By Bamidele Ogunwusi, Lagos
Since the launch of the new listing platform, the Premium Board and the associated Premium Board Index, stakeholders in the nation’s capital market have been reacting to the development. While some believe that it is a welcome development which will attract new investors into the market, others are of the opinion that it was an exercise that will lead to nowhere. Our man, Bamidele Ogunwusi, writes on the new listing board and the importance to the market.
The Nigerian Stock Exchange (NSE) last year in collaboration with the Convention on Business Integrity (CBi) had launched the foremost Corporate Governance Rating System (CGRS) for quoted companies.
The move is seen as one that would reinforce corporate governance adherence among quoted companies. In furtherance of this the NSE recently launched a new listing platform – the Premium Board and the associated Premium Board Index.
CGRS was designed to rate companies listed on the Exchange based on their corporate governance and anti-corruption culture, thereby improving the overall perception of and trust in Nigeria’s capital markets and business practices.
The Chief Executive Officer, NSE, Mr. Oscar Onyema, speaking at the event said with the rating system, it is anticipated that there would be an improvement in the overall perception of capital markets and business practices.
“It is expected that companies will enjoy tangible business advantages from risk-oriented and/or ethically sensitive business partners and investors. In addition, competitors would be challenged to establish the same level of good governance by setting standards of excellence. Companies would not only set themselves apart from their peers, but also contribute to improving the climate for doing business in Nigeria.”
The Executive Director of CBi, Mr. Soji Apampa, in a presentation shared the design and pilot phase of the Corporate Governance Rating System which was done between May 2013 and September 2014.
“The rating system is based on a holistic multi-stakeholder approach that uses a diverse information collection and verification approach, which relies not only on self-assessments of companies but also on experiences of stakeholders and experts. It is envisioned to be more transparent on rating procedures and rating governance than other Corporate Governance indices,” Apampa said.
Here comes the Premium Board
The premium Board was developed to feature companies that meet the Exchange’s most stringent listing criteria of capitalisation, governance and liquidity.
It aims to provide a platform for greater global visibility for eligible African corporations to make it easier for them to attract global capital flows and reduce the cost of funding.
The Premium Board Index on the other hand, is an equity index designed to provide a benchmark to capture the performance of companies listed on the Premium Board. The index will also provide a basis for developing products (such as ETFs and equity index derivatives) that are tradable on the bourse.
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.
While commenting on the new listing Board, Chief Executive Officer, NSE, Mr. Oscar Onyema, said The Exchange is a member of the United Nation’s Sustainable Stock Exchange Initiative, which is designed to encourage stock exchanges to influence their ecosystem to adopt sustainable ways of doing business around Environmental, Social, and Governance dimensions.
His words: “The Premium Board is one result of our commitment to place corporate governance front and centre as a way to improve the climate for doing business in Africa. We expect that companies on the Board will enjoy the highest levels of visibility and appeal to investors looking for large companies with the highest standards of corporate governance.”
He noted that the Premium Board Index would serve as a benchmark for investors looking to track the performance of large firms with excellent corporate governance and sustainable business models.
“The NSE Premium Board Index had a four year average return of 17.65 percent versus the All Share Index return of 11.31 percent over the same period,” he said.
The Executive Director, Business Development, NSE, Mr. Haruna Jalo-Waziri, stated that “The launch of Premium Board and the Premium Board Index is in line with The NSE’s commitment to promoting and continuously developing a more transparent, liquid, accessible market.”
What is Premium Board?
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 percent on the stringent Corporate Governance Rating System (CGRS). In addition, they are required to maintain a minimum free float of 20 percent of their issued share capital or a free float value equal to or above N40 billion.
Investigation showed that about nine companies at the main board passed the minimum qualification of N200 billion capitalisation but three companies were announced by the Exchange to have qualified for the Premium Board which indicate that others might have failed the corporate governance ratings or minimum free float of issued share capital.
“The companies that qualified for the Premium Board, according to the Exchange, are Dangote Cement Plc, FBN Holdings Plc, and Zenith International Bank Plc with market capitalisation of N2.87 trillion, N277.70 billion and N587.43 billion respectively. They all passed the CGRS before applying for the Premium Board,” Jalo-Waziri said.
The Group Chief Executive Officer of FBN Holdings, Mr. Bello Maccido, while reacting to the development said the bank was delighted to join the Premium Board as it was in recognition of the Group’s long standing tradition of good corporate governance.
He also said that the Group was proud to be among the first set of firms to be listed on the Board, pointing out that it showed that the bank had been able to meet the NSE’s stringent listing criteria of capitalisation, governance and liquidity.
While commending the NSE management on the launch of the Premium Board, Maccido, averred that the initiative will help the NSE to achieve its vision of becoming one of the leading stock exchanges in the world.
The Managing Director, Crane Securities Limited, Mr. Mike Eze, said the development will shore up investors confidence in the listed companies.
“It will encourage other investors to take position in the shares of the companies and also encourage other listed companies on the main board to achieve the new listing status,” he said.
A senior broker, Mathew Ogaga, said the premium board is for big players and that this has separated the men from the boys.
“As stock brokers, more investors will approach us for the shares of these companies because of their corporate governance ratings,” he said.
Rejection by stakeholders
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.
However, 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.
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 showcased 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 percent last week as against average loss of 3.56 percent 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, 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.
Sanction for erring firms
To prevent beaching the listing rules, the management of the Exchange has put in place some stringent sanctions for companies listed under the premium board.
Chief Executive Officer of the NSE, Mr. Oscar Onyema said that the Exchange is a member of the United Nation’s Sustainable Stock Exchange Initiative, which is designed to encourage stock exchanges to influence their ecosystem to adopt sustainable ways of doing business around environmental, social, and governance dimensions.
He explained that the board is one result of our commitment to place corporate governance front and centre as a way to improve the climate for doing business in Africa.
“We expect that companies on the Board will enjoy the highest levels of visibility and appeal to investors looking for large companies with the highest standards of corporate governance,” he said. Expatiating on the Premium Board Index, which was launched simultaneously to act as a performance assessment to the listed equities on the Premium Board, Onyema said, the board would serve as a benchmark for investors looking to track the performance of large firms with excellent corporate governance and sustainable business models.
“Typically, similar indices outperform their market wide index by double digits. The NSE Premium Board Index had a four year average return of 17.65 percent versus the All Share Index return of 11.31 percent over the same period,” he stated.
The Executive Director, Business Development, NSE, Mr. Haruna Jalo-Waziri, stated that the launch of Premium Board and the Premium Board Index is in line with The NSE’s commitment to promoting and continuously developing a more transparent, liquid, accessible market.
Source : Independent