A strange bill, which will compel top private Nigerian firms to list their shares on the Nigerian Stock Exchange, has passed the second reading stage at the House of Representatives. I call it a strange bill because our market is expected to be free. Some stockbrokers actually support the bill as this newspaper article says.
The bill will force any company that has a shareholders’ fund in excess of N40 billion ($240 million), turnover in excess of N80 billion ($480 million), and/or total assets in excess of N80 billion to become a public liability company. That does not make sense to me. In the lifecycle of corporations, entrepreneurs start ventures, which are sold to private equity investors. The first set of private equity investor may decide to list on the exchange or sell to a much larger private equity investor. What if the second private equity investor has grown the shareholders’ fund to over $240 million but still he believes there is still a lot more to be done before going public? Then a Nigerian law comes along and says “Hey! You have to list on the Nigerian Stock Exchange!”
The stockbrokers are fixated on “sharing the wealth”, and growing the stock exchange in order to create depth for the market. One of the stockbrokers in the newspaper article says, “If those companies are antagonistic to Nigerians sharing in their wealth – one of the purposes of being publicly quoted is to enable the citizens of the country to share in the wealth that they are helping the companies create – then, they can go to other countries.” Well, if they go to other countries, there will be no wealth to share. That is poor negotiating skills I must say, because in the end there will be nothing to share. When a company has grown large enough, nobody will tell the owners to list before they do. Nobody forced Dangote to list Dangote Cement; he knew the time was right and he listed the company. Dangote Cement, I dare say, would probably not be as large as it currently is if it had listed four years earlier than it did. Now Nigerians have some wealth to share there.
We need to understand the fact that a company with shareholders’ fund of less than N20 billion ($120 million) may be ready to list while another with a shareholders’ funds in excess of N150 billion ($1 billion) may not be ready to list. That is what free market is all about. By paying taxes to the Nigerian Government, they are already sharing the wealth. We should not restrict our sharing of wealth to buying a stock at N10.00 and selling at N12.00.
Growing companies would rather focus on long-term growth rather than answering so many annoying questions from analysts who are fixated on some ratios on a quarterly basis. Growing a business goes beyond growing profit after tax, which analysts and stockbrokers are always looking for. Another problem with listing prematurely is the sudden jump in cost of equity as the companies are forced to focus on quarterly conference calls and organize lavish annual general meetings.
If this strange bill is allowed to see the light of day, we should not be surprised when companies decide to incorporate in Ghana and do business in Nigeria. At that time, they will then end up paying taxes to the Ghanaian government and sharing the wealth with Ghanaians when they are ready to list.
Knight of Delta
Is there anything like a “free market”? It is actually relative. We have seen the champions of free markets like USA and France refuse perfectly legit offers to buy their oil companies or even pharmaceutical companies. Firms that benefit from Nigerians natural resources or other vital sectors should be strongly “encouraged” to list on the Nigerian exchange.