News came in over the weekend that Wema Bank Plc, in compliance to the Central Bank of Nigeria (CBN)’s banking regulatory regime that required banks to either divest from non-core banking subsidiaries or form a holding company to hold those subsidiaries, sold its majority equity stake in Great Nigeria Insurance (GNI) to Insurance Resourcery and Consultancy Services Limited in a deal worth N3.24 billion.
A worrying observation however was that the shares were sold at N1.13 per share, a whole 126% increase over the trading value of GNI’s shares on the floor of the Nigerian Stock Exchange (NSE). The deal was carried out a negotiated cross deal platform which means that, due to the fact that the buyer and the seller had been prearranged and the transfer at the stock market was a mere perfection of the agreement between the two, thereby reducing cost.
The willingness of Insurance Resourcery and Consultancy Services Limited to cough up that sum for shares that had practically stagnated at its 50 kobo per share nominal value further highlights a worrying trend of undervaluation of stocks that are trading at the NSE, especially after the recent audit showed that Conoil’s net asset per share was higher than its market price.
This sentiment was expressed by a market pundit who said that the situation actually applied to several other stocks trading on the floor of the NSE.
Parts of this article originally appeared in The Nation Newspapers