Improving on N5b investor protection fund will boost confidence in capital market – Uwaleke

Professor of Capital Market at the Nasarawa State University, Keffi, and a former Commissioner for Finance in Imo State, Uche Uwaleke, in this interview with HELEN OJI, spoke on measures that regulators can put in place to ensure that investors’ interest, especially minority shareholders of companies that delisted from the Nigeria Stock Exchange are protected. He also said that no company should use stringent post-listing requirements as an excuse to seek voluntary delisting from the NSE.

With the way that COVID-19 has battered the Nigerian economy, which was already in a bad state, are there chances that more companies may delist from the capital market post-COVID-19?
I agree that COVID-19 pandemic has impacted negatively on the economy and by extension on companies quoted on the Nigeria Stock Exchange, especially in view of supply chain disruptions. But I do not think it will trigger any wave of delisting because these companies will still need the platform of the exchange to raise capital when the crisis is over.

In what ways do you think the government and regulators can forestall the likelihood of a wave of delisting?
I think the stimulus packages put in place by both the government and individuals will go a long way in cushioning the negative impact of the pandemic on listed companies. Ditto with respect to the CBN involving concessional facilities to companies most affected by the pandemic. The CBN is also supporting commercial banks, through a forbearance package, to make possible, the restructuring of loans, which these companies may have taken.

On their parts, the regulators, that is, the Security and Exchange Commission (SEC) and the NSE have already allowed quoted companies a period of grace to submit their reports, which will not attract any penalty. If these measures are well implemented, it will greatly help the companies’ financial position, and reduce the chances of opting out of the stock exchange.

Shareholders have been lamenting the loss of investment that they suffer upon the exit of some companies from the exchange. How do you think minority shareholders can be protected when their firms exit the exchange, especially the multinationals?
With respect to the interest of investors, especially minority shareholders of companies that get delisted, the fact remains that investment in the capital market, like every other investment, involves risk and every investor should be made to realise that. Having said that, such investors can benefit from the Investor Protection Fund (IPF) put in place by regulatory authorities. I also think the size of the fund should be increased from the current level of N5b as doing so will help boost investor confidence in the capital market.

Are there sufficient incentives in the current Finance Bill that could attract more companies to list on the stock exchange?
The 2019 Finance Bill has a number of incentives for companies, which can benefit the market either directly or indirectly, such as a lower tax rate of 25 percent for small businesses. This is capable of freeing up funds for investments translating to more jobs and increased interest and liquidity in the capital market.

However, I would also like to see these incentives extended to quoted companies currently subjected to a tax rate of 30 percent.

Going forward, the tax regime in the Finance Act should be such that would give some preferential treatment to quoted companies to make a listing on the stock exchange more attractive. Getting more listings especially from companies in the telecoms, agriculture, power, oil and gas sectors will make for transparency through the observance of financial disclosure requirements, which the exchange requires, and which would lead to increased revenue for the government.

Some delisted firms cited stringent post-listing requirements, harsh operating environment among others as reasons for their delisting. What is your view on this?
While I agree with the issue of the harsh operating environment, no company should use stringent post-listing requirements as an excuse to seek voluntary delisting from the NSE. This is because those requirements are meant to ensure transparency and accountability, which are very crucial requirements in the capital market to sustain investors’ confidence. In any case, most of the companies that have been delisted have been more because of persistent inability to meet up with disclosure requirements as far as the release and filing of results are concerned. It may interest you to note that most companies do not release corporate information as at when due, and in view of the importance of information in the overall efficiency of the market, there is a need to enforce zero tolerance for non-compliance. I am aware that the NSE has suspended some companies’ shares from trading on account of non-compliance.

The introduction of a code of corporate governance by the SEC is a step in this direction and is quite commendable. I am aware too that the NSE also has a whistle-blowing policy and both SEC and the NSE have maintained zero tolerance for infractions, which is healthy for the market in terms of boosting investors’ confidence. 

How do you view transaction cost on the NSE when compared with its peers in other emerging markets?
There is no doubt that transactions cost in our market is quite high relative to many other countries. The issue of non-competitive pricing in the Nigerian capital market has always been there. In terms of transactions costs, it is relatively cheaper in jurisdictions like India and Malaysia and ditto for the cost of primary and secondary issues processes. 

Regulatory charges are comparatively high and the situation is not helped by the high-interest rate environment in Nigeria with MPR, as high as 13.5 percent, whereas it is a single digit in these other countries, including South Africa. The government can help in this direction by once again removing VAT and stamp duties on capital market transactions, which was reinstated some months ago.

Also, the transaction cycle needs to be shortened further leveraging technology from the present T+ 3 days, i.e. transaction day with another three days, especially for equities.

It is shorter for bonds though. Doing so will improve the competitiveness of the market. In the same vein, the time to market, or the processing time it takes to bring new issues to the market is still lengthy, owing in part to regulatory procedures. The SEC and the NSE can look into this.