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Chinwendu Obienyi
Economic growth in a modern economy hinges on efficient and effective financial sector that mobilises domestic capital for productive projects.
That also means that the absence of an effective capital market could leave most productive projects with obvious developmental agenda unexploited because the connect between the money market and the real sector facilitates growth will be non extent.
In recent times, the need to shift economic development from public to private sector to enhance productivity has become so inevitable that resources continued to diminish and evidences show that countries with well-developed capital markets, experience higher economic growth than countries without that window.
So when a company gets listed on an Exchange and purchase their own shares at market prices, retire these shares so as to decrease the number of existing shares overall, this may lead to higher prices as long as demand does not decrease.
This scenario is directly relevant to the case of MTN Nigeria and the objective of regulators in achieving a world class Nigerian capital market. Many are indeed worried that this objective may be threatened following the non-availability of the company’s shares to retail and institutional investors.
Although, MTN may have qualified to be the the first telecommunication company to list on the nation’s bourse after 3 years of shifting the goal post, the Y’hello ride is running out of luck.
From all indications, the scarcity of the shares of the telecom company which listed on the floor of the Nigerian Stock Exchange (NSE) on May 16, 2019 via listing by introduction is creating some concern among investors as their buy and sell orders are yeild to allign thus leading to a spike in price of the stock.
Daily Sun gathered that upon the listing of its 20.35 billion ordinary shares at a price of N90 per share on Thursday, May 16, 2019, stockbrokers and dealers who could not fill orders for their clients, accused the NSE of collaborating with some of the shareholders of the telecom company to profit from huge demand and piecemeal supply intended to jack up value of the stock.
MTNN at the first trading day rose by N9 or 10 per cent to close at N99 per share. It increased on the second trading day, on May 17, by 10 per cent to close at N108.90 per share.
Monday’s session saw the stock rising further by 9.96 per cent to close at N119.75 while at the end of Tuesday’s trading session, the stock notched up 10 per cent to close at N131.70 per share.
Also, the agitated investing community fingered the NSE for allowing MTN a free float of only 5.542 million shares admitted for trading at N90 per share worth N498 million last week, when it listed by way of introduction on the Exchange, rather than unbundling all the units of shares in its holding, this they say may have unwittingly created scarcity of its security in the market.
Under the terms, the free float requirement for companies on the Alternative Securities Market, ASEM, Board is 15 per cent of market capitalisation while 20 per cent is prescribed for companies listed on the Main Board with Premium Board also on 20 per cent of market capitalisation or above N40 billion on the date the Exchange receives the issuer’s application to list.
Besides, the Rule for listing by introduction has a provison that the Exchange will from time to time determine the market capitalisation and free float requirement.
Free float or public float refers to the shares of a company that can be publicly traded and are not restricted. In other words, the term is used to describe the number of shares available to the public for trading in the secondary market.
There are concerns also that investors and stakeholders waiting to purchase the shares of MTN Nigeria Communications Plc through an initial public offering (IPO) may do so at a very high premium whenever the telcom company decides to float the IPO.
Speaking during the facts behind the listing ceremony of the MTNN, Chief Executive Officer, MTN Nigeria, Ferdi Moolman, assured that the date of the IPO would be communicated to the public although there are rumors in the public space that this may take a longer time to come, as the company is said to be hiding under the alleged $2 billion tax liabilities slapped on it by the Office of The Attorney General (AGF) delay the IPO and stakeholders are of the opinion that the Federal Inland Revenue Service (FIRS) should have delayed the public share offering that was expected to benefit a whole lot of retail investors and stakeholders.
A market analyst who pleaded anonymity said, “Most of the investors, lost value because of the Central Bank of Nigeria (CBN) fine last year. So, this Listing by Introduction on the NSE was being designed to create a “value recovery” for the previous investors and pave the way for them to sell off their shares, after driving the price to the desired level which a senior stock broker termed “share manipulation”.
He further said, “this can only happen in Nigeria. If you try such on The New York Stock Exchange or even the Johannesburg Stock Exchange, the regulators and law enforcement will pounce on you.”
“Essentially, there are about 700 shareholders who came in through the private placement that are currently allowed to cross these shares among themselves and with other buyers. But the remaining A-list shareholders and directors have been advised by lawyers not to take advantage of the current price appreciation until the IPO to avoid legal challenges and law enforcement inquiry.
“So they want this share to rise to more than N150 to N200 per share, which allows them to recover and thereafter, the company would now float an IPO and What they (MTN Nigeria) are telling the markets and regulators is that they are delaying the IPO because of the AGF’s directive on tax arrears, this is not good for a market that wants to grow”
Specifically, the Chief Research Officer, Investdata Consulting Limited, Ambrose Omordion, said the NSE is paying lip service to the issue on ground because the shareholding structure of MTN Nigeria that are held 23.92 per cent by institutional and high net-worth individual investors also want to be part-owners of the company.
Omordion said, “The 20 per cent minimum free float is one of the listing requirements, but it seems to be a post-listing requirement since these companies are listed and given date to meet the minimum free float.
With the tight holding structure and small float of MTN Nigeria, the existing shareholders of the company are making it difficult for new shareholders to buy. The high demand is currently causing problem at the Exchange because local potential shareholders would definitely buy the shares at a very high rate”.
