Barely a week after it was launched, the newly introduced premium board of the Nigerian Stock Exchange (NSE) has come under heavy criticisms from stakeholders in the capital market, with many describing the new board as unnecessary.
Corporate executives, market operators and shareholders, who spoke on the new board, said the criteria for the board were vague and dependent on external third party not registered by capital market authorities.
They argued that by abandoning compliance with its post-listing requirements, code of corporate governance by the Securities and Exchange Commission (SEC), Code of Corporate Governance by the Central Bank of Nigeria (CBN) and nexus of the market as the ultimate valuation of corporate performance, the Exchange is indirectly undermining the market it seeks to promote.
The NSE on Tuesday, August 25 launched the NSE Premium Board and the NSE Premium Index. Three companies- FBN Holdings Plc, Dangote Cement and Zenith Bank, were moved to the newly created premium board. The NSE described the premium board as a platform for companies with large capitalisation, good corporate governance and liquidity.
According to the NSE, the premium board is for issuers with minimum market capitalisation of N200 billion and highest corporate governance standards. Companies aspiring to be listed on the premium board must achieve a minimum score of 70 per cent on the stringent Corporate Governance Rating System (CGRS), a corporate governance rating being administered by the Convention on Business Integrity (CBI). In addition, they are required to maintain a minimum free float of 20 per cent of their issued share capital or a free float value equal to or above N40 billion.
Market stakeholders said the criteria were vague, unstable and unquantifiable and could not form the basis for the creation of a new board.
Corporate executives and market operators who spoke on the issue craved for anonymity because such public comments on sensitive issues had earlier led to regulatory backlash. Shareholders’ leaders openly expressed displeasure with the criteria.
National President, Constance Shareholders’ Association of Nigeria, Mr. Mikail Shehu, expressed concerns over the exclusion of some companies known for high corporate governance, large capitalisation and diverse shareholders’ base. Shehu, particularly cited the exclusion of Guaranty Trust Bank, Nigeria’s most capitalised and highest-priced quoted bank widely regarded as the premium stock in the banking industry.
National Coordinator, Independent Shareholders Association (ISAN), Mr Sunny Nwosu, said the Exchange built its new platform on a shaky ground.
“All they are doing are shrouded in secrecy; the market belongs to all of us. They should have consulted critical stakeholders before embarking on this effort. If you say one of your criteria is market capitalisation, what happens if the share price goes down, do you demote them to the second tier and promote them again when the prices go up?” Nwosu said.
Shareholders’ activist and founding executive of Nigeria Shareholders Solidarity Association (NSSA), Alhaji Gbadebo Olatokunbo, said the new board has failed to live up to expectations with the exclusion of major companies that should have showcase the new board.
He said market development initiatives must not be driven by pecuniary interests but the overall interest of the stakeholders.
According to him, corporate governance can only be adjudged by clearly stated principles, such as those contained in the CBN and SEC’s codes and the listing requirements.
“Until we are told what they mean by corporate governance, we reject this new board, “Olatokunbo said.
Market operators said the NSE was shifting the goal post to suit its own definitions rather than clearly defined rules that should guide such a platform.
Market reactions to the new premium board have been muted and below average. For instance, one of the premium stocks slipped below the N200 billion mark last Thursday. It closed the trading session at N193.8 billion. The NSE Premium Index, which tracks the premium board, recorded above-average loss of 3.93 per cent last week as against average loss of 3.56 per cent indicated by the market-wide All Share Index (ASI).
The NSE tied the minimum capitalisation for the premium board to $1 billion. This implies that besides price fluctuation at the Exchange, the qualification of companies for the new board will also be affected by foreign exchange fluctuation. At the initial stage of announcement of the evaluation, Naira/Dollar exchange rate was N165/$1. The recent depreciation in Naira affected many stocks.
However, seven other companies closed August with market value above the N200 billion mark. These included Guinness Nigeria, N209.3 billion; Forte Oil, N328 billion; Ecobank Transnational Incorporated, N338.5 billion; Lafarge Africa, N455 billion; Nestle Nigeria, N665.8 billion; Guaranty Trust Bank, N674.6 billion and Nigerian Breweries, which closed with market value of N963.31 billion.
When asked about the cost implication of the assessment and movement to the new premium board, the chief executive officer of the NSE, Mr. Oscar Onyema, said the cost should be looked at in terms of value to the company rather than cost.