18 firms fail NSE’s listing requirement – Eighteen quoted companies have less than the required minimum volume of shares for public trading at the stock market.
This is a major infraction that may adversely affect liquidity and efficient price discovery on the companies.
A report by the Nigerian Stock Exchange (NSE) at the weekend indicated that the companies have free float deficiencies, a reference to over concentration of the shareholdings of the companies in the hands of directors, other insiders and related persons.
The overconcentration easily makes the companies’ share prices susceptible to manipulation and detracts from stock market’s objectives of wealth distribution, liquidity and efficient pricing.
Under the rules at the Exchange, companies listed on the premium board are required to have 20 per cent free float or more than N40 billion of their capitalisation in the hands of investing public. Companies on the main board are required to have a minimum free float of 20 per cent of their market capitalisation, implying that 20 per cent of the companies’ shareholdings must be available for minority retail shareholders. However, companies on the Alternative Securities Market (ASeM) are required to have 15 per cent free float.
According to the report, the defaulting companies are listed on the main board of the Exchange. The included Union Bank of Nigeria, which has a free float of 14.94 per cent; Capital Hotel, 2.99 per cent; Great Nigerian Insurance, 16 per cent; AG Leventis, 11.64 per cent; Interlinked Technology, 14.50 per cent; Infinity Trust Mortgage, 3.50 per cent; Transcorp Hotels, 6 per cent; Ekocorp, 11.84 per cent; Champion Breweries, 17.17 per cent; Caverton Offshore Support Group, 17.30 per cent; The Tourist Company of Nigeria Plc, 3.58 per cent and E-Tranzact International Plc, which has a free float of 10.06 per cent.
Others were Aluminium Extrusion, 17.73 per cent; Union Dicon Salt, 18.0 per cent; Austin Laz & Company, 5.51 per cent; CWG, 15.97 per cent; Global Spectrum Energy Services, 7.01 per cent and Portland Paints & Product Nigeria (PPPN), which has a free float of 14.57 per cent, 5.43 percentage points below the 20 per cent minimum requirement.
Authorities at the Exchange have already tagged the companies with a red alert of non-conformity with the requisite listing and corporate governance requirements. With the Below Listing Standard (BLS) tag, the deficient companies would have to undertake capital restructuring to reduce the over concentration and free more shares for the general retail investing public.
Alternatively, deficient companies may opt to move from the main board to the ASeM or in the extreme cases, opt to delist their shares from the Exchange. Chellarams, which had been quoted on the main board had migrated to the ASeM to cure its free float deficiency. Two companies-Great Nigeria Insurance and Tourist Company of Nigeria – have also applied for voluntary delisting of their shares.
The report, however, indicated that many of the deficient companies have been given up till 2020 to restructure their share capital and comply with the minimum free float. Failure by deficient companies to restructure their share capital at the expiration of the deadline or secure extension of the deadline may lead to delisting of their shares from the NSE.
Free float deadline is usually in deference to application by the management of a company for some period to comply with the free float. However, the company is required to provide quarterly disclosure report to the NSE on the efforts being made to fully comply by the deadline.
By the expiration of the deadline, a company is mandatorily required to have completed partial divestments or dilution of the ‘non-public’ shareholdings to free the required percentage of equity stake for public holding, unless the management of the NSE grants fresh waivers and extensions for the companies. In the extreme instance, a company with deficient public float may opt to delist its shares.
Free float, otherwise known as public float, refers to the number of shares of a quoted company held by ordinary shareholders other than those directly or indirectly held by its parent, subsidiary or associate companies or any subsidiaries or associates of its parent company; its directors who are holding office as directors of the entity and their close family members and any single individual or institutional shareholder holding a statutorily significant stake, which is five per cent and above in Nigeria.
Thus, free float’s shares do not include shares held directly or indirectly by any officer, director, controlling shareholder or other concentrated, affiliated or family holdings.
Stock markets maintain minimum public float to prevent undue concentration of securities in the hands of the core investors and related interests, a situation that can make the stock to be susceptible to price manipulation. Besides, it provides the investing public with opportunity to reasonably partake in the wealth creation by private enterprises.