The Nigerian Stock Exchange (NSE) has released draft guidelines for the listing of Closed-End Funds (CEFs).
A CEF is a security that offers its shareholders partial ownership in an underlying portfolio of assets. CEFs are publicly traded and initially raise capital through an initial public offering, the proceeds of which are invested in a basket of securities.
CEFs are closed to new investors wishing to purchase shares from the company once the initial shares are issued. However, existing investors can trade CEFs at market prices on the floor of The Exchange. A unitholder who wants to redeem his unit(s) for cash will have to do so through his stockbroker.
Here are the general requirements:
- An application for listing shall be made to The Exchange by a Managing Company duly licensed by the Securities and Exchange Commission (SEC or the Commission).
- The CEF and its securities shall be duly registered by the SEC.
- The CEF shall have a Board of Directors which shall exclude the employees of any Fund Manager appointed to manage the Fund’s investments. At least one director shall be an Independent Director.
- The minimum fund size shall be at least ₦3 billion. It should have at least 200 unitholders and a minimum free float of 15% with more than 50% of its shares held by 5 or fewer persons.
- To retain its listing on The Exchange, each CEF shall comply with the continuing obligations stipulated by The Exchange.
- An existing listed class of equity shares of the CEF shall not be converted into a new class or an unlisted class unless prior approval has been given by the shareholders of that existing class in the CEF.
- When calculating the net asset value per share, treasury shares held by the CEF shall not be taken into account.
- Every listed CEF shall immediately notify The Exchange in writing of any transaction involving the issuance or potential issuance of any securities other than unlisted, non-voting, or non-participating securities.
- A CEF shall not proceed with any transaction under this Rule unless approved by The Exchange. Failure to comply with this provision may result in the suspension and/or delisting of the listed Issuer’s securities.
- The Issuer shall release a Circular relating to a resolution proposing to give the Issuer authority to purchase units of its own securities, and the Circular shall indicate:
a)If the authority sought is a general one, a statement of the Board of Directors’ or trustees intentions about using the authority;
b)The method by which the Issuer intends to acquire the units and the number to be acquired in that manner;
c) A statement of whether the company intends to cancel the units or hold them in treasury;
d)If the authority sought is related to a proposal to purchase from specific parties, in which case, a statement setting forth the names of the persons from whom units are to be acquired together with all material terms of the proposal shall be provided;
e)Details of the price, or the maximum and minimum price, to be paid. This should be no less than the CEF’s NAV determined as of the specified date;
f) An explanation of the potential impact of the proposed buyback, including whether control of the CEF may be concentrated following the proposed transaction.
The Issuer may be allowed to repurchase between 5% and 15% of its outstanding units pursuant to a general authorisation by the unit holders that such repurchase shall be carried out by way of a tender offer to all unitholders of that class.
Notwithstanding any of the foregoing provisions, no share buy-back shall result in a breach of the fifteen percent (15%) free float requirement.
A Closed-End Fund shall only be liquidated as stipulated in its prospectus.
