A bill for an Act to mandate private companies whose shareholders’ funds are more than N40 billion, or whose annual turnover or total assets exceed N80 billion, to convert to public liability companies and list their shares on the Nigerian Stock Exchange (NSE), is currently before the House of Representatives. The bill, which is sponsored by Hon. Chris Azubogu, passed the second reading two months ago.
This implies that, barring any unforeseen development, an Act of the Parliament may amend the existing Act which established the NSE, making it compulsory for all private firms in Nigeria with turnover or assets exceeding N80bn to be listed in the capital market.
Stock Exchanges, it needs be emphasized, are financial marketplaces for trading of stocks and bonds. They serve two major functions. They assist companies in sourcing long-term funding for capital projects such as expansion of their businesses. They also provide private investors a place to buy and sell investments such as stocks, bonds and mutual funds, to boost their financial fortunes.
Private firms in Nigeria are currently at liberty to list their shares on the Stock Exchange. The decision to do so is at the discretion of the business owners. There is no legislation compelling them to do so, and no member of the public partakes in their profitability or losses. This situation will change if the current bill becomes law.
We support the proposed legislation. Listing these big firms on the NSE would make for accountability and probity, as well as improve public trust in them. The consideration of this bill by the House is in conformity with the Nigerian constitution, section 4 (2) of which empowers the legislature to enact laws in the best interest of the country. Firms whose shareholders’ funds exceed N40bn or have turnover or assets in excess of N80bn, can make appreciable impact on the economy, if they go public.
We believe this bill has become necessary because efforts to get some of these big private firms with huge funds and turnover to voluntarily enlist on the NSE have not yielded the desired result. There are currently about 260 publicly quoted companies on the NSE trading list. This number does not give the Nigerian capital market the needed absorptive capacity and credit boom.
Considering the vital role that the Stock Exchange should play in the economy, the participation of more top private firms will bring more investors to the capital market. At present, the contribution of the Nigerian capital market to the recently rebased Gross Domestic Product (GDP) lacks depth. It is put at about 15 per cent. This cannot be compared with what obtains in other emerging markets where the contributions of their capital markets to GDP are much higher.
There are many firms posting astonishing profits in the country annually, yet their contribution to the growth of Nigeria’s economy in terms of wealth creation and tax revenue to government is minimal. With compulsory listing of such companies on the NSE, there will be a legal obligation for them to pay dividends to shareholders. Such income can also be reinvested in the firm(s) for future capital needs. Besides, selling of stocks through Initial Public Offerings (IPOs) or bonds can improve the firms’ balance sheets since the sales will create no debt, but make the company stronger financially.
While awaiting the final passage of the bill, we urge the two capital market regulators, the NSE and the Securities and Exchange Commission (SEC), to tighten the regulations guiding trading and auditing of accounts of all quoted companies.
This has become necessary because as at last year, NSE reported that a total of 96 companies defaulted on the statutory disclosure of their audited accounts as required under Appendix III of the listing rules. This rule mandates all quoted companies to file their quarterly accounts within 45 days of the end of each quarter.
In a similar vein, SEC should ensure that investors’ funds are well protected through prompt disclosure of financial information by firms selling new stocks or bonds. How these two regulatory agencies are able to perform their statutory responsibilities will encourage more private firms to get listed in the capital market without being forced to do so.