Oscar-Onyema

Holders of lowly priced equities in the Nigerian Stock Exchange (NSE) may suffer loss of value of their investment. The value of their stock can now fall as low as one kobo. The NSE announced on Thursday, June 4, that the Securities and Exchange Commission (SEC) has approved its proposal to adjust the base price for any stock at the stock market from the current par-value based system of 50 kobo to a general minimum price level of one kobo. This would enable market forces to determine the price of shares in the exchange.

The NSE said that although the price of every share listed on the Exchange shall be determined by the market, yet no share shall trade below a price floor of one Kobo per unit.

Par value is the nominal value of a share as stated in the Memorandum of Association of an issuer while the price floor means the amount below which the price of one unit of a share shall not be permitted to trade, and the minimum amount which must be paid for a share in the event of a drop in the unit price of that share.

It is feared that more than 50 companies, especially in the non-bank financial services sub-sectors, may be affected by the new pricing rule. Stocks that would be particularly affected by the new rule include African Alliance Insurance, Cornerstone Insurance, Equity Assurance, Great Nigeria Insurance, Guinea Insurance, Consoldiated Hallmark Insurance, Investment and Allied Assurance, International Energy Insurance, Lasaco Assurance, Law Union & Rock Insurance, Linkage Assurance, Prestige Assurance, Regency Alliance Insurance, Sovereign Trust Insurance, Standard Trust Assurance, Standard Alliance Insurance, Unic Insurance, Unity Kapital Assurance and Universal Insurance Company.

Other companies that may initially be affected by the new rule include UTC Nigeria, Mutual Benefits Assurance, Niger Insurance, Omatek Ventures, Japaul Oil Maritime & Services, Tantalizers, Daar Communication, Secure Electronic Technology, Afromedia, Beco Petroleum, Multiverse, Nigerian Wire and Cable, IPWA, First Aluminium Nigeria, Mass telecommunication Innovation, Chams, Union Diagnostic & Clinical Services, Resort Savings and Loans, Aso Savings and Loans Plc, Multi-Trex Integrated Foods, DN Tyres& Rubber, FTN Cocoa Processors, Rak Unity, Capital Oil, Anino and Afrik Pharmaceuticals.

The new rule has been commended for ensuring that henceforth market forces would determine the value of a stock in the exchange. This will also affect the capitalization of the exchange. According to Omololu Ajediran, fund manager, Sterling Capital Markets Limited, “there may be negative market sentiments for such stocks and investors may not really like the idea of their stocks falling as low as one kobo. But looking at it from the global perspective, I think it is good for the market as market forces will now determine the price base for stocks.”

By Dike Onwuamaeze

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