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…Operators, shareholders advocate tax incentives, FX stability to stem tide
By Chinwendu Obienyi and Chukwuma Umeorah
Owing to economic challenges such as inflation and foreign exchange (FX) volatility, over 136 companies filed for delisting or restructuring from the Nigerian Exchange Limited (NGX), analysis from the X-Compliance report of the exchange revealed at the weekend.
This reflects the tough business environment in Nigeria, where companies are struggling with rising costs, currency depreciation, and difficulties in accessing foreign exchange for imports and operations.
Despite notable market growth in the last five years, the listed equities market has witnessed misalignment with the broader economy. As of nine months of 2023, management accounts suggested that subsidiaries of foreign-owned companies lost over N900 billion in FX losses.
Specifically, a 2023 report from Proshare revealed that within the last 22 years, over 120 companies “voted with their feet” as they left the NGX, either voluntarily or by regulatory action, with reasons ranging from strategic opportunities elsewhere to FX accessibility or liquidity challenges.
Furthermore, analyzing the X-Compliance report for 2024, it indicated that 14 companies are currently undergoing the delisting process or restructuring. These companies include Capital Oil Plc, Goldlink Insurance Plc, Med-View Airline Plc, Staco Insurance Plc, Standard Alliance Insurance Plc, Greif Plc, DN Tyre and Rubber Plc, Deap Capital, Aso Savings and Loans Plc, Union Dicon Salt Plc, and Multitrex Integrated Foods Plc.
The likes of FTN Cocoa Processors Plc, Thomas Wyatt Nigeria Plc, and Austin Laz & Company Plc are undergoing restructuring.
The X-Compliance report is a transparency initiative of the NGX, designed to maintain market integrity and protect investors by providing compliance-related information on all listed companies.
Companies listed on the NGX are required to adhere to high disclosure standards prescribed in Appendix III of the listing rules.
Thus, the exit considerations, according to some market analysts, reveal a few key issues in the market, such as the absence of clear incentives for being listed, the difficulties in raising capital, the low valuation of publicly listed companies, and low exit pricing.
They noted that the loss of market value associated with delisting reduces the size and depth of the market and limits its contribution to the economic growth and development of the country. However, the NGX leadership remains optimistic, arguing that a smaller number of listed companies does not necessarily mean a weaker market, as market capitalization could still grow with high-value listings.
However, this trend has led stockbrokers to warn that it could shrink investment opportunities, hurt economic growth, and reduce the attractiveness of the exchange.
The Chief Executive Officer of Wyoming Capital, Tajudeen Olayinka, noted that most companies’ shares have not been properly valued, and if they try to raise money now, they would be doing so at a higher cost of capital. According to him, these companies believe that by restructuring, making their businesses more attractive, and improving their financials, they can return to the market with better valuation prospects.
He argued that with the bank recapitalization ongoing, it would be hard to see some delisting but warned that companies will continue making strategic decisions based on their financial outlook.
“Some companies leaving doesn’t mean the market is weak. Besides, we have had new listings with greater market capitalization than some of those that have exited. Companies will continue making strategic decisions based on their financial outlook,” Olayinka said.
For his part, a shareholder and member of the Pragmatic Shareholders Association, Oderinde Taiwo, lamented that the trend is troubling and accused the federal government of showing less concern in addressing the rising number of companies leaving Nigeria.
Taiwo said, “The FG has not taken any tangible steps to address the issue. In other countries, you see proactive measures to support businesses, but here, the government seems indifferent.
“One way to ease the burden on companies is through tax incentives, such as tax holidays or rebates. When companies thrive, they contribute more taxes and create jobs. However, the current regulatory environment, coupled with excessive taxation, is stifling businesses. These challenges are affecting the capital market and the broader economy.
“More companies will likely leave, especially those dependent on foreign exchange. Many businesses are relocating to other African countries where governments actively support them with policies like tax breaks and forex stability.”
English (US) ·