Investors Now Consider Governance Status In Pricing Nigerian Stocks- NSE CEO

Photo Caption: Mrs. Oluwatoyin Sanni (3rd left), managing director of United Capital Plc, Chika Mordi, the company’s chairman flanked by other board members, displaying their CGRS certificates at the award ceremony on the NSE on Thursday, February 22, 2018. United Capital was one of the 35 certified companies.

Chief Executive of the Nigerian Stock Exchange (NSE), Oscar Onyema says recent trends show that investors on the nation’s bourse have become conscious of the need for governance as a measure of long-term corporate sustainability just like in other major global markets.
Speaking at the award dinner for listed companies and directors who excelled in the recently concluded Corporate Governance Rating System (CGRS) certification exercise, and to highlight the benefits for strong corporate governance last week in Lagos, Onyema said that over the past three years, companies that make up the NSE Corporate Governance Index have consistently outperformed the composite All-Share index as well as other sectoral indices, except for the Premium index over the past three years.
A total of 35 companies, he explained submitted themselves for the stringent CGRS evaluation process (up from eight when the CGRS was launched in 2014), just as 437 directors were CGRS certified.
“This is a testament that our listed companies and their directors are embracing the CGRS certification process which is aimed at promoting ethical business practices, transparency and fair competition in listed corporates. Indeed, good corporate governance should result in improved profitability,” Onyema added.
As a further evidence of the recognition of good corporate governance, he pointed to empirical studies showing “that similar indices in other jurisdictions outperform their market-wide index by double digits and this is also evident with the NSE Premium Board. From inception to date, the Premium Board Index continues to outperform the benchmark NSE ASI with the PB recording a total return of 92.93% versus the NSE ASI’s 53.80%. The Premium Board’s performance continues to reinforce the sentiments of both foreign and domestic investors on the importance of corporate governance to sustainability.”
Consequently, he believes “the corporate governance index will therefore be a veritable tool for investors in their investment decision-making process, and will provide opportunity for new products such as Exchange Traded Funds (ETF).”
The CGRS certification, he continued, is a prerequisite for companies to migrate or list on the NSE’s Premium board which features companies that adhere to international best practices on corporate governance and satisfy the Exchange’s highest standards of capitalization and liquidity; besides serving as a benchmark for investors looking to track the performance of large firms with excellent corporate governance and sustainable business models.
Also, those “aspiring to be listed on the Premium Board of The NSE must attain a minimum market capitalization of N200bn as at the date of application, a minimum score of 70% on the Corporate Governance Rating System (CGRS), and maintain a minimum free float of 20% of their issued share capital or a free float value equal to or above N40 billion, as well as meet other standard listing criteria.”
He expressed hope that with more companies become CGRS certified, there would be more applications for migration to the Premium Board from those that have met the criteria.
While congratulating the successful companies and their directors, he urged them to work towards sustaining the high governance level that won them recognition, because the day’s “celebration is not a destination, but a continuous process that should be consistently maintained and further improved upon.”
The NSE boss further noted that a company’s compliance level to the tenets of good governance “will determine the attractiveness of such a company to international investors. This could increase or decrease the level of Foreign Direct Investment (FDI) and Foreign Portfolio Investment (FPI) into a country through its well-run companies as international investors are averse to companies with low levels of corporate governance practices and reputational risk.
“A company that is regarded as having good corporate governance typically has access to a variety of financing options,” stressing that those with good corporate governance generally receive higher market valuations than their peers regarded as poorly governed.
Good corporate governance, he stressed, “allows for the build-up of positive reputation that benefits companies, the stock exchange and the market-place as a whole.
“Companies on the Index can expect to increase their access to capital, particularly from foreign investors,” Onyema further said.