According to him, “7 banks have approved N200 billion loan facilities for MTN, which is not bad depending on what the company wants to achieve with that loan, coming two days after the listing. Does it mean that becoming a quoted company in Nigeria is one of the conditions to grant the facility? The urgency and speed with which the regulators approved the listing was something else.”
Shareholders react
The Founder of Independent Shareholders Association of Nigeria (ISAN), Sunny Nwosu, described the listing as dissatisfactory describing it as similar to a fraud.
His words, “Our conclusion as shareholders is that they have come to play us a game which is not far from a fraudulent game; the nominal value of MTN shares is not certain. These are areas SEC should ask NSE questions rather than coming up with the issue of gift sharing at AGMs and ban of pre-AGMs briefings. Up until now, no prospective shareholder can tell you this is what MTN Nigeria stands for,” Nwosu said. He said that the exchange set a bad precedence in the market by allowing some companies to list without meeting the free float requirement.
“There have been very bad precedents recently in the market; Dangote Cement and some other companies were given preferential treatment. “Whenever any company wants to come for listing by introduction, that free float which they have agreed with, must be open and for the investing public. “Let everyone scramble and get from that, and not a situation where you will be listed by introduction and the shares are not available,” Nwosu said.
For his part, National President, Progressive Shareholders Association of Nigeria (PSAN), Boniface Okezie, said, “The nominal value is very wrong to even start with. Even though some of the shares, are trading at 0.20 kobo, that does not make their par value as in the insurance sector where our par value is at 0.50 kobo per share. MTN made a mistake and I don’t know why the financial advisers did not do their homework well.
Secondly if they had a challenge in getting the shares accross the board, then it means they were not prepared and it was more like they were rushed or forced into listing just to satisfy and meet up with the demand of the Federal Government. If you are bringing 20.35 billion shares, then it must be made available and brokers should have it so that it can get accross to the public but with it being hoarded, it is bad for the market and this could be detrimental to other telcos who also want to follow MTN’s footsteps”.
Regulator’s view
When quizzed about the situation, a source at the Securities and Exchange Commission (SEC), said that the Commission is investigating the process that led to the listing of MTN Nigeria.
The source said the application of the telecom firm was initially turned down by the NSE Council before it was later reconsidered, without the authorisation of SEC.
“The application was turned down when MTN brought it to the council due to grey areas and requests for certain waivers made by the company and the investigation will cover all aspects of the listing, the share crossing, the activities of the preference shares, all the transactions on MTN Nigeria shares so far and the entire listing to see if it is in compliance with the listing rules, I can assure you that SEC will conclude this investigation as soon as possible.”
In a swift response via an emailed statement to Daily Sun, the NSE noted that the rules for listing on the Premium Board (which is the board in which MTN Nigeria is listed) requires a company to have a minimum free float of 20 per cent of its issued share capital and that the value of its free float is equal to or above N40 billion on the date the Exchange receives the issuer’s application to list.
“There appears to be a misconception that a concession was given to MTN Nigeria on the minimum free float required for companies listed on the Exchange.
MTN Nigeria met with the free float requirement of N40 billion and the free float of MTN at the time of listing was in excess of N90 billion,” it said.
The Exchange further explained that where a company lists following an Initial Public Offering (IPO), shares are expected to be available for trading on the day of listing but in a listing by introduction, however, no shares have been offered for subscription by the company prior to listing.
“No rule of the Exchange compels shareholders in a listed company to tender their shares for trading. Shareholders are at liberty to trade their shares at any time and price suitable to them. Thus, in order to stimulate trading in the shares of companies that list by introduction, the NSE’s practice is to urge the company to make shares available on the day of listing. In the case of MTN Nigeria, the NSE had requested the company as part of the listing process to make shares available and the Exchange expects the company to do that.
Since the listing of MTN Nigeria on Thursday, May 16, 2019, a total of 105,30 million shares valued at N12.231 billion have traded in three days. These trades were carried out by ten Dealing Member Firms in 134 cross deals/negotiated deals”.
According to the Rulebook of the Exchange, when a Dealing Member or Authorized Clerk has an order to buy and an order to sell the same security at the same price, the Dealing Member or Authorized Clerk may “cross” those orders at a price at or within the Exchange’s best bid or offer.
A variant of this is the negotiated deal, which describes a situation where a cross deal is executed between two Dealing Member Firms at a price which may be within the Exchange’s best bid or offer or with the approval of the NSE outside the best bid or offer.
This is because cross deals involve clients of the same Dealing Member Firm on both sides of a trade, significant issues have been raised that Dealing Members who have not been involved in the cross deals have been unable to trade on behalf of their clients.
The Exchange thereafter said it is not unconcerned about this state of affairs and has urged brokers to discuss with their clients about possible sales of shares.
It said, “As an Exchange that champions transparency and equity for all stakeholders in our market, we have received stakeholder feedback concerning our present rules on cross dealing and will consider the issues raised as part of our sustained efforts to ensure our market remains equitable for all stakeholders. We believe in market forces as the most efficient methodology for price discovery. Demand and supply will interact to discover appropriate prices as trading activities continue in the market”.
