Since The Nigerian Stock Exchange (NSE) received final approvals of its demutualisation plan from the Securities and Exchange Commission (SEC) and Corporate Affairs Commission (CAC) respectively, Nigerian stockbroking firms have received 6 million units of NGX shares which represents ₦127 million at the current market price of ₦21.17.
Background
Demutualization is a process by which a private, member-owned company, such as a co-op, or a mutual life insurance company, legally changes its structure, in order to become a public-traded company owned by shareholders.
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Demutualization became a widespread phenomenon in the world of stock exchange since 1993, when the Stockholm Stock Exchange demutualized, the first exchange to do so. Several other renowned stock exchanges like Amsterdam, London, Deutsche, Paris, Hong Kong, Toronto, Chicago, NASDAQ, and NYSE, have since done the same.
Africa has also had its fair share of demutualization with the likes of Johannesburg, Nairobi, Mauritius, Seychelles, Rwandan, Casablanca and BRVM Exchanges being demutualized.
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The process for demutualization of the Nigerian Stock Exchange started around 2009, during the tenure of Oba Otudeko as President and Professor Ndi Okereke-Onyiuke as Director-General of the NSE. The thought was brought about by the Council of the NSE at a special retreat in South Africa. Soon after that retreat, the Council of the NSE got into a brutal power struggle which many assumed was caused by the competition between contending principalities for ownership of the proposed demutualized Exchange.
The demutualization finally crystalized in 2021, after 12 long years since the proposal was put in place during the tenure of Oba Otudeko.
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How did the brokers make their money?
The exchange was a mutual company owned by the members of the exchange. Before a company can trade its shares publicly, the company must be listed on an exchange, hence, the listing of the new NGXGROUP shares which is trading on the NASD (National Association of Securities Dealers) OTC market.
There are two types of members, the dealing members who operate on the exchange (Stockbrokers) and ordinary members, who are also made up of two types, those who started the exchange and those who were brought on by virtue of their economic status and contribution (these people include the likes of M.K.O Abiola, Aliko Dangote and so on).
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After deliberation on how the ownership of the proposed shares would be split amongst all members, including dealing members and ordinary members, they concluded that ordinary members, upon listing will receive 2.4 million units of shares while dealing members got 6 million units of shares representing the conversion of the members’ stake to shares.
NGXGROUP shares listed on the NASD exchange at ₦25 per share. It traded at an all-time high of ₦30.26 but it is currently trading at ₦21.17, about 15.32% from its listing price and 30.04% from its all-time high.
What did the demutualisation bring?
Under the demutualisation plan, the new Group now has three operating subsidiaries which are, Nigerian Exchange (NGX Limited), the operating exchange; NGX Regulation (NGX REGCO), the independent regulation company; and NGX Real Estate (NGX RELCO), the real estate company. All the entities have been duly registered at the CAC.
In an interview with the NGX, they stated, “Each Dealing Member received 6,007,884 (six million, seven thousand eight hundred and eighty-four) ordinary shares of fifty (50) kobo each. Each Ordinary Member received 2,441,274 (Two million, four hundred and forty-one thousand, two hundred and seventy-four) ordinary shares of fifty (50) kobo each. Upon demutualization, the dealing and ordinary members became shareholders of the NGX Group. All registered dealing members (255) as of – May 11, 2017- the closure date for the register of Members, were allocated the shares. The NGX Group shares are available for bilateral trading on an OTC platform ahead of the listing of NGX Group on NGX. Authorized stockbroking firms registered on the OTC platform can trade the shares. Following the listing on NGX, Trading License Holders of The Exchange will be able to trade NGX Group shares.”
Reports reaching Nairametrics indicate that some stockbrokers have started selling their shares, cashing out on one of the most sought-after stocks on the NASD.
According to one analyst, “the fact that it is listed in the NASD means stockbrokers who wanted to sell are the ones who listed it there.”
The NASD is where holders of shares in private companies can list their shares for sale. The sale of the shares may have contributed to the plummeting of the share price of the company since it was listed, however, Nairametrics understands the demand for the shares are on the rise and it was somewhat scarce towards the end of last week.
The NGX is yet to report revenue of N7.7 billion in the financial year 2019. Surplus after tax was N2.7 billion down 16% year on year. The exchange makes money largely from transaction and listing fees with a combined 56% of revenue. It also makes investment income making up 22% of income. About 53% of its cost are personnel cost.
What market operators are saying
Lucky Djebah, the Managing Director of Mainstreet Bank Securities Limited stated: “We have received the NGX shares from the exchange. Mainstreet will be holding onto the shares because we see value in the company and we have been receiving demand from both individual and institutional investors. Because of this demand, the NASD market has been getting more traction as investors are looking to buy the NGX shares.”
Adeboye Teriba, The Managing Director of Qualinvest Capital Limited stated: “We are holding onto the NGX shares for now, so that we can measure the market perception of the new company. A lot of demand is coming from individual investors, in addition, trading license holders are also interested in increasing their holdings. The NASD is enjoying prime time with the listing of NGX and we expect this to grow further as the NGX starts making its financials public.”
Paul Uzum, the Head of Securities Trading at Planet Capital stated: “We are holding the share for the long term, however, there have been no demand from individual or retail investors. The NASD market is now getting more attention because of the listing of the NGX shares.”