CSCS shareholding tussle unsettles stock market

Conflict and power tussle between two super exchanges in the capital market over the control of the Central Securities Clearing System (CSCS) Plc may trigger a new wave of instability in the capital market, The Guardian has learnt.

Besides, indications have also emerged that the poor regulation of the Nigerian Exchange (NGX) Group and FMDQ Securities Exchange is unsettling investors.

For emphasis, NGX Group Plc is a leading integrated market infrastructure in Africa, championing the development of the region’s financial markets. On the other hand, FMDQ Securities Exchange is a financial market infrastructure group warehousing, a securities exchange and a self-regulatory organisation, licenced by the Securities and Exchange Commission (SEC) to provide a platform for the listing, quotation, registration and trading of securities.

CSCS is Nigeria’s Central Securities Depository (CSD) licensed to carry out the depository, clearing and settlement of all transactions in the Nigerian capital market.

Findings by The Guardian showed that a crisis ensued when FMDQ declared interest in acquiring up to 1,080,641,902 units of CSCS shares in a transaction valued at about N20 billion, which will be about 21.6 per cent equity stake in CSCS. This is said to have unsettled some stakeholders.

FMDQ was well-recognised for trading in debt instruments when it came on board. Ironically, trading in debt instruments was the strength of the defunct Nigerian Stock Exchange during its formative years but the rise in initial public offerings (IPOs) and shareholders’ activism raised the interest of the then NSE, which created a leeway for FMDQ to take over the debt market.

Shareholders, who spoke in a chat with The Guardian accused the SEC of trying to cause a rift between the NGXGroup and FMDQ with its orders mandating NGXGroup to sell down its controlling stake in the CSCS.

As of 2023, NGX Group has 43.5 per cent ownership in CSCS. The investors described the SEC’s stance on the issue as a disincentive to investment, insisting that such actions threaten efforts aimed at restoring confidence in the market.

According to them, the lack of confidence in the market currently is not only triggered by the nation’s macroeconomic concerns but also by regulators’ poor handling of infractions and enforcement of discipline among stakeholders in the market.

They expressed fear that FMDQ may take over the entire market soon with the way it is growing in lips and bound shortly.

A source familiar with the development said: “If you know this market before, the market was equities and bond but they just sit down and everything went dry, but when FMDQ now came, largely driven by the banks, they went to invest there. Why would you leave your own house and if you know you want to invest, why then did you not keep your own house because the banks have basically taken that business away from you, and if they are not careful and they begin to do equities, all the banks here (stock exchange) will just move away because that is their own.

“With the way FMDQ is going, they will overtake this market because bonds are big sizes, trading in billions. FMDQ has now bought into CSCS and all the bonds they transact are now cleared in CSCS, so they charge them commission and as a means of making the money back FMDQ has invested in CSCS.

“All the business going on in FMDQ ought to be transacted in NGX being the first platform. It is going to be ‘web’, you own part of me, I own part of you, there is going to be a web and when there is a web, there is going to be a big problem.”

The Guardian learnt that the SEC had mandated NGX Group to sell down nine per cent of its shares in CSCS because of FMDQ’s interest in the shares of CSCS.

The investors described the SEC’s stance on the issue as ‘one-sided’, noting that the commission wants FMDQ to have an upper hand in the battle over the control of the CSCS from all indications.

According to them, efforts must be collaborative and must be directed at building a prosperous capital market and not one that would further erode investors’ confidence in the market.

The shareholder insisted that any further move to reduce the influence and power of NGXGroup in the market would erode investors’ confidence and cause more companies to delist from the exchange.

Checks by The Guardian showed that 14 firms underwent regulatory delisting in 2016, four in 2017, two in 2018, two in 2019, one in 2020, and four in 2021.

Other data also indicated that no less than 44 firms valued at almost N350 billion were delisted from the daily official list in seven years – 2015 to 2022.

Of the 44 firms between 2015 and 2022, 25 were forcibly delisted by the NGX over non-compliance with post-listing requirements of the exchange, eight exited voluntarily while others opted for a merger.

For instance, the delisting of Diamond Bank and Ashaka Cement saw the removal of market capitalisation of N56 billion and N38.1 billion, alongside Seven up Bottling Company, Cappa& D’Alberto and IHS N52.2 billion, N18.7 billion and N16.7 billion market capitalisation robbed the stock market of close to N200 billion.

Additionally, Costain West Africa, MTECH Communication, MTI, and Nigerian Ropes, with market capitalisation valued at N2.4 billion, N4.5 billion, N2.4 billion and N1.9 billion exit from the bourse pulled over N10 billion away from the market.

Also in July 2023, the NGX announced the delisting of Ardova Petroleum Plc from the daily official list. Before the delisting, market capitalisation of the company stood at N21.5 billion.

