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Despite recent reduction in the  initial listing and annual listing fees by the Nigerian Stock Exchange (NSE), investigations by Financial Vanguard have revealed that the NSE still remains the costliest stock exchange in the emerging markets.

Apart from charging the highest fees  at the point of listing from prospective companies wishing to access the market, both the annual listing fees and costs  to investors on transactions done on the floor of the exchange are  sky high.

Financial Vanguard survey also revealed that major exchanges across Africa, namely, Cairo Stock Exchange (CSE), Johannesburg Stock Exchange (JSE), and Nairobi Stock Exchange (NSE), have all introduced compelling incentives to entice upstart companies that might want to access the market following the crippling global financial meltdown.

They have either exempted or are in the process of exempting upstart companies from any form of listing fees, while transactions in some products attract nil costs for investors. For instance, the Egyptian Stock Exchange (EGX) had some months ago, while opening a new Headquarter of the exchange in Cairo announced an initial listing fee exemption for new entrants in the market to allow for fresh listings. JSE on its own has since eliminated cost on single Futures and Options to encourage liquidity providers and retail investors to continue to patronize the market.

The argument in some quarters in Nigeria has always been that costs constitute impediment to companies wishing to list their shares, while already listed ones are looking for excuses to delist  from the exchange. Just last year, 2011, three companies- Nigeria Bottling Company (NBC), Nampak Plc and United Textile Nigeria Plc, voluntarily exited the market, while a couple of others were compulsorily delisted for various offences. Calls have repeatedly gone out for significant reduction in charges in the stock market.

Comparative analysis of NSE's charges against other African markets

Available data obtained by Vanguard shows that for companies wishing to list in the Main Board, the Nigerian Stock Exchange charges initial listing fee of 0.3 per cent of the total market capitalisation of a prospective company, subject to minimum of N1,889,99.06 and maximum of N4,200,000.24; Nairobi Stock Exchange's charges stand at 0.06 per cent of the company's capitalisation, subject to minimum of N375,967.32 and maximum of N2,819,750.16, while JSE charges 0.04 per cent, subject to minimum of N20,751.72 and maximum of N4,301,216.62.

For listing in Alternative Investment Market segment, the Nigerian Stock Exchange takes flat fee of N300,000.00 (three hundred thousand), the company's capitalization notwithstanding. In Nairobi Stock Exchange, the fee still remains constant at 0.06 per cent of total market capitalisation, subject to minimum of N187, 983.66 and maximum of N1, 879,833.44, JSE charges a minimum of N2,668.62 and maximum of N501,206.02. In Nigeria, annual listing fee for companies in the Main Board attracts 0.3 per cent charges up to maximum of N4, 200,000.24.

For companies listed in the same sector in Nairobi, the exchange charges 0.06 per cent (subject to minimum of N375, 9678.32 and maximum of N2, 819,750.16). For Johannesburg Stock Exchange, companies in the Main Board are expected to pay 0.04 per cent of their capitalisation (subject to minimum of N680,047.08 and maximum of N3,456,332.16) for ordinary shares, while preference shares attract N184.997.46; Cairo Stock Exchange charges 0.002 per cent fee (subject to minimum of N262,022.46 and maximum of N1,310,115.46).

Listing in the Alternative Investment market in Nigeria attract annual listing fee of N300,000; Nairobi charges 0.06 per cent (subject to minimum of N187,983.66 and maximum of N1,879,833.44), while JSE is fixed at N551,306.24.  In the fixed income market in Nigeria, State Government Bonds, Municipal Bonds and Corporate Bonds attract a minimum of N1, 888, 99.06 and maximum of N4, 200,000.24.

Nigerian Stock Exchange
In Nairobi, Corporate Bonds attract 0.0125 per cent charges (subject to minimum of N187,983.66 and maximum of N1,879,833.44), while Treasury Bonds also attract 0.0125 per cent charges (subject to minimum of N187,983.66 and maximum of N4,699,583.6.

In JSE, it amounts to a minimum of 0.0015 per cent plus N381, 143.4 and maximum of 0.00032 per cent plus N2, 869,249.98. In Cairo, the fee amounts to 0.0000075 per cent (subject to minimum of N262, 022.46 and maximum of N1, 310,115.46. For transactions done on the trading floor, the Nigerian Stock Exchange charges 1.8555 per cent on buy side and 2.1855 per cent on sell side; in JSE, the Exchange charges 0.0055 per cent (subject to minimum of N75.84 and maximum of N140.36), while clearing and settlement amounts to 0.0026 per cent (subject to minimum of N48.98 and maximum of N200.66. In Cairo, transactions on the trading floor attract 0.0000012 per cent charges.

