The Nigerian Stock Exchange (NSE) will change from a member-owned mutual company limited by guarantee to a public limited liability company with authorised share capital of 2.5 billion ordinary shares, with about two billion expected to be issued in the immediate period of the conversion.
The scheme of arrangement for the demutualisation of the NSE indicated that the NSE will transit into a holding company, Nigerian Exchange Group (NEG) Plc, which will be the parent company for the Nigerian Exchange Limited, the successor that will carry on the securities trading business of the Exchange, and other subsidiaries.
The NSE will transfer its securities exchange licence and other assets necessarily required to carry out the securities exchange function; which will include human resources, securities exchange function related contracts, the trading facilities comprising of the trading floors, work stations, telephones and other office equipment, such as cabinets and others, quotation board, stock price electronic display device, stock printers, inquiry display equipment and other assets to Nigerian Exchange Limited pursuant to the scheme.
Members of the NSE are scheduled to meet on March 3, 2020 in Lagos at a court-ordered meeting to consider and approve the scheme of arrangement.
Already, Nigeria’s apex capital market regulator, Securities and Exchange Commission (SEC) has granted the scheme its “no objection” approval, paving the way for the continuation of other processes.
According to the scheme, the demutualised NEG will take off with authorised share capital of N1.25 billion comprising of 2.50 billion ordinary shares of 50 kobo each, which will be registered with the Corporate Affairs Commission. The NEG will subsequently set aside 2.0 billion ordinary shares of 50 kobo each as issued share capital, which will be registered with the SEC.
A total of 40.08 million ordinary shares, representing 2.0 per cent of the proposed issued shares of NEG will be set aside for allotment to parties who are adjudged as being entitled to shares in the demutualised Exchange, otherwise known as claims review shares, pursuant to the provisions of the Demutualisation Act 2018. The apportionment of 2.0 per cent as the claims review shares is based on an analysis of the probable quantum of shares that would be required to settle each claim.
This was determined given the rigorous and robust process undertaken to verify and confirm the names on the Register
However, in the event the claims review shares are insufficient to satisfy successful claims, additional shares will be allotted from the demutualised Exchange’s authorised share capital.
A total of 1.96 billion ordinary shares, representing 98 per cent of the issued shares, the balance of the issued shares following the reservation of the claims review shares, will be apportioned between dealing and ordinary members on the basis of a ratio of 78:22, respectively.
The shares shall be allotted on an equal basis within each block of the dealing and ordinary member groups, based on a share allotment established on the basis of the valuation of the Exchange and the distribution rationale1 approved by the council of the NSE
Accordingly, each dealing member shall receive 6.01 million ordinary shares of 50 kobo each in NEG credited as fully paid while each ordinary member shall receive 2.44 million ordinary shares of 50 kobo each in NEG credited as fully paid.
The scheme indicated that the NSE reported a net asset value of N25.6 billion as at December 30, 2018, which had been factored into the valuation that was undertaken.
With the approval of the scheme, all assets, liabilities and undertakings including real property and intellectual property rights of the NSE- with the exception of the securities exchange licence and all assets and appurtenances in relation to the securities trading business of the NSE – shall be retained by NEG.
Nigerian Stock Exchange (NSE) President, Otunba Abimbola Ogunbanjo, said the conversion of the NSE to NEG Plc will make the Exchange the 57th to demutualise among the 70 members of the World Federation of Exchanges as at June 27, last year; with benefits and opportunities becoming available to members and other stakeholders of the Exchange.
He said the NEG will benefit from improved liquidity and capital management as the Exchange easily raise funds to finance strategic objectives and expansion.
According to him, the opportunity for a potential initial public offer or strategic investment is created, opening up opportunities for domestic and institutional investors and creating liquidity for existing members.
“Demutualisation enables the Exchange to raise capital efficiently and effectively at market determined pricing. Members can realise the economic value of their interest by exercising the right to sell.
Capital management is critical to an Exchange’s sustenance, demutualisation enables the Exchange to optimise the level and mix of capital reserve,” Ogunbanjo said.
He outlined that with demutualisation, the Exchange will be a public company and its shares will be tradable on an available exchange in accordance with the SEC’s regulations.
He added that demutualised Exchange and its subsidiaries will be subject to high standards of corporate governance expected of public companies to take decisions that are in the interest of all members as well as the Exchange.
“In regards to regulatory functions; the separation of ownership and trading rights will give the Exchange and its subsidiaries greater independence from its professional intermediaries.
As a public company, the board of directors of the Exchange is required to act in a manner that benefits the company and its shareholders including minority shareholders.
The board of directors must also take decisions that have benefits to a broader scope of stakeholders such as employees, suppliers, shareholders, government etc,” Ogunbanjo said.
He pointed out that the demutualised Exchange will benefit from global competitiveness as the new Exchange will be forced to examine its role as a trading venue and take on necessary improvements to facilitate more competitive strategies.
He noted that technological improvements will allow for efficient and effective matching of buy and sell orders of clients at lower transaction costs, whilst offering transparency, trader anonymity and extended trading hours demonstrating the Exchange’s role as a ‘Niche’ player.
“Improved global trading facilities will maximize economies of scale and scope and increase our accessibility and market reach. The Exchange will be better positioned to seek strategic alliances and consolidation, introducing greater geographical collaborations and merger and acquisition possibilities.
A demutualised Exchange affords all Nigerians and the foreign investors the opportunity to become shareholders and creates opportunities for strategic partnerships and inorganic growth. In addition, demutualisation will enhance our access to skills, knowledge and technical efficiencies from strategic shareholders.
Our brand will achieve global visibility thus enhancing the profile of the Exchange,” Ogunbanjo said.
He said the post demutualisation entities would be subject to companies’ income tax and other relevant taxes payable by for-profit organisations, thereby providing additional source of tax revenue for the Nigerian government.