Chinwendu Obienyi
Delisting from a securities exchange has often been viewed as evidence of tough times within an organisation.
And inasmuch as most delistings are involuntary, there are good reasons for a company to opt for voluntary delisting with a view to enhancing shareholder value.
The term, delisting of securities, means removal of listed securities from the Exchange and consequently, the securities of an affected Issuer will no longer be traded on the Exchange and the Issuer’s name will be removed from the Daily Official List of the Nigerian Stock Exchange (NSE).
On the other hand, voluntary delisting is the withdrawal of an issuer’s securities listed on the Exchange with the express approval of the holders of its securities, after complying with relevant requirements in that regard.
In the case of Nigeria, 15 companies between 2002 to April 2019 have voluntarily delisted from the NSE platform with others waiting in the wings.
These companies include Impresit Bakolori Plc, CFOA Nigeria Plc, ENPEE Plc, Nigerian textiles, Incar, Nampak Plc, United Nigeria textile Plc, Poly Products Plc and Cappa and D’Alberto Plc.
Others include Avon Crowncaps and Containers Plc, Seven up bottling Plc, Paints and Coatings Manufacturers Nigeria Plc, Great Nigeria Insurance Plc and Ashaka Cement.
The cost of remaining public versus the cost of going private has been cited as the most determinant factor in voluntary delisting. Another notable reason has been found to be the inability to raise equity capital by the listed firm owing to a relatively lower share price compared to the real net asset value of the firm.
The need to merge, demerge or restructure a firm may be drivers of voluntary delisting which may however tend to reduce the universe of liquid shares thereby affecting the depth and breadth of the market especially if there are no new listings.
Recently, Newrest ASL Nigeria Plc through its Stockbroker, Helix Securities Limited, submitted an application for voluntary delisting of the entire 634million ordinary shares of the company from the exchange.
According to the company, the voluntary delisting was as a result of its inability to meet up with the 20 per cent free float requirement of the exchange.
In line with the provisions of Rule 1.10 of the Rules for delisting of equity securities from the exchange, which states that issuer shall set aside funds sufficient to purchase the interest of all shareholders who expressed their dissent to the resolution to de-list the issuer and the funds shall be domiciled with a Registrar or a Custodian duly registered by and in good standing with the Securities and Exchange Commission, broker said Newrest ASL Nigeria Plc has opened and deposited sufficient funds to settle minority shareholders in an Escrow Account with Zenith Bank Plc.
Market operators and shareholders expressed shock at the decision of the company to delist considering the fact it just released a highly impressive results and declared a dividend. Newrest ASL Nigeria Plc posted a revenue of N5.425 billion for the year ended Decembr 31, 2018, showing an increase of 38 per cent compared with N3.92 billion in 2017. Profit after tax tax (PAT) soared by 285 per cent from N386 million to N1.48 billion. The company recommended a dividend of 20 kobo per share.
Also, First Aluminium Nigeria Plc said the current illiquidity nature of the capital market has rendered the primary corporate objective of its listing to raise capital and provide liquidity unattainable. The company, in an explanatory note to shareholders, said it was seeking a voluntary delisting from the main board of the Nigerian Stock Exchange as there had been little or no trading activity on the shares held by the minority shareholders over the last seven years.
First Aluminium, which is one of the first Nigerian listed companies, has seen its share price stuck at 50 kobo for about six years between June 2011 and June 2017, and thereafter experienced further diminution both in share price and trading volumes.
The company’s daily average volume ranged between 2,815 to roughly 2,918 units during the period July 2017 to December 2018.
It said there was a significant fall in its average daily trading volumes to 2,918 units between July 2017 and June 2018 and a further decline to 2,816 units between July 2018 and December 2018.
The company said neither it nor any shareholder was benefitting from the continued listing on the NSE.
It said the rationalisation of operational expenses to support the business and to meet the needs of various stakeholders as the attendant cost required to comply with its listing requirements (including filing fees, penalties or sanctions) were not commensurate with the benefits to the company.
The statement read in part, “Shareholders are not benefitting from the continued listing as they are not getting exit opportunities and their investments have been locked up, thereby finding it difficult to dispose of their shareholding. Neither the company nor its shareholders have benefitted as the company’s shares continue to trade at a significant discount to the intrinsic value.
“The increasing competitive environment and the struggle to defend market share have resulted in market pressure to reduce price and this may significantly impact operating margin.
“The majority shareholders (with over 75 per cent shareholding) are the promoters of the transaction and the majority shareholders wish to offer other shareholders (the minority shareholders) the opportunity to either remain shareholders of the unlisted company or accept a consideration for their shares, which the majority shareholders are willing to purchase.”
According to First Aluminium, in line with NSE regulatory requirements for a voluntary delisting, an exit opportunity had been provided for shareholders that do not wish to be part of the delisted company.