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The recent delisting of 21 quoted entities by the Quotation Committee of the Nigerian Stock Exchange (NSE) from the Daily Official List in line with the Exchange’s listing rules has brought to the front burner the reasons for its action and its implications for shareholders
By Dike Onwuamaeze
Investors stake their earnings in stocks of corporate organisations ostensibly to own a part of the organisation and make profit from it. They do this based on their perception of the company as a healthy entity with potential for future growth. But this is not always the case. There are instances where some investors found out too late that they have invested wrongly in securities that are mere empty shells and are on their way out of the stock market having been marked for delisting due to poor performances.
This was the case when the Quotation Committee of the Nigerian Stock Exchange (NSE) on June 2, 2014, approved the delisting of 21 quoted entities from the Daily Official List in line with the Exchange’s listing rules. Sixteen of these firms were delisted for failure to file quarterly and annual financial statements while five of them were booted out due to failure to regularise their listing status. Their delisting removed a total of N 75,444,264,006.71 from the NSE total market capitalization. Only five out of the 21 companies’ shares were trading above N1; eight of the stocks were trading at their nominal value while only five of them were traded on June 20, 2014.
According to the NSE, the term delisting means removal of listed securities from the Exchange so that it would no longer be traded on and the issuer’s name removed from the daily official list of the NSE. This decision is taken only after a careful analysis and thoughtful consideration of the interests of all stakeholders.
Delisting could either be voluntary or imposed by market regulator. Voluntary delisting is the withdrawal of an issuer’s securities listed with the express approval of the holders of its securities after complying with relevant requirements. Regulatory delisting refers to the removal by the NSE of an issuer’s securities for non-compliance with the listings rules of the Exchange or for breach of the terms and conditions of the general undertaking executed by the issuer when its securities were listed. In addition, regulatory delisting can take place if the National Council of the NSE considers that there is insufficient public interest in the issuer to make a market in the securities.
However, delisting securities is not a disorderly affair. It has a specified process, which begins when the Listings Regulation Department of the NSE submits a recommendation for delisting of securities with sufficient reasons for the proposed action. Upon receiving the recommendation, the NSE’s management would seek and receive the approval of its Council and, thereafter, serve the affected issuer with a delisting notice, which it would publish in some daily newspapers with national coverage.
The delisting notice gives the affected issuer three months to regularize its listing status and comply with all applicable listing requirements and obligations, failing which its name will be removed from the Daily Official List of the Exchange.
Clause 15 of the General Undertaking (Appendix III) of the post listing requirements of the NSE, which is executed by all listed companies prior to listing, provides that the “Council reserves the right to remove the name of a company from the official list of the Exchange at its absolute discretion and may, if it considers that there is insufficient public interest in the company, viz, insufficient shares in the hands of the public; or (b) any of the foregoing terms and conditions are not complied with; or (c) the company becomes a subsidiary of any other company.”
The relevant rule supporting regulatory delisting is found in Rule 26 of the Amendments to the Listings Rule. It provides as follows: “Where an issuer is delisted for non-compliance with the listings rules of the Exchange, the issuer and its promoters shall not seek listing for a period of three years from the date of such delisting.”
Similarly, there are rules supporting voluntary delisting, such as Rule 25 of the Amendments to the Listings Rules. It provides that “an issuer shall not voluntarily withdraw its listing on the Exchange unless its shares have been listed for a minimum period of three years and the company has filed its audited financial statements for those years. Moreover, it must also have the approval of its shareholders obtained by way of a special resolution passed at a duly convened meeting of the shareholders of the issuer.
In addition, the issuer must have given its shareholders at least three months’ notice of the proposed withdrawal of the listing and such notice must include details of how to transfer the securities. The issuer must also give shareholders who so elect an exit opportunity before the security is delisted. Nevertheless, a delisted security could be relisted after three years of its delisting as stated above in Rules 25.4 and 26 of the Amendments to the Listings Rules.
But the pertinent question is: What becomes of the shareholders of a delisted security? According to the NSE, the “shareholders of the affected companies will retain their status as shareholders and maintain all rights and privileges accruable to them as shareholders. However, the effect of the delisting on the shareholders is that their securities can no longer be traded on the Exchange. Although the issuer will still maintain its status as a Public Limited Company, it will not be subject to the strict regulatory regime of the Exchange which stimulates improved corporate governance and increase in shareholder value.” Delisting removes the additional protection afforded to investors by the rules and regulations of the Exchange.
In view of the foregoing, the Exchange advised against shareholder apathy and encouraged constructive shareholder activism and vigilance for the improvement of the fortunes of their companies.
Although detestable, delisting has some benefits. Delisting increases privacy of an issuer’s affairs because it reduces the ambit of regulatory scrutiny over the Issuer and removes the expenses of complying with terms and conditions of listing on the Exchange. However, delisting may not always be in the interest of an issuer as the rules of the Exchange and general undertaking are designed to protect the investors of an issuer. “The Exchange believes in full and quality disclosure of relevant information by issuers to their shareholders. This is to keep them informed about the affairs of the issuer and guide their investment decisions. It also constantly reviews its rules in line with global best practices.”
Provisions in the rules of the Exchange which provide safeguards for shareholders include, among others: Clause 1(h) of the General Undertaking imposes on issuers the responsibility of compliance with all post-listing obligations, which were designed to protect the interests of the investing public and the maintenance of a fair, orderly and transparent market. The general undertaking provides for disclosures to the Exchange on the activities of the issuer as well as mandating quoted companies to display conspicuously on their websites information and corporate actions they submitted to the NSE for a period of three years from the date it is posted thereon.
The regulatory delisting of securities becomes effective upon the expiration of the delisting notice period. The delisting notice only serves as an intention of the Exchange to delist and the companies have a period of three months to regularize their listing status in order to avoid delisting. “Thus, any issuer that regularizes its listing status and complies with the applicable terms and conditions for listing within the three months period may regain its status as a compliant issuer and avoid the delisting of its securities.”
Investors’ vigilance about the affairs of a company they have interest can help to avert delisting of an issuer by following certain procedures and requirements. The Companies and Allied Matters Act, Cap. C20 2004, empowers shareholders to engage companies’ directors if they are not satisfied by the manner the affairs of the issuer are not being conducted. Also, investors with about 10 percent of the company’s shares can request a meeting of the issuer and in the event that the directors do not accede to their request, convene a meeting of the issuer to deliberate on its affairs. The law also enjoins the issuer to pay for the reasonable expenses of convening and holding such meetings and decisions taken thereafter are binding on the issuer. Shareholders can also seek legal redress to compel the directors and if necessary sanction them for their inactions.