fuel subsidy removal,” Edmund Onuzo, chairman of the board of directors said at the 52nd annual general meeting of the firm.

PZ Cussons Nigeria Plc