Nigerian Stock Exchange seeks advisors for demutualization


The Nigerian Stock Exchange (NSE) is looking for external advisers to drive its demutualization process, according to an interview on Bloomberg with Oscar Onyema, exchange CEO. The securities exchange is currently a private company limited by guarantee under an Act of Parliament, owned by its members who are stock brokers and ordinary members.

A report in report in a Nigeria’s Vanguard newspaper, Onyema had said earlier this month that a technical committee had put forward plans for demutualization but the NSE management has not yet reviewed it, before checking any legal issues and submitting to the Securities and Exchange Commission of Nigeria (SEC) for approval.

Many stock exchanges were formed as associations of their stockbroking members and other stakeholders. “Demutualization” is the process through which the exchange becomes a for-profit company and it usually separates ownership of the exchange from stockbrokers’ licences to trade. It helps the exchange raise capital and encourages it to be competitive and, in cases such as London and Johannesburg, the stock exchange itself becomes a listed entity on its own exchange. The likely adviser for a large and successful exchange such as NSE would be an investment bank.

The NSE website says it was founded in 1960 and is a registered company limited by guarantee, licensed under the Investments and Securities Act (ISA) and regulated by the SEC. It is an automated exchange and provides listing and trading services, as well as electronic clearing, settlement and delivery (CSD) services through Central Securities Clearing System (CSCS) Plc., an associate company to The NSE, which also offers custodian services. The NSE offers securities listing and trading, dissemination of market data, market indices and more.

According to the Vanguard report, in 2008 there was a previous bid to demutualise the NSE but this was put on hold in 2009 as the members could not agree. In November 2012, SEC Director General Arunma Oteh was reported as saying the SEC was also working towards demutualization of the NSE: “The committee on demutualization has finished its work and we are currently working on the frame work and guideline that will be put in place. Once we are through, the Commission will announce it. Demutualization will ensure owners of the Exchange get real value of their entity.”

For further background and legal issues around the process and highlighting suspicion between stockbrokers and the SEC, here is a report by Oluwatoba Oguntuase for Business Day online last August, which also highlights some issues in the company and other regulatory framework. Here is the report on the SEC website from 1 March 2012 when the SEC technical committee submitted its 2-volume report. The Chairman of the SEC Nigeria, Senator Udoma Udo Udoma, said: “To sustain this improved governance, it is important that we ensure that the Exchange is demutualised by a process that is fair and open, transparent and credible.”

Nigerian stockmarket prospects
According to the Bloomberg interview, the NSE hopes to boost its market capitalization to $1 trillion by 2016 from the current $84 billion estimated by Bloomberg. This makes it second-ranked after South Africa’s JSE Ltd. Onyema said the Nigerian exchange intends to list global depository receipts (GDRs) this year and the bourse has identified some20 companies which domestic investors would like to trade.

Blooomberg also reports Onyema was also reporting as warning that Nigeria’s general elections, due 2015, and further tapering of the US quantitative easing programme by the US Federal Reserve might make global institutional investors more cautious, after a year of high performance in which the NSE returned 44.6% to USD investors, close to the top among Africa’s high-performing stock exchanges (see report). He said: “The uncertainty around the election presents challenges for us. International portfolio managers will be more discerning” and “we continue to brainstorm how to manage that risk”. However, with a booming economy and great growth prospects “We believe Nigeria continues to remain a very strong investment destination when you look at frontier markets.”


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