Industry captains decry excessive charges.
Speaking on the stiff requirements, especially with regards to various fees charged quoted companies on the NSE, Managing Director/CEO, Poly Products Nigeria Plc, Mr. Nasir Gwalani, whose company is on the verge of delisting from the NSE's official list, noted that the high cost of retaining quoted company status was the reason for the current spate of delisting from the NSE.

Gwalani said, 'Today, if you want to increase your capital, for a public quoted company, you deposit more money than what private limited companies pay. What is the reason for that? Why penalize a company that is ready to share its assets and profit with the general public. Why do you want to penalize the company?

You go to get debentures, you pay double. You pay fees to the governor for consent, for what. If you want companies to grow, you must help them. Corporate Affairs Commission, CAC, is giving so many charges on the companies even. We pay SEC, we pay stock exchange, and we pay brokers. Why will you pay stockbrokers three and half per cent. Trading on stocks is the most expensive in Nigeria all over the world. We have recently heard DG of stock exchange saying, 'I am going to bring it down' we have not seen any changes yet.'

'One thing is that regulatory body should not be profit-making body. Here we are making regulatory and monitory bodies as profit making bodies. If they become profit making body, their loyalty moves from regulating to supporting whosoever helps them to make money,' he added.

Also speaking, Mrs. Funmi Ajayi-Tomori, Director, Poly Products Plc, argued that regulators have not made the market attractive enough to encourage companies to remain listed, or even to attract fresh listing. Ajayi-Tomori believes that listing requirements in the NSE are quite rigorous; saying that if a company does not have the wherewithal, it will be difficult to meet up with certain demands.

'You have quarterly returns, half-yearly returns and all of that. For a company struggling to survive, you have to meet those obligations. It is very tough. The stock exchange is not a play field for the embryos; it is for the people whose cost of administration is minimal, who have all the manpower to meet all those obligations,' she said.

She added, 'A lot of companies in the last thirty, fifty years have gone through very rigorous situation and a lot of companies are also growing. So, it is left on the people on the other side to make the market attractive for those growing companies to be members.'

She insisted that the stock exchange is not a Fair, saying 'If the infrastructural cost is reduced, if the cost of doing business in Nigeria is very competitive, oh! The companies will be begging you to come from anywhere in world because Nigeria has a big market; it has the potential.

'Until we are able to explore the potentials in this country, our economy and the stock exchange will continue to crawl. Stock exchange is a place that automatically people will want to come there because they want to list; they want to mobilize fund for further growth, but if you are putting the horse before the cart, it will not work. When you are spending 30 per cent of your profit in infrastructure, and then you have the problem of security; all these factors have enormous setback on the development of any economy,' she enthused.

What should be done?
Reacting, an investment analyst, and CEO, Cowry Asset Management Limited, Mr. Johnson Chukwu, said he doubted if the annual listing fee as being claimed by some companies was the reason for the recent wave of delisting. He observed that other post-listing rule requirements, which according to him, could be herculean, could be behind the trend.

Though  he agreed that the cost of listing a company and maintaining listed company structure is quite expensive in Nigeria compared to major African exchanges, he stated that reduction in intrinsic value of quoted companies occasioned by the prolonged meltdown in the capital market has made remaining listed unattractive for some companies.

Mr Oscar Onyema, CEO, NSE
His words, 'If a company is trying to get delisted, it may not necessarily be because of the listing cost; it may be because of other regulatory associated burdens, particularly because the benefits of being listed seem to have reduced because of the very low market value.

'Nobody will go to the market to raise fresh equity. If you do that, the market will not accept to take up the equity. Even if the market takes up the equity, you are going to have significant erosion in value or holding of the existing shareholders. You are actually going to dilute the existing shareholders by the number of shares you are going to issue.'

'The fact is that when the market value of shares is below the net asset value in the hands of investors; if the investors have to mark his holding in the market, the investor will document notional loss and he needs to make provision for that notional loss. So, whenever the market prices are below the net asset value, investors that are holding quoted companies shares will suffer loses in their book and that also discourage core investors from remaining listed because the value that will be attached to the company will be based on the market valuation. Also, the valuation that will be attached to investors' wealth will depend on the market condition.

