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MY THOUGHTS ON NIGERIAN STOCK EXCHANGE CRISIS

By NBF News
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In considering the extant governance regime at The Exchange, Nigerians must begin to ask questions at the time they matter most:

1. What qualifies Mr. Ikhazobor for his current job at The Nigerian Stock Exchange?

2. What is the job description of a 'Sole Administrator'? How does this contrast with his professional experience? Does the job description include functioning as a Receiver Manager? Has the office of the DG/CEO of The Exchange suddenly become a job that just anybody could do, even if on an interim basis?

Is this not the same Ikhazobor that was Managing Partner of Akintola Williams Deloitte when the firm was indicted by SEC over the Cadbury accounting scandal? Does simple respect for decency not disqualify Ikhazobor from his current duties at The Nigerian Stock Exchange? His firm audited the same accounts of The Nigerian Stock Exchange from 2006 till 2009 while he was the managing partner and Akintola Williams Delloite had been external auditors to the Nigerian Stock Exchange from 1960 till today and has never qualified any accounts of the NSE.

Current inept management of The Nigerian Stock Exchange following the usurpation of the powers of the council and management of the exchange by a band of puppets and puppeteers has created a leadership vacuum that is beginning to undermine the workings of the exchange and the capital market, with adverse implications for the larger economy. These days companies are suspended for breaching the rules of The Nigerian Stock Exchange and at the same time others are granted 'waivers' that enable them to subvert the same rules of the exchange.

Should a responsible, honest market leadership be seen as approbating and reprobating on the same issue?

Why grant a waiver to Dangote Cement Plc on the minimum free-float requirement of the exchange at the same time that companies that have failed in their financial reporting obligations to the market are being suspended? Both conditions impact adversely on the pricing efficiency of the stock market and neither should be made to look like a lesser evil. Certainly, double standards cannot help the growth and development of the stock market.

With the speed that attended the approval of the proposed BCC/Dangote Cement Plc merger by SEC and the 'interim administration' of the NSE, it is now becoming clear why SEC had to subvert its own rule to forcibly intervene in the management of the exchange. Apparently, this was one deal that SEC and the so-called interim administration at the exchange believed must go through in spite of obvious defects in the transaction. How much did Dangote Cement Plc pay to the NSE in application processing fee for the proposed listing of the combined business? How much did Benue Cement Company Plc and Dangote Cement Plc pay to the exchange in application processing fee for the proposed merger? Why has the exchange allowed an unlisted company to takeover its listed company, contrary to its policy aimed at encouraging public quotation? Why is it that only one stockbroker (Afrinvest) seemed to be acting for both companies involved in the merger? Why should SEC and NSE approve an unlisted company to pick a very high price over and above that of a listed company it intends to merge with? Is it not the market that should determine which price any company's stock should be?

It appears Alhaji Dangote now wants to have one third of the entire market capitalization. The entire market will finally be his by the time NSE is demutualised , a process conceived by the sacked management which Dangote failed to hijack then. Now is the golden opportunity for the scheme of one man to grab the heart and soul of the Nigerian economy by having majority ownership of the Nigeran sStock Exchange. The Nigerian stock market was beginning to recover until the SEC's inordinate intervention dampened investor confidence. Earlier in the year, the exchange's All-Share Index had rallied by 24% to become one of the 10 best performers among 93 indexes tracked by Bloomberg globally. In fact, as recent as July 2010, which was the month preceding the SEC's intervention in the management of the Nigerian Stock Exchange, there was significant growth in major market performance indicators. However, in August 2010, following SEC's unlawful intrusion, equity value fell by N37 billion and All-Share Index lost 6.1%, while turnover value fell from N58.8 billion in July to N46.91 billion in August.

From published pronouncements, the SEC anchored its ill-conceived action on the 'protection of public interest', stressing at every opportunity that the exchange is a 'public interest' organization. There is a lot of subjectivity in the definition of 'public interest' as applied by SEC. The pursuance of public interest should shore-up investor confidence and stem falling share prices on the exchange, but this has not happened, as share prices have been falling since SEC's intervention in the management of the exchange. Please see ThisDay of Monday 13th September 2010, page 33 ('Equities maintain 3-week downward trend').

The interim administration was appointed on 5th August 2010 and by 26th August 2010 had sacked 32.5% of the workforce. For outsiders in the business, they certainly could not have in the short time understood the organization and its business as a basis for this drastic action. The interim administration can only be acting a script:

(i). Personal interest, as opposed to national interest, informs the current siege on the Nigerian Stock Exchange. New issue/listing approvals have been given on questionable circumstances and demutualisation has become the new mantra. Demutualisation is about the reincorporation of the exchange as a for-profit organization and the sale of its shares, in this instance, to certain interest groups. Nigerians should begin to ask who these interest groups represent. We have seen the application of the core investor concept in the privatization programme and know that it could be abused.

(ii). I have it on good authority that the original proposal by the previous management of the exchange on the allocation of the shares of a demutualised NSE is as follows: 30% for dealing member firms; 10% for the 19 settlement banks; 9% for institutional investors (PFAs {3%}, CSCS {3%}, insurance companies {3%}), and 51% for the generality of Nigerians, with no single investor (individual or company) expected to own more than 1%. This promises to offer the desired spread and should be supported. People like us who believe that the exchange is for all Nigerians must insist on a demutualisation model that is seen to benefit all Nigerians instead of allowing the exchange to be hijacked by a cabal.

(iii). It should also concern Nigerians that there is an active interest in the demutualisation of the NSE when there is active disinformation that the exchange is 'nearly bankrupt'. If the intention of demutualisation is to sell the exchange to the generality of Nigerians, why would SEC be interested in selling a so-called financial wreck to the Nigerian public? Obviously, there is more to this than meets the eyes.

(iv). Contrary to what has been demonstrated in the recent past in the Nigerian capital market, investor protection is not merely about protecting the interests of big investors in the stock market. In all responsible jurisdictions, the thrust of investor protection is in favor of minority/small shareholders. Unfortunately, small investors have continued to lose value in the market as a result of SEC's extant regulatory misadventure that is aimed at serving vested interests masquerading as 'whistleblowers' and reformers - men that should actually be at the receiving end of the regulatory cane and who I will soon proceed against for their various economic crimes and blatant disrespect for the judiciary in Nigeria.