I have been inundated with phone calls and text messages from highly respected professional colleagues in the media and financial markets on my opinion on the stories that have become the fallout of the recent financial performance of NGX Group pic., which demutualised in March, 2021. The spate of such requests is a burden on me that people of substance read my comments on the financial markets.
Having reported the market for The Guardian in the 1990s during the Call-Over trading system, worked for The Nigerian Stock Exchange (now NGX Group plc) for over one decade and reinforced my professionalism with different certifications in the Capital Market, I cannot take any issue about the financial markets with a mere passing interest.
The demutualisation project was conceived and commenced by the former administration of Ndi Okereke-Onyuike as far back as 2001 and I was then the Exchange’s spokesman. I was later moved to Market Operations, which positioned me to have more insight on how demutualisation of The Exchange would be structured.
But one thing that we held sacrosanct through reports of some of us that visited some demutualised markets in other countries was that demutualisation would never be a silver bullet as some people wanted us to believe that time. All of us had high hopes that the project would be successful and we were planning to sensitize the entire masses to become shareholders after demutualisation and listing of The Exchange.
Although our administration was abruptly truncated in 2010, it is commendable that the new administration did not dump the lofty project, instead it saw it to its fruition.
Therefore, when the Securities and Exchange Commission (SEC) endorsed the conversion of The Exchange to profit making organisation in March, 2021, I was excited that our idea has come into reality.
Thereafter, the bourse was listed by Introduction. The Demutualisation gave birth to 432 new shareholders, comprising 255 Dealing Members- the stockbroking firms and 177 Ordinary Members who are individuals.
In the last couple of days, there have been series of stories trending in the social media, on the matters arising from NGX Group’s current audited accounts.
By its audited report ended in December 2021 but announced in March, 2022, NGX Group‘s profit after tax (PAT) inched up by 22.2 per cent to N2.3 billion from N1.84 billion recorded in the corresponding period of 2020. But some proposed resolutions ahead of the Company’s upcoming Annual General Meeting (AGM) have elicited reactions.
I have read some of the reactions. Analysts are at liberty to take position on any issue as long as they are armed with facts. It all depends on the perspective.
I have also gone through NGX Group’s explanations on its portal, signed by the Group Company Secretary, Mojisola Adeola. The statement has sought to refute some inaccuracies and factual errors in those stories, touches on the proposed capital raise, explains that dividend was not proposed due to regulatory constraints, current Board Members’ justification for seeking shareholders’ approval to defer their retirement and the Group’s initiatives to boost earnings in the future.
Nonetheless, I have a brief comment on the implications of the current situation if not properly managed.
Given the pre-eminent position of The Nigerian Stock Exchange prior to its demutualisation, shareholders of NGX Group had high expectation of quick return on investment. I believe that many Dealing Members have already taken advantage of the liquidity facilitated by the demtualisation and have cashed out and exited the market. This is normal and expected. The demutualised Exchange stands out as the cynosure of a beautiful bride in the market place.
In the medium to long run, demutualisation enhances competition, access to economic and human capital and better corporate governance among others. Individual shareholders have invested their hard -earned income to purchase the shares while 255 Dealing Members and 177 Ordinary Members were allotted shares. They obviously expect sustainable long term return on their capital. But it is debatable whether such expectation is achievable or realistic within a space of 18 months of transition from a Company limited by guarantee to that of profit making. NGX Group, is still operating a balance sheet of a Mutual Organisation, but competing for profit in the economic space. No fewer than 58 stock exchanges had demutualised across the globe. But they all transited from their core areas, attract investors and adjusted to the opportunities and challenges of demutualisation.
The CEO of NGX Group, Oscar Onyema, knows from the outset that every listed company must undress in the public and face constant scrutiny of the shareholders. The High Priest of NGX Group must face the stark reality that managing a company limited by guarantee is a different ballgame from that of a profit making entity. A buoyant macro-economic environment is the underlying asset for a securities market to thrive. But irrespective of the state of economy, shareholders globally, cannot wait to get value for their investment because they have access to alternative asset classes. It boils down to the investment objective and risk tolerance. Investors with long term horizon need assurances that the company has strong potentials to generate and deliver value in the foreseeable future. Anything contrary becomes a recipe to ventilate their frustration. But such anger should not be overdramatized so as not to throw the baby out with the bathwater.
The reality for now is that shareholders of NGX Group may need to be patient while the key drivers of the Company review the current structure of the Organisation and shed weight where necessary. The quick fix may be a compelling need to phase out any perceived or real cost centre and trim recurrent expenditures. After all, if income becomes malnourished because of the tough operating environment, expenditure’s protruding stomach should be controlled through appropriate and disciplined dietary methods.
The Board and Management of NGX Group have to do a lot more on stakeholder engagement. The Company’s upcoming Annual General Meeting is a platform to rub minds with the Shareholders, provide sufficient information on nagging questions and seek their buy-in on policy issues.
The Shareholders are at liberty to set a target for the Management at the meeting. System runs a company as the staff, including the Chief Executives come and go. With the right structure, an organisation can operate optimally and generate value for its stakeholders. But effective communication with stakeholders is desirable at all times to avert trust deficit. This is where the Association of Securities Dealing Houses of Nigeria (ASHON), the umbrella body for securities dealing firms should enlighten its members on the direction of NGX Group. In this era of vagaries in the variables that shape the operations of the global capital market, it is doubtful whether demutualisation of a market in the short run may translate to silver bullet for shareholders that need financial succour. But shareholders are under pressure for returns and they need to be managed. Most importantly, the Securities and Exchange Commission (SEC), must be seen to be partners in progress with the NGX Group by offering all the supports necessary to see that the dividends of demutualisation are not unduly hindered by regulation.
The Board and Management of NGX Group must have conversations with its stakeholders to hedge against hostile takeover. Black Knights are on the prowl. One or two fat cats may emerge from the rabbit hole, snatch the market thorough desperate proxies and turn the bourse to personal asset.
The fall of NGX Group will be a major disaster to all stakeholders, particularly the stockbrokers. It will haunt the market at the African Securities Exchanges Association (ASEA), the premier Association of Securities Exchanges in Africa, weaken the rating of the market at the prestigious World Federation of Exchanges (WEF) which works with its members to build trust in markets, and expose our Capital Market Senior Prefect, SEC to public odium at the famous International Organisations of Securities Commission (IOSCO).
This market did not start with a silver spoon. The labour of our heroes past should not be in vain. We should collectively save the soul of the Nigerian bourse.
Oni, an integrated communications strategist, writes from Lagos