As shareholders were still counting their losses, Coronation Insurance with a market capitalisation of N14.4 billion came up with a letter to the exchange stating that it had received an offer from Coronation Capital (Mauritius) Limited to acquire shares of the company at 65 kobo per share and subsequently delist from the exchange.

In August last year, news broke that GlaxoSmithKline Consumer Nigeria Plc (GSK) had pulled out all its operations from Nigeria, seeding shivers through the market.

Glaxo Smithkline Consumer is currently the 63rd most valuable stock on the NGX with a market capitalisation of N15.5 billion, which makes about 0.042 per cent of the NGX market capitalisation.

Also in September 2023, PZ Cussons Nigeria, which makes up about 0.20 per cent of the Nigerian equities market announced plans to acquire shares held by other shareholders of PZ and subsequently delist from the exchange.

With the crises between NGX and FMDQ on, the SEC insisted that the transaction was not approvable without the implementation of appropriate remedies, which could address the theory of ‘harm’.

Thus, the commission requested that FMDQ should propose remedies, which it is willing to implement in this regard, under Regulation 40 of the Merger Review Regulation 2020 (MRR).

But the investors kicked against SEC’s orders compelling NGXGroup to sell down its controlling stake in an infrastructure it singlehandedly birthed, insisting that the only way this could be possible is through an IPO and subsequently listing the shares of CSCS on NGX to enable institutional investors and other investors to subscribe to the shares.

Further investigations by The Guardian also revealed that the SEC planned to unveil a rule prohibiting any other institution from having a significant shareholding in any infrastructure facility in the capital market.

Sampling experts’ opinion on the issue, President of NewDimesion Shareholders Association of Nigeria, Patric Ajudua, criticised the SEC stance on the issue, noting that the commission is doing everything within its powers to ensure that FMDQ acquires more holdings in CSCS than NGX.

According to him, the approved listing and trading of CSCS shares on FMDQ rather than NGX that birthed it is an indication that the regulators’ position on the matter is one-sided.

He belated the commission for what he described as a ‘high level of unfairness’ in handling the issue instead of acting as an unbiased arbiter in that regard.

“SEC is bringing unhealthy rivalry between the two exchanges. The commission wants FMDQ to have an upper hand thereby bringing NGX Group down. Recall that since the demutualisation of NGX, it has assumed the role of the father of the trading facility, not FMDQ.

“The effect of this move to reduce the influence and power of NGX would result in the delisting of more companies in the capital market if SEC’s decision on the issue is not checked,” he said.

Ajudua stated that the exchanges must be allowed to operate within the ambit of the laws in conjunction with their directors.

He called for more unified operations among the exchanges, under the supervision of the SEC to enable the market to attain an enviable position in Nigeria, across the globe and enhance competitiveness.

President of Progressive Shareholders Association of Nigeria, Boniface Okezie, argued that the only way NGXgroup can sell down its stake is through an IPO and subsequently list the shares of CSCS on NGX to enable institutional investors and other investors to subscribe to the shares, otherwise, investors would continue to kick against it.

An independent investor Amaechi Egbo, urged the Ministry of Finance to rise to the responsibility of watching, monitoring and curtailing the activities of the financial market regulators: the Central Bank of Nigeria and the SEC so that their actions and policies will not spell doom for the economy.

With close to N127 billion capitalisation of four listed firms pulling out from the stock market within eight months, shareholders had blamed the Securities and Exchange Commission (SEC) for the renewed move by companies to delist voluntarily from the exchange and rising capital flight.

For instance, PZ Cussons Nigeria is currently the 36th most valuable stock on the NGX with a market capitalisation of N75.8 billion, which makes up about 0.203 per cent of the Nigerian equities market had stated that it would acquire shares held by other shareholders of PZ Cussons Nigeria Plc (PZCN) subject to prevailing market conditions.

NGX had in July 2023 announced the delisting of Ardova Petroleum Plc from the daily official list. Before the delisting, market capitalisation of the company stood at N21.5 billion.

Coronation Insurance with a market capitalisation of N14.4 billion came up with a letter to the exchange stating that it had received an offer from Coronation Capital (Mauritius) Limited to acquire shares of the company.

In August 2023, news broke that GlaxoSmithKline Consumer Nigeria Plc (GSK) had pulled out all its operations from Nigeria, seeding shivers through the market.

Glaxo Smithkline Consumer is currently the 63rd most valuable stock on the NGX with a market capitalisation of N15.5 billion, which makes about 0.042 per cent of the Nigerian Exchange Limited (NGX) market capitalisation.

Egbo disclosed that some firms in the oil and gas sector are currently seeking regulatory approval to delist from the exchange.

“The regulatory authority has abandoned its oversight functions and failed to engage the management of the listed firms at regular intervals to find out what their challenges and weaknesses are to find lasting solutions to these problems. This is why directors of listed firms have not prioritised regulation and compliance, which currently constitutes a significant risk to their businesses.”