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Governance, liquidity, regulation prompt companies’ exit from Nigerian Exchange

No fewer than 20 companies hitherto listed on the Nigerian Exchange Limited (NGX) have chosen to opt-out of the stock market.

Companies voluntarily or involuntarily choose to change their public status –that is delisting from an Exchange. So, why would firms want to give up the status of being a public company? Among other factors, percentage of firms choose to voluntarily delist when the benefits of being a public company no longer exist or are overshadowed by the cost of being public.

The big names that willingly (voluntarily) opted out of the Nigerian Exchange and the year they exited are: United Nigeria Textile (2011), Seven-Up Bottling Company (March 2018), Poly Products (July 2005), Paints and Coatings Manufacturers Nigeria (August 2018), Nigerian Textile Mills (2008), and Nigerian Bottling Company (2011).

Voluntary delisting is when a company willingly decides to remove its shares from the stock exchange and pays shareholders to return the shares held by them and removes the entire lot from the exchange.

Over 118 companies have delisted from the Nigerian Exchange till date, the reasons given include: regulatory delisting (NAICOM, NGX, others), mergers and acquisition, voluntary delisting, nationalised banks, and licence withdrawal.

Involuntary delisting is when a company does not meet listing requirements, the listing exchange issues a warning of noncompliance. If non-compliance continues, the exchange delists the company’s stock.

The Nigeria Bottling Company’s decision to leave the Nigerian Exchange after 38 years on the mainboard had raised questions regarding the attraction it held for quoted companies. Shareholders had given up their right to continue to drink from today’s Coca Cola dividends on the floor of the Exchange to Greek-based Coke bottler Coca-Cola Hellenic (CCH) in a deal then worth N21 billion ($136m).

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Seven-Up Bottling Company (7-Up) delisted after it received a takeover bid from its majority shareholder, Affelka, aimed at restructuring the soft drinks bottler. Seven-Up Bottling Company last traded on the Nigerian Exchange Limited at N101.97 per share, valuing the company at N65.32 billion ($214m).

The exit of Seven-Up Bottling Company reduced the entire market by N65.32 billion. 7-Up’s minority shareholders had backed a $70 million buyout bid by then majority investor, Affelka, the investment firm of the Lebanese El-Khalil family.

Companies go public in search for liquidity in their shares. Companies can raise a lot of funds by going public. They can use the money for a variety of things – expand operations, introduce new products, invest in Research & Development, pay off their debt.

There are also other non-material benefits for going public. The firms brand equities are enhanced. People trust them more – since the nitty-gritties of their businesses are no more in the dark.

Going public also enhances the credibility of the companies– they can easily convince banks and other lenders to provide loans on better terms (private companies tend to pay a higher rate of interest because of lack of credibility).

Other companies that willingly opted out of the Nigerian Exchange and the years they left are: Newrest ASL Nigeria (May 2019), Nampak (2011), IHS Nigeria (May 2015), Impresit Bakolori (2002), Incar (2010), and First Aluminium Nigeria (July 2019).

No doubt, when companies have multiple shareholders, it takes longer to make major strategic decisions. What could have been over within a few hours of a meeting might take days with the board and shareholders’ approval.

Most time, the companies’ long-term goals might not always align with the shareholders’ immediate-term goals – for example, dividends. Most companies see it that the money they pay as dividends could otherwise be used to invest in future growth prospects – which will be possible if they are private – because then there is no pressure to pay out dividends to shareholders.

Others companies that opted for voluntary delisting are: 11 plc (May (2021), Continental Reinsurance (January 2020), Dangote Flour Mills plc (November 2019), and Great Nigeria Insurance (January 2019).

After 43 years, 11 plc, formerly Mobil Oil Nigeria plc, delisted its shares from the Nigerian Exchange. The entire share capital of 11 plc was delisted from The Daily Official List of the Nigerian Exchange Limited (the Exchange) on Friday, May 7, 2021.

Though the delisting of the entire issued share capital of 11 plc followed its shareholders’ approval to delist from the Exchange, it is worthy to note that as at the close of trading on May 7, 2021 (11 plc’s last day on the NGX) its market capitalisation stood at N82.22 billion.

It is pertinent to state that the delisting of the 360.59 million units of shares of 11 plc led to the negative closure and drop recorded in market capitalisation on that last trading day of the week.

The Nigerian Exchange delisted Dangote Flour Mills from its daily official list following acquisition by Olam International Limited, which had bought all outstanding and issued shares in Dangote Flour Mills for N120 billion.

Also, Enpee delisted from the Nigerian Exchange in 2008; CFAO Nigeria (2007), Avon Crown Caps and Containers (September 2017), and A.G. Leventis (Nigeria).

The Nigerian Exchange had announced the delisting of A.G Leventis Nigeria from its daily official list, saying that the company had voluntarily applied for a delisting, which it approved on December 31, 2019. The entire issued share capital of A.G. Leventis was on Tuesday, January 7, 2020, delisted from the daily official list of the Exchange.

Before delisting, A.G. Leventis had said its core shareholders ― Boval S.A, Leventis Holding S.A, and Leventis Overseas Limited ― had planned to acquire the shares held by other shareholders.

Boval S.A, which acted on behalf of the other core shareholders, had approached its board of directors with an intention to acquire the shares held by other shareholders at an offer price of 53 kobo per share and subsequently delisted the company from the NGX.

The pressure and cost of dealing with regulatory authorities could also be among the reasons. Depending on the size of the company, listed firms pay an annual listing fee to the stock exchange on which they trade. Also, public companies pay for the periodic reports they filed or even failed to file with the regulatory authorities (for example, the quarterly results report, and the annual report).

As at the time of going to press, response from the NGX was not available.

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