The spate of multinational companies exiting the Nigerian equity market is causing concerns among market players. They worry that the trend is a disincentive to Foreign Direct Investment into the country, BAMIDELE FAMOOFO writes
In the last five months, three listed companies on the Nigerian Exchange have announced their plans to quit the market.
The exit of these companies, two of which are British multinationals- GSK Plc and PZ Cussons Plc, and the second oldest bank in Nigeria, Union Bank of Nigeria Plc, will whittle down the market capitalisation of the exchange. It will also reduce the volume of shares available for equity investors to trade upon.
Checks by The PUNCH showed that the capitalisation of the local bourse would shrink by about 0.44 per cent after the shares of the companies had been removed.
The total market capitalisation of the delisting companies stood at about N284.59bn while the total shares contribution was 34.29bn units as of September 7, 2023.
Part of the consequences of the planned exit is that shareholders of the delisting companies will no longer be able to make a profit from their investment in those entities. There are also worries that investors in those firms may be shortchanged as the board of directors may only pay them paltry sums for the value of the shares they own in these companies. For instance, the new owners of Union Bank of Nigeria Plc, Titan Trust Bank Limited, offered to buy out the existing shareholders of Union Bank at N7 per share while PZ Cussons offered to pay its shareholders N21 per share. On Monday, Union Bank’s share sold for N6.55 while PZ Cussons traded at N19.60.
The winding down of GSK Nigeria’s operations in the country will result in job losses, which will worsen the economic challenges.
The founder of the Independent Shareholders Association of Nigeria, Sunny Nwosu, blamed the exit of the multinationals from the Stock market on the Federal Government, citing unfavourable policies.
He argued that the government policy on repatriation of profit for multinational companies operating in the country was unfavourable to them, urging the government to revisit the policy.
“The essence of multinationals coming into the country to do business is to make a profit and to be able to take their profit after tax to their own country, where the initial capital came from. But for our government to make it almost impossible for them to repatriate their profit will make them leave,” he said.
He told The PUNCH that delisting the shares of those multinationals from the Nigerian Exchange Limited would impact negatively on both its capitalisation and the volume of shares listed. “And both the capitalisation and volume of shares listed on any Exchange are very important to how it is rated,” he added.
Nwosu noted that the exit of those multinationals would result in an increase in the level of unemployment in the country.
“The employees of GSK will become jobless and that will increase the unemployment rate in the country,” he said.
He called on the Federal Government to intervene to halt the exit of multinationals in the country. “The government should immediately intervene. It should call them to a meeting and sort out whatever grievances they have to stop them from leaving this economy because it will affect all of us.”
GSK cited the harsh business environment, including difficulty in accessing forex as the major reason for exiting the country.
It felt the use of third parties to distribute its products in Nigeria would be more cost-effective.
A professor of Finance and Capital Market at the Nasarawa State University, Uchenna Uwaleke, explained that the NGX had witnessed a number of voluntary delisting in the last couple of years, resulting in the number of listed companies declining from nearly 170 to below 150.
He told The PUNCH that the trend had adverse implications on the market capitalisation and by extension the depth of the market.
“Each time a multinational company is delisted, it reduces the size of the Nigerian stock market and the level of confidence investors and issuers have in it.
“It sends a wrong signal to other public companies that may be considering listing and, therefore, could discourage them from doing so,” he noted.
According to Uwaleke, the delisting of multinationals from the local bourse was not good news to minority shareholders of the company.
He noted that some of them may not be well compensated in the scheme of arrangement.
“Take the case of PZ for example. The current share price is about N20 and the minority shareholders are being offered N21, which does not amount to adequate compensation.”
“For the economy in general, the exit of multinational companies from Nigeria has negative implications for jobs and GDP growth,” Uwaleke added.
The CEO of Sofunix Investment and Communications, Sola Oni, suggested that the burdens of being a quoted company were becoming too big at the moment.
According to him, besides the regulations, the financial obligations are enormous.
“At the moment, it is becoming more of a burden to be a quoted company. The government should encourage quoted companies with incentives such as tax holidays at the point of seeking quotation and patronage of products and services of quoted companies to encourage more companies to list on a securities exchange.”
He recommended that the government should begin to be more creative by expanding the obligations under ESG to private companies that had some threshold of revenue to create a level playing field for those companies and their quoted counterparts.
Meanwhile, he explained that quoted companies are at liberty to apply for delisting from a securities market.
“Much as there are many benefits of quotation, they also come with obligations. For instance, a quoted company is believed to operate at high ethical standards, including adherence to corporate governance and implementation of ESG (Economic, Social and Governance) in their reporting. These companies cannot evade tax and they contribute significantly to the government tax revenue in Nigeria. A quoted company is believed to be operating at global best practices,” he reiterated.
According to Oni, companies are expected to comply with the post-listing requirements of the exchange.
“These obligations revolve around the regular provision of information on the financial performance and any other price-sensitive information, including how they meet expectations of their shareholders. The obligations come with cost implications,” the Sofunix boss noted.
Explaining the reason for the delisting of some firms, he said, “Some companies delist because of the tough operating environment. There is really little or nothing that NGX can do to prevent this. The exchange has the prerogative to force a company to delist if it is involved in illegal business such as the production of firearms.”
In August, GlaxoSmithKline announced plans to discontinue operations in Nigeria, ending its 51-year existence in the country.
The British multinational pharmaceutical and biotechnology company is best known for household brands like Panadol and Sensodyne Toothpaste. In a corporate filing, the pharmaceutical giant said it would adopt a distributor-led model to supply the country with its products.
GSK Nigeria said it was working with its advisers to determine the next steps and intended to submit a scheme of arrangement to the Securities and Exchange Commission for the possible return of capital to its local shareholders.
“In our published Q2 results we disclosed that the GSK UK Group has informed GlaxoSmithKline Consumer Nigeria Plc of its strategic intent to cease commercialisation of its prescription medicines and vaccines in Nigeria through the GSK local operating companies and transition to a third-party direct distribution model for its pharmaceutical products,” the firm said.
“The Haleon Group has also separately informed the board of its intent to terminate its distribution agreement in the coming months and to appoint a third-party distributor in Nigeria for the supply of its consumer healthcare products.
“For the above reasons, and having, together with GSK UK, evaluated various other options, the board of GlaxoSmithKline Consumer Nigeria Plc has concluded that there is no alternative but to cease operations.”
Last year, at the 52nd annual general meeting of the firm, its Chairman of the Board of Directors, Edmund Onuzo, spoke of the impact of FX scarcity on the company’s operations.
“While we expect sustained economic growth in 2023, we cannot overlook some factors which must be duly considered in this quest for economic growth and development in Nigeria. The factors include foreign exchange availability for businesses, insecurity, unemployment, and high cost of doing business, coupled with the uncertainty around fuel subsidy removal,” Onuzo said.
PZ Cussons Nigeria Plc had in a corporate notice in September informed the NGX that its mother company, PZ Cussons (Holdings) Limited had offered to acquire shares held by other shareholders in its Nigerian subsidiary at an offer price of N21 per share.
“In their offer, the PZ Cussons Group explained that they believe the transaction is necessary in order to enable them to significantly simplify and strengthen operations in Nigeria, creating the foundations for the Nigerian business to deliver against its strategy, building a more agile and innovative business, and noted that PZ Cussons has been present in Nigeria since 1899 and expects Nigeria to remain an important market for the group for many years to come,” part of the statement read.