New Telegraph

Demutualisation: Need to align with new business model

Operators need to align their business models with the newly demutualised Nigerian Stock Exchange to maximise the anticipated opportunities, CHRIS UGWU writes

The idea of demutualising the Nigerian Stock Exchange (NSE), which was mooted in 2001 under the administration of former Director General, Ndi Okereke- Onyiuke, has, for years, generated concerns among operators before it came to fruition last week. Demutualisation is a process by which a member-owned exchange is converted to a shareholder- owned exchange. With demutualisation, the NSE should be exposed to robust corporate governance, enhanced efficiency and transparency associated with publicly quoted companies. It allows the exchange to be listed on its own floor where investors would have the opportunity of investing in the self-regulatory organisation. It also allows the exchange to be competitive and to take up investments that could enhance efficiency and returns for shareholders. Demutualisation has become a worldwide phenomenon. Exchanges that have demutualised include the Singapore Stock Exchange, Japan’s Nikkei and New York’s NASDAQ, Johannesburg Stock Exchange, among others. And each of these exchanges has gained global recognition and patronage since they went public. However, since the plan was conceptualised in Nigeria, it has pitched key capital market operators against one another. The delay in showing genuine commitment to the process is also believed in some quarters as one of the reasons that led to the delay and the sack of the former DG, aside from allegation of financial mismanagement and corporate governance lapses. Some critics of the process had argued that some clique in the leadership of the exchange intended to hijack the demutualisation for selfish interest and called on the regulatory authorities to shelve its plan to commence the process. But following the expected benefits and due process followed by the regulators to create a level playing field, some stakeholders and operators in the Nigerian capital market stressed the need to immediately fast-track demutualisation process to quicken the full recovery of the nation’s capital market and help increase the presence of local investors. Recent move being the final approval granted by the Security and Exchange Commission (SEC) to the local bourse for complete demutualisation.

NSE gets final approval

NSE, last week, received final approvals of its demutualisation plan from the Securities and Exchange Commission (SEC) and Corporate Affairs Commission (CAC). With these approvals, the exchange completed the demutualisation process. Under the demutualisation plan, a new non-operating holding company, the Nigerian Exchange Group Plc (‘NGX Group’) has been created. The Group will have three operating subsidiaries, namely: Nigerian Exchange Limited (NGX Limited), the operating exchange; NGX Regulation Limited (NGX REGCO), the independent regulation company; and NGX Real Estate Limited (NGX RELCO), the real estate company. All the entities have been duly registered at CAC.

NSE’s reactions

Reacting to the development, NSE Council President, Otunba Abimbola Ogunbanjo, said: “Successful demutualisation was one of my fundamental objectives when I assumed the Presidency of the exchange. SEC’s decision today to approve the NSE’s demutualisation plans brings this aspiration to a successful conclusion in a process that included the passage of the Demutualisation Act through the National Assembly. “We are elated that this milestone has been achieved as we celebrate the 60th anniversary of the commencement of trading at the exchange and now look forward to the future public listing of its shares on NGX Limited. On behalf of the NSE, I would like to warmly thank all those that have worked assiduously to achieve this watershed event on our journey to make the NSE a multifaceted exchange that extends across various markets and geographical regions.” The approvals by SEC and CAC signify that NSE can now activate its transition plan to a new operational structure and holding company. The extensive transition plan, taking the group and its subsidiaries through to full operational launch, covers legal and practical changes to enable the functioning of the new corporate structure, with no loss of service and a seamless transition for market participants. The transition plan will also see the inauguration of boards for each of the new entities, staff reallocation to their respective functions within the operating subsidiaries, operationalisation of business plans and budgets, technology systems transfer, and the requisite arm’s length agreements between the entities. Upon operational launch, the group’s new brands, including a new website, will be unveiled and the group will be in a position to execute on its strategic vision. Stakeholders, including our new valued shareholders, will benefit from the group’s enhanced corporate governance framework, access to capital to fund strategic developments and a more globally competitive exchange. The approvals also enable the shares of NGX Group Plc, which have been registered with SEC, to be allotted to the membership pursuant to the court-approved Scheme of Arrangement. Ahead of its listing on NGX Limited, the shares of NGX Group Plc will be available for bilateral trades to be executed in line with extant rules and regulations of the Nigerian capital market. Otunba Ogunbanjo will serve as the inaugural Chairman of NGX Group Plc’s Board of Directors. The new Group CEO of NGX Group Plc, Oscar Onyema, said: “The Nigerian capital markets should play a role commensurate with Nigeria’s status as Africa’s largest economy. At the Nigerian Stock Exchange, we have a vision that the new group will become the premier exchange hub for Nigerian businesses and for the African economy. We are implementing a series of measures towards this goal, demutualisation being a critical milestone. The completion of demutualisation is a truly significant moment, and we welcome the new possibilities that have opened up for us today.” Demutualisation of NSE is pivotal in that it creates new strategic opportunities that will enable the group realise its vision of becoming Africa’s leading capital market infrastructure provider. The creation of a holding company and a new capital structure will also enable NGX Group Plc to form new dynamic relationships, drive strategic partnerships and gain capital raising flexibility. It will be recalled that NSE members approved, at its last AGM, the listing by introduction of NGX Group Plc on NGX Limited.

Operators hail action, calls for fair deals

The operators, who spoke to New Telegraph, lauded the recent efforts, adding that demutualisation would save the market from overdependence on foreign investors that are presently controlling the activities of the local bourse. The Managing Director, Crane Securities Limited, Mr. Mike Eze, pointed out that with demutualisation, the ownership structure of NSE would be properly put in place, noting that when this is done, corporate governance would be well structured and boost investors’ confidence to stake their fund in the market. Eze added that the Nigerian stock market was worse hit by the global financial crises due to over dependence on foreign investors as they dump their shares during the crises and moved their investment outside the country. He noted that demutualisation would go a long way to reduce overdependence on foreign investors and attract local ones into the market. Managing Director/CEO, Highcap Securities Limited, David Adonri, described the approval as a welcome development. “It is a wonderful development; NSE has been in this matter for the past 12 years. It is a great joy for us. It brings development to the market and Nigerians who will become shareholders. Sooner or later, the share will become available to investors. It is a welcome development for the shareholders and market operators. For the Nigerian Stock Exchange, it offers a variety of opportunities. The Exchange can issue equities and raise bonds for development of its infrastructures,” he said. To Chairman, Progressive Shareholders Association of Nigeria (PSAN), Mr. Boniface Okezie, “my concerns is about fairness and justice, broker dealers and other investors should be given a fair deal in terms of share allotment. They should not allow the few super rich in the country to hijack the shares, there should be appropriate valuations and the workers who have labored so hard for the development of the Exchange should also be given a fair deal.”

ASHON seeks to align with business model

The Chairman, Association of Securities Dealing Houses of Nigeria (ASHON), Chief Onyenwechukwu Ezeagu, urged stock broking companies in Nigeria to align their business models with the newly demutualised Nigerian Stock Exchange to maximise the anticipated opportunities and minimise the risks. Addressing securities dealers at a Webinar themed, “The future of securities dealing business in Nigeria post-demutualisation of NSE” Ezeagu urged ASHON members to align their business models with the new market structure.

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