COVID-19 pandemic may delay NSE’s demutualisation plan

Investigation by the News Agency of Nigeria (NAN) in Lagos indicates that NSE demutualisation process is being affected by the coronavirus pandemic in the country which led to the lockdown extension.

Demutualisation of a stock exchange is a process by which a non-profit, member/brokers-owned mutual exchange is converted into a profit-seeking shareholder corporation, open to members of the public.

Demutualising an exchange therefore transforms it from being owned by members or brokers, to one with a different governance structure where members of the public can buy shares.

NAN reports that NSE’s initial demutualisation timetable shows that the exercise will be completed on April 24 but dealings members have expressed concern that the ongoing coronavirus pandemic is affecting the process.

The NSE had on March 4, held Court-Ordered Meeting and Extra-Ordinary General Meeting (EGM) where members approved the planned demutualisation and also approved the appointment of the inaugural Board of Directors.

According to the scheme of arrangement for the demutualisation, the final approval for the demutualisation would be obtained from the Securities and Exchange Commission (SEC) on April 22.

Confirming the development, Malam Garba Kurfi, the Managing Director, APT Securities and Funds Ltd., told NAN that the Exchange had commenced the distribution of shares to qualified members.

Kurfi said that the distribution of the shares was being delayed by the present lockdown in some parts of the country, especially Lagos, where majority of the dealing members were located.

“They sent us forms to give our details in order to credit us with the shares but the form needs your signatory, seal and this may not be available without opening the office,” he said.

Kurfi noted that dealing members could not submit the forms for the shares transfer without their seal.

He stated that the demutualisation process, no doubt, would be delayed because of the current situation of the country.

Kurfi said that court needed to approve the process endorsed by the members at the court-ordered meeting and EGM.

Prof. Prof. Sheriffdeen Tella, Professor of Economics, Olabisi Onabanjo University, Ago-Iwoye, Ogun, said it was true that the stock exchange was still in operation in spite of the lockdown.

Tella who described it as being in partial operation, said the demutualisation exercise could not be concluded under the present uncertainties.

According to him, the deadline must be extended under this condition characterised by lots of constraints and uncertainties.

NAN reports that according to Scheme of Arrangement between the Exchange and shareholders/dealing member firms, each dealing member would get 6.01 million ordinary shares, while each ordinary members would get 2.44 million units post-demutualisation.

Following the demutualisation, N1.25 billion comprising 2.5 billion ordinary shares and 2.0 billion ordinary shares of 50k each, representing the issued share capital of newly demutualised Nigerian Exchange Group Plc would be registered with the Corporate Affairs Commission (CAC) and SEC respectively.

The Scheme of Arrangement showed that a total of 40.83 million ordinary shares, representing two per cent of the issued shares of Nigerian Exchange Group, would be set aside for allotment to parties who are adjudged as being entitled to shares in the demutualised Exchange, pursuant to the provisions of the Demutualisation Act 2018.

“The apportionment of two per cent as the Claims Review Shares is based on an analysis of the probable quantum of shares that would be required to settle each claim.

“This was determined given the rigorous and robust process undertaken to verify and confirm the names on the Register,” the Exchange said.

Additionally, 1.96 billion ordinary shares representing about 98 per cent of the issued shares and the balance of the issued shares following the reservation of the Claims Review Shares would be distributed between the dealing and ordinary members on the basis of a ratio of 78:22 respectively allotted on equal basis between the dealing and ordinary members.

A source at SEC told NAN that the commission had granted approval to the Exchange for the unbundling of its entities as contained in the scheme of arrangement.

The source said the commission had approved the scheme document and the holding of the court-ordered meeting as well as the EGM.

According to the source, the NSE before the last EGM, was a company limited by guarantee, which limits an individual to own anything in the Exchange.

The source noted that the ownership structure was revised and passed at the EGM by the dealing members to make it possible for members to own shares in the new Exchange.

The commission’s source said the shares allotted to the dealing and ordinary members at completion must be recorded by the Central Securities Clearing System (CSCS), the stock market depository.

The source who pleaded anonymity explained that the demutualisation process entailed a lot and would be affected by the coronavirus pandemic in the country as well as the lockdown.

The source noted that the commission’s final approval for the demutualisation programme would be granted at the completion of the entire process.

When contacted, an NSE official who pleaded anonymity, said it had yet to receive an approval from the commission for the unbundling of its entities.

The official, however, said that the demutualisation deadline would not be disrupted by the COVID-19 pandemic. (NAN)