Hope Shines as NSE’s Demutualisation Nears Completion

Now that the Securities and Exchange Commission has given ‘a No Objection’ letter to the Nigerian Stock Exchange to forge ahead with its plan to demutualise the largest Stock Exchange in Africa, the quest towards achieving a more robust and liberalised stock market where better corporate governance and accountability will thrive is now more feasible. Bamidele Famoofo reports

No doubt, the journey towards demutualising the Nigerian Stock Exchange (NSE) is gradually drawing to an end, with the consent given by the regulator of the capital markets in Nigeria, for the process to continue unhindered.

Demutualisation is the process by which a member-owned company is converted to a shareholder-owned company in which third party investors can participate. This conversion will allow the NSE carry on business activities with the aim of making profits just like regular corporate entities. It will also allow the company to put in place a board of directors to oversee its operations.

Presently, the NSE is registered as a company limited by guarantee, which is owned and operated by its members alone. As a company limited by guarantee, the NSE has no share capital, hence it has no shareholders. In addition, the Companies and Allied Matters Act (CAMA) restricts the operations of a company limited by guarantee to the promotion of commerce, art, science, religion, sports, culture, education, research, charity or other similar objects. The CAMA also prohibits the division of the undertakings of a company limited by guarantee into shares and the distribution of interests or profits thereon.

Before the approval by SEC, the Demutualisation Bill got the assent of the President Muhammadu Buhari. He signed the Demutualisation of the Nigerian Stock Exchange Bill (Demutualisation Bill or the Bill) into law on 29 August 2018. In line with prevalent international practice and standards, the bill authorises the NSE to convert to a shareholder-owned public company limited by shares (public limited company or PLC). This is in a bid to diversify the operations of the NSE and increase its access to capital.

Meanwhile, members of the NSE, which include dealing members and others, had earlier passed a resolution to demutualise the scheme of the NSE to allow for shareholders’ participation in March 2017. Given that the CAMA does not provide for the conversion of a company that is limited by guarantee to a public limited company, there was the need to ascertain the process for such conversion. Thus, the Demutualisation Bill was passed by the National Assembly to address the lacuna in the CAMA.

Specifically, members of the Exchange authorised its National Council and Management to proceed with the process leading up to the demutualisation, subject to applicable laws and regulations and obtaining the approvals of members and the relevant regulatory authorities. They also ratified the engagement of financial advisers, legal advisers, tax advisers and any other adviser that may be required for the demutualisation of the exchange.

The Chief Executive Officer, NSE, Mr. Oscar Onyema, said the time for the demutualisation of the exchange is very close by. He gave the assurance on the occasion of the 2019 market recap and outlook for 2020 held at the Nigerian Stock Exchange, last Monday. Onyema gave the assurance while responding to questions from stockbrokers, who wanted to know as soon the process of demutualisation of the NSE, which has commenced since 2015 would materialise.

Onyema said the demutualisation of the NSE will generate substantial motivation for the development of an agile exchange thereby consolidating its innovativeness and strengthening its leadership both at local and international levels, whilst also adding value to its stakeholders. As a demutualised entity that is profit-seeking, the NSE will be in a better stead to capitalise on new income opportunities, free from any limitations arising from conflicting member interests and existing laws and more importantly be able to better support the economic growth of Nigeria.”

Former President of the Council of NSE, Mr. Aigboje Aig-Imoukhuede, said the demutualisation of the Exchange would bring the Nigerian capital market at par with other international jurisdictions, result in enhanced governance, transparency and visibility, whilst attracting strategic partners, investors and good quality issuers. These are historic times indeed.”

A dealing member, Mr. Tunde Sobowale of Global Asset, said demutualisation would add value to the market, and that it should be encouraged to happen faster.

Onyema enthused that with the no objection from SEC, the exchange have met the necessary requirements of the SEC and would be able to proceed to the final stages of the demutualisation process. “We have also sensitised our stakeholders on the process of demutualisation and its effects and will continue to engage with them during this process,” Onyema said.

Apart from the special dispensation granted to the NSE as a result of the passage of this bill, the bill also exempts the NSE from any tax liability that may arise in connection with, or as a result of its conversion to a PLC. However, the NSE will be liable to pay tax on subsequent profits it earns after the conversion. In addition, the bill provides that upon the conversion and re-registration, all income, assets, property and liability of the NSE shall continue to be the income, assets, property and liabilities of the NSE as a PLC.

Implication

The signing of this bill is expected to expedite the NSE’s conversion to a PLC. As a profit seeking company, the NSE will be able to diversify its products and services in the market. The NSE will also have a share capital and will also be able to sell its shares to interested members of the public and be quoted on the stock exchange. This is expected to improve the NSE’s corporate governance as the operations of its board of directors will be guided by the Nigerian corporate governance rules.

Given that this bill specifically provides for the conversion of the NSE to a PLC, the procedure for conversion of other companies limited by guarantee to PLC’s still remains uncertain as this is not provided in the CAMA. Companies limited by guarantee should not have to go through the legislative process of enacting new laws every time there is a need to restructure their operations.

Outlook for 2020

According to the NSE, key factors expected to shape the Nigerian Economy in 2020 include crude oil price and production, since Nigeria still remains reliant on oil production for FX reserves, hence, the dynamics of crude oil price and production will continue to influence the capital markets and larger economy.

“Factors such as U.S. and Iran tension, oil supply shocks (e.g., Eastern Europe, Venezuela, and Libya), and progress in trade negotiations between the U.S. and China may exert pressure on crude oil prices in 2020,” said Onyema.

Domestically, market sentiments may be buoyed by a steady and stable recovery in the domestic economy, alongside continued sustainability in monetary policy.

The signing into law of Nigeria’s Finance Bill 2019 and implementation of the 2020 budget may have a positive impact on companies’ earnings as well as consumer spending.

But Onyema disclosed that his NSE will continue to advocate for business-friendly economic environment, working in conjunction with both the public and private sectors while noting that the year 2020 has started on a good note, with the NSE ASI recording a 9.48 per cent as at the day of the briefing.