Nigeria’s stock exchange may seek delistings to improve corporate governance

By David Whitehouse
Posted on Friday, 4 February 2022 12:30

The logo of the Nigerian Stock Exchange in Lagos
REUTERS/Afolabi Sotunde

Nigeria’s stock exchange may encourage delistings to improve the quality and liquidity of the market, Nigeria Exchange CEO Temi Popoola told an online briefing.

“The subject of delistings needs to come to the table,” Popoola said on February 4. “We are taking a close look at the corporates that we have” in areas such as corporate governance. “Ultimately the confidence of investors in our platform will be dictated by that.”

Research by Financial Vanguard shows that increasing numbers of listed Nigerian companies are failing to meet their obligations to file accounts on time. Financial Vanguard has calculated that the number of fines imposed on companies in the first 11 months of 2021 increased by 243% to 730.53m naira ($1.8m). Insurance companies are the largest single defaulting group with seven of 24 companies penalised from the sector, Financial Vanguard says.

Some companies may have changed their objectives and may no longer meet listing requirements, Popoola said. “It might be the right thing to delist some companies voluntarily.”  He added that he is “confident in the pipeline of new listings for 2022” and that the overall outcome will be a “stronger, healthier market.”

  • Popoola said he wants to diversify the types of business listed on the exchange, and pointed to power, food and agriculture companies as offering potential.
  • The stock exchange completed its demutualisation in March 2021, and Nigeria Exchange Group, the newly created operator, itself listed on the stock market in October.

Tech Listings

The exchange is seeking to diversify its products, a process which will be helped by the creation of West Africa’s first central counterparty (CCP), NG Clearing, in December. The role of a CCP is to manage and contain risk in case a party to a derivatives trade fails. NG Clearing’s establishment opens the way to exchange-traded derivatives in Nigeria.

Popoola also wants to encourage more tech listings. The exchange has looked at its existing listing rules and concluded that “there is a lot of work we need to do.” Popoola plans to launch a NASDAQ-style tech board with specifically tailored rules.   “We are confident this will attract capital into Nigeria.”

  • The group is also considering the possibility of setting up an art exchange and is still working on possible ways to fractionalise assets, Popoola said.
  • “The belly of Nigerian demography is young” and there is a need to bridge the generational gap with the exchange. More digitised listings is another way to do that, he said.

The rising tax burden on investors could make that more difficult. The 2021 finance act introduces a capital gains tax of 10% on the sale of shares worth 100m naira ($2.4m) or more.  And the Securities and Exchange Commission (SEC) in January began collecting taxes on bond investments after the expiry of a 10-year exemption.

  • The country faces a “challenging situation” and has a “short-term need” to raise cash, creating a “tension” with long-term goals. “Some things could be amended” to balance the short- and long-term priorities, and the exchange is working with the SEC on finding solutions, Popoola said.

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