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Nigerian bourse premium board met with mixed reviews

Efforts to transform the Nigerian Stock Exchange (NSE) to a thriving bourse with a market capitalization of $1 trillion through the introduction of an elite premium board has been met with scathing criticism by some and praise by others.

Nigerian Stock Exchange-R-600

Arrangements to introduce a premium board to the NSE have been received with ridicule and scepticism by some, while others believe it will help to improve corporate government standards for listed companies.

Due to launch later this month, companies hoping to list on the premium board must hit various criteria: as well as having a market capitalization of $1 billion, companies must have a free float of at least 20%, already be listed on the main board, and meet strict corporate governance requirements.

The main aim of the board is to act as an incentive for companies to build up market capitalization and take the bourse to a $1 trillion market capitalization, an ambition first mooted in December 2012.

“If Nigeria’s bourse thinks that introducing a premium board is a good idea, then they are peddling nonsense,” says an African equities expert. 

"Creating pointless, exclusive boards to feed into the egos of some of Nigeria’s largest companies won’t do anything for the board's reputation, but to make it worse.”

Yinka Odeleye, executive director at Nigerian securities firm Union Capital, offers a more positive view: “The premium board isn’t such a bad idea, as it should hopefully help to improve corporate governance standards as companies must sign up to stricter corporate governance guidelines‎ to be part of it. “From a liquidity perspective, the premium board will be the pick for deep-pocketed investors, because the companies allowed to list must have $1 billion market capitalization and would create a liquid market.”

The thought-process behind the introduction of the
premium board just doesn’t make any sense to me

African equities analyst

This could potentially create more opportunities for smaller companies to list as well, says Odeleye, adding: “The distinction between the premium board and the regular board may result in distinctions in listing requirements, which could allow smaller, but growing, companies to meet separate requirements and list, as opposed to the current one-size-fits-all approach.”

As of now, around 11 companies out of the 188 listed on the bourse reach the $1 billion capital requirement needed to list on the premium board. As of Monday, the NSE had a market capitalization of N10.34 trillion ($51.9 billion).

Low market liquidity is a substantial problem for the NSE, especially for international portfolio investors who require deep and liquid markets given their size and requirements. Year to date, the NSE has lost momentum, falling by 16.5% in dollar terms, as international investors remain firmly risk-off African markets.

In Nigeria, investors have been wary after weak commodity prices and a depreciating currency, as well as political uncertainty after the election of new president Muhammadu Buhari in March.

“The biggest stocks on the exchange are already the most illiquid because they cannot be easily absorbed into the market,” says the equities analyst. "The likes of Dangote Cement, Nigerian Breweries and Nestlé, which would qualify for the premium board, are precisely the wrong types of companies that should be on it. 


Africa bond: special focus

"The thought-process behind the introduction of the premium board just doesn’t make any sense to me. One of the main focuses of the board should be to encourage companies to list to create deeper liquidity in the market through incentives.”

Currently, there are tax breaks open to some companies, depending on how much they intend on listing on the exchange, but more should be done, says the analyst.

Although heralded as one of the more sophisticated exchanges in sub-Saharan Africa, this year there have been no IPOs listed on the Nigeria bourse. One of the last – and largest IPOs – on the exchange was the dual listing by Nigeria's largest indigenous oil company Seplat in April 2014, which raised $500 million.

However, Nigerian fund manager Vetiva is due to list three exchange-traded funds (ETF) on the bourse later this year. The firm was the first in Nigeria to list an ETF in Nigeria in March 2014. The Vetiva Griffin 30 ETF tracks the performance of the NSE 30 Index – the top 30 traded companies on the Nigerian bourse.

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