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.
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“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.
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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.
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PZ Cussons Nigeria Plc
PZ Cussons Nigeria Plc had in a corporate notice in September informed the NGX that its mother company, PZ Cussons (Holdings) Limited had offered to acquire shares held by other shareholders in its Nigerian subsidiary at an offer price of N21 per share.
“In their offer, the PZ Cussons Group explained that they believe the transaction is necessary in order to enable them to significantly simplify and strengthen operations in Nigeria, creating the foundations for the Nigerian business to deliver against its strategy, building a more agile and innovative business, and noted that PZ Cussons has been present in Nigeria since 1899 and expects Nigeria to remain an important market for the group for many years to come,” part of the statement read.
Oando Plc
In March, Oando Plc notified the Nigerian Exchange Limited (NGX) and Johannesburg Stock Exchange Limited (JSE Limited) that it had received an offer from its core shareholder – Ocean and Oil Development Partners Limited (OODP) – to acquire the shares of all minority shareholders in Oando (Scheme Shareholders).
The Company will subsequently be delisted from NGX and JSE and re-registered as a private company (the transaction).
Under the Scheme, each Scheme Shareholder shall be entitled to receive the sum of N7.07 in cash or its equivalent in South African Rand (ZAR) for every ordinary share held by the qualified Scheme Shareholders at the Effective Date of the Scheme (“Scheme Consideration”).
Capital Hotel
In July, Capital Hotel Plc notified the Nigerian Exchange and the investing public of the plan to delist from the trading platform of the Nigerian Exchange, with N8.692 billion as market value
The purpose of delisting according to the company is to enable the company to explore strategic opportunities, alliances and collaborations that can bolster earnings and/or provide synergized benefits with little or no regulatory obligations.
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Union Bank of Nigeria Plc
In May, Union Bank of Nigeria Plc notified the Nigerian Exchange Limited and its stakeholders that Titan Trust Bank Limited (Titan Trust), the Bank’s core shareholder, had informed the Board of Directors of Union Bank of an offer for the acquisition of all the shares held by the minority shareholders in Union Bank.
Titan Trust Limited acquired a 93.4 percent interest in Union Bank in December 2021, after initially acquiring 89.4 percent from a pool of stakes belonging to major investors, executed through a Share Sale and Purchase Agreement (SSPA) between its majority shareholders
Coronation Insurance
Also in May, Coronation Insurance Plc notified the Nigerian Exchange Limited (NGX) that Coronation Capital (Mauritius) Limited on behalf of itself and other related parties, (together, the “Core Shareholders”) have approached the Board of Directors of the Company with an intention to acquire the shares held by other shareholders of Coronation Insurance.
They have offered to acquire the shares at a price of 65 kobo per share and subsequently delist the Company from NGX.
Ardova Petroleum Plc
In July, Ardova Plc delisted its shares from the Nigerian Exchange Limited (NGX), ending a 53-year-old listing after its precursor, African Petroleum was admitted to the stock market.
The delisting on July 26 is pursuant to the scheme of arrangements between Ardova and holders of its fully paid ordinary shares as approved by the Securities and Exchange Commission (SEC) and sanctioned by the court.
Ardova reached a buyout agreement that sees minority shareholders get 2.9 percent more than the settlement price the acquiring investor initially offered them.
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Global Spectrum Energy Services
In April, The Nigerian Exchange Limited suspended trading in the shares of integrated oil & gas offshore support vessel services company, Global Spectrum Energy Services Plc.
“The suspension is necessary to prevent trading in the shares of the company in preparation for the delisting of the securities of the company in line with the approval obtained from Nigerian Exchange Limited,” the NGX said.
In a notice signed by the company’s secretary, Adetola Raheem, in 2022, the energy service company said that the decision to delist from the Nigerian capital market was made during a meeting of the board of directors of Global Spectrum Energy Services Plc on February 28, 2022.