When the valuation of a particular company is below the intrinsic worth or cost of that investment, you can no longer use that investment to borrow an amount that is equivalent to the initial capital invested because whosoever is lending will base the valuation on the market value. Those are some of the challenges we are having at the moment,' he explained.

He further explained that due to the recent directive that quoted companies adopt International Financial Reporting Standard (IFRS), companies that are not willing to strictly adhere to the transparent requirements of the reporting standard will choose to exit the market.

'The only thing I know that came up recently is that companies that are listed have to comply with IFRS and that requires a lot of transparency. So, if a company wants to run away from transparent disclosure, it might want to delist. I don't think it is the N4.2 million annual listing fees that is driving away already listed companies.

On what could be done to encourage companies to remain listed, Chukwu emphasized that introducing fiscal incentives such as tax waiver, tax deferential, including tax waiver on dividends for quoted companies will compel unquoted companies to access the market, while already listed ones will have no choice, but to stay.

He said, 'The government should consider things like having deferential corporate tax regime for quoted companies. If a quoted company instead of paying 30 per cent income tax is now required to pay either 25 or 15 per cent, it will encourage more companies to get listed because that will be immediate financial benefit.

Again, if the government should remove tax on dividend, the shareholders of companies should compel them to get listed because the value of being shareholder of a listed company will be higher than that of unquoted company. Even if they are paying the same amount of dividend, quoted company will not deduct with-holding tax, whereas unquoted company will deduct with-holding tax of 10 per cent.

'Once you have those fiscal instruments incentives in place, more and more companies will get listed. Now, shareholders will be considering, why will I buy shares of quoted companies and pay tax. You find out that once you remove corporate tax for quoted companies, their net returns will increase; their residual income will increase, the distributable profit will also increase.

'If the distributable income increases, it is possible that the amount of dividend those quoted companies will pay will also increase. When such dividends are not subject to taxation, it is natural that shareholders will prefer shares of quoted companies and shareholders of those companies that are not quoted will likely compel them to get listed.'

On total elimination of transaction cost on certain products as obtainable in some climes, Chukwu maintained that reduction of cost will serve the interest of all stakeholders better, rather than complete elimination.

NSE's effort to effect changes
Only recently, the NSE reduced the initial listing fee for growth companies that want to list in Alternative Investment Market to flat fee of three hundred thousand naira, comprising of one hundred thousand naira application fee for new or additional listing and annual fee of two hundred thousand, bringing the initial listing fee to a total of three hundred thousand from original 0.3 per cent usually charged based on the market capitalisation of the prospective company. According to the NSE, the reduction was effected in line with best global practices.

While acknowledging the excessive charges shares transaction attracts for investors on the NSE, the Chief Executive Officer, Mr, Oscar Onyema, said there was need for the Securities and Exchange Commission, SEC, to effect reduction on the Value Added Tax, VAT, charged on shares sold and bought on the exchange.

For him, the complete elimination of VAT from NSE transactions will make the market more competitive as investors buying and selling investment products were not engaging in government-related transactions. Onyema also called for removal of stamp duty on transactions, saying that t investments on the capital market are not supposed to be categorized as consumer goods.

He said, 'Total taxes as a percentage of transaction fees are currently as high as 12 per cent; Seven per cent in Vat and five per cent in stamp duties, causing high frictional costs on transactions. This is quite significant as it does not take into account the VAT on brokerage which account for the largest proportion of transaction cost, which is 52 per cent of total transaction fees.

He continued, 'Unlike other capital markets around the world, the Nigerian market provides no tax incentives for companies coming to list on the exchange.  Other nations (e.g., Kenya, Morocco, etc.) provide such incentives to encourage companies to move their businesses to these countries or to encourage them to list on their exchanges as a means to fuel economic growth.'

Onyema insisted that the federal government should as necessities consider granting tax holiday to businesses that are quoted on the Exchange, saying that it would give the NSE competitive advantage over other emerging markets.

Also, the General Manager, Listing, Sales and Retention, NSE, Mrs. Taba Peterside, informed last week, while addressing small business owners of the NSE's intension to further review the post listing rules in order to encourage more Small and Medium Scale industries to come on board.