In what may be an apparent bid to check the wanton abuse of its free-float rules by listed companies, the Nigerian Stock Exchange (NSE), on Monday, proposed an amendment to its rules governing the quantum of a company’s shares that must be available to the public for trading.
The proposal defines free float as the number of shares that an issuer has outstanding and available to be traded on The Exchange, including those held by the investing public, excluding shares held directly or indirectly by promoters, directors and their close relatives; strategic investors holding five percent (5%) and above of the issued share capital; and or government.
While companies listed on the premium and main boards have free-floats of 20% each, that of the Alternative Securities Market companies is 15%.
According to the July 10, 2020 edition of the NSE’s X-Compliance Report, prominent on the list of free-float deficient companies are: BUA Cement Plc, with a percentage free float f 1.15% and a compliance due date of June 15, 2023, and was therefore tagged Below Listing Standard (BLS). Transcorp Hotels, with a 6% free float, was supposed to have complied on May 18, 2020, just like Union Bank of Nigeria which has 8.41% free float. Notore Chemical Industry was also supposed to have cured its 10.02% float deficiency on June 15; same as Ellah Lakes, with 13.85% float, a deficiency that ought to have been resolved on December 31, 2019; just as Ekocorp, which had till October 31, 2017 to resolve its 12.64% deficiency.
Lafarge Africa has till November 7, 2020 to comply by raising its free float from 16.13%; same as Portland Paints & Products has until August 16 to come up from 14.57%; Computer Warehouse Group, 15.97% on August 16, 2021; among others.
As part of the proposal, contained in the exposure draft presented to the public on its website, the NSE is proposing, for example, that “where the issuer fails to achieve the required minimum free float requirement by the expiration of the timeframe granted by the Exchange, trading in the (company) issuer’s shares may be suspended except it obtains an extension of time to cure the free float deficiency.”
Should the amendments proposed by approved, the Exchange will be empowered to begin the process of delisting the shares of such companies, where they fail to respond to it within 10 business days of receiving the notification; or produce and submit an acceptable compliance plan to within three months of receiving notification. A company may also be delisted by the NSE, where the compliance submitted “is not acceptable to The Exchange, and the issuer fails to produce and submit an acceptable alternative plan within 21 business days of The Exchange’s rejection of the initial plan.”
A company will also be delisted where it “fails to request for additional extension of time or take necessary action within three months of being suspended from trading and produce an acceptable compliance plan for approval; or it is unable to return to a state of full compliance with The Exchange’s Listing Standards free float requirements within such period of extension or any additional extension of time granted by as is reflected in the Issuer’s compliance plan approved by The Exchange.”
The NSE is also proposing that should a company fall below the free float requirements for the board on which it is listed, its name shall be published in The Exchange’s periodic “X-Compliance Report” and on any of the NSE’s systems or media, annotated with the compliance status indicator, “Below Listing Standard (BLS)” or any other appropriate compliance status indicator. This, the exchange explained, shall remain for as long as the company fails to rectify its free float deficiency, “to indicate that it has failed to comply with free float requirements, and such annotation.”
Companies with free float deficiencies, the NSE proposes, would be notified by the Exchange, and shall be required to initiate discussions on plans for full compliance with the requirement within 10 days of such notification.
With three months of such notification, the deficient company is shall produce and submit an acceptable compliance plan setting out a programme for restoring itself to the NSE for consideration and approval.
However, where such compliance plan is unapproved by the NSE, the company “shall submit an alternative acceptable compliance plan within 21 business days of the Exchange’s notification of rejection of the initial plan.”
Where approval is received, the deficient company is expected to commence implementation of the plan immediately, and within 10 days notify its shareholders in writing via a notice submitted through the NSE’s portal that if it does not achieve the required free float within the stipulated timeframe, the exchange may suspend trading in its securities.
Where the minimum free float requirement is not achieved by the expiration of the timeframe granted, the NSE proposes that trading on the shares of such companies may be suspended except it obtains an extension of time to cure the deficiency.
The draft document listed conditions for obtaining extension of time to include a belief “that the market can operate fairly and orderly with the existing level of free floats,” or there is an undertaking by the a holder at least 5% equity stake in the company, or a combination of holders totaling 5% shares to make available to investors a specific number of securities needed to restore the company to the required free float level within the next financial year, or a period the exchange shall approve.