NSE Issues Red Alert On 51 Deficient Companies
THE Nigerian Stock Exchange (NSE) has placed cautionary red alert on 51 quoted companies that failed to comply fully with the comprehensive listing and corporate governance standards at the stock market. The deficient companies represent about 31 per cent of the total number of quoted companies in the country.
A regulatory report obtained at the weekend flagged the deficient companies with warning codes that indicated various degrees of corporate governance weaknesses, susceptibility to illiquidity and price manipulation due to inadequate price discovery. Some of the stocks were also on delisting watchlist of the NSE.
The Compliance Status Indicator (CSI) report of the NSE uses three-letter codes to mark out companies that fall below the post-listing requirements as part of the full disclosure and transparency policies at the Exchange, thus providing investors dealing in such stocks foreknowledge of inherent weaknesses in such stocks.
A review of the report showed that the deficient companies were generally in three broad categories; companies with recurring multiple deficiencies, companies that failed to submit their financial statements within stipulated timeline and companies with unhealthy concentration of shares in the hands of major investors.
Under the rules of the NSE and global stock market practices, all the infractions are regarded as fundamental infractions as they impede market’s key concepts of full disclosure, liquidity and efficient price discovery. All the infractions could lead to compulsory delisting of the stocks, if not remedied.
A source at the Exchange said the flagging of the companies was in line with the commitment of the Exchange to global best practices and investors’ protection. The source said the NSE was already engaging with the deficient companies on their compliance plans, noting that delisting is usually the last option.
The deficient companies include Lafarge Africa, Transcorp Hotels, AG Leventis Nigeria, Niger Insurance Plc, Aso Savings & Loans, Capital Oil, Deap Capital Management & Trust Plc, DN Tyre & Rubber Plc, Evans Medical Plc, Anino International Plc, FTN Cocoa Processors Plc, Goldlink Insurance Plc, Guinea Insurance Plc, International Energy Insurance Plc, Juli Plc, Omatek Ventures Plc, RT Briscoe Plc, Resort Savings & Loans Plc, Staco Insurance Plc, Standard Alliance Insurance Plc, Unic Diversified Holding Plc, Union Homes Savings & Loans Plc and Universal Insurance Company Plc.
Others are Union Bank of Nigeria (UBN), Aluminium Extrusion, Austin Laz, Capital Hotel, Caverton Offshore Support Group, Cement Company of Northern Nigeria, Champion Breweries, Conoil, CWG, Ekocorp, Ellah Lakes, E-Tranzact International, Golden Guinea Breweries, Global Spectrum Energy Services, Infinity Trust Mortgage Bank, Medview Airline, Multi-Trex Integrated, Nigerian-German Chemicals, Notore Chemical Industries, Omoluabi Mortgage Bank, Portland Paints and Products Nigeria, Prestige Assurance, Roads Nigeria, Skyway Aviation Handling Company (SAHCO), Smurfit Prints, Thomas Wyatt Nigeria, Tourist Company and Union Dicon Salt.
A breakdown of the infractions indicated that nearly half of the deficient companies suffer from free float deficiency, unhealthy concentration of shares in the hands of major investors and their insiders. The minimum number of shares available for the general minority retail investing public, known as free float or public float, is a major listing requirement at the stock market. Companies listed on the Exchange are required to maintain a minimum free float for the set standards under which they are listed in order to ensure that there is an orderly and liquid market in their securities.
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 the general 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.
Technically, free 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 and their close family members and any single individual or institutional shareholder holding a statutorily significant stake, which is 5.0 per cent and above in the country.
The remaining red-marked companies were flagged because of recurring corporate governance weaknesses, especially failure to submit operational reports within scheduled timeline.
Post-listing rules at the NSE require quoted companies to submit their audited annual report and accounts not later than 90 days after the end of the year. The rules also require companies to submit interim or quarterly report not later than 30 calendar days after the end of the relevant period. Where the company chooses to audit its quarterly accounts, it shall be required to file such accounts not later than 60 calendar days after the relevant quarter.