SEC may step into Stock Exchange crisis


FRIDAY, 30 JULY 2010 01:19


An opportunity appears to have been opened for the Arunma Otteh-led Securities and Exchange Commission (SEC) to push its agenda of full regulatory oversight following a fresh allegation of financial impropriety against the management of the Nigerian Stock Exchange (NSE) which grossed a hefty N42.2 billion income in four years. The SEC is in possession of a strongly worded petition sent by Aliko Dangote, a very senior council member of the Nigerian Stock Exchange, that could force it to open investigations into the finances of the Exchange, and test Otteh’s resolve to ensure that SEC performs its market regulatory role effectively.


On Tuesday, an academic and member of Central Bank of Nigeria’s Monetary Policy Committee, Doyin Salami, expressed concern over regulatory slacks in the market, challenging SEC to begin to bite to bring corporate governance sanity to the market, especially its managers.


A SEC source said the petition appears to express deeper concerns over cthe financial management and health of the Exchange, particularly what he described as “corporate governance and transparency challenges” in the financials. Independent investigations yesterday revealed that the Exchange’s auditors had raised a 20-point query over the 2009 accounts and have, therefore, refused to sign and pass them, as satisfactory answers to the query are yet to be provided by NSE management.


In the petition seen by BusinessDay, the NSE management is accused of not presenting to the council or members the audited accounts, seven months into the current financial year. It is also accused of “not presenting to the Finance and General Purpose Committee, interim financial statements for the first and second quarters of 2010.”


The petition is anchored on three planks namely: the expenditure pattern of the NSE; the Excahange’s inter-company and associated companies’ investments; and a huge pension hole in its pension scheme.


“In the last four years (2006 – 2009), the Nigerian Stock Exchange grossed a total income of N42.2 billion with a surplus of only N5.6 billion, representing 13 percent growth over the four year period. “Careful review of the expenditure shows major cost elements are salaries, pension, travel and marketing. At the end of 2007, NSE had a cash position of over N9 billion and as of today, the Exchange is in deficit and is unable to meet its obligations as and when due,” Dangote said in the petition. With regards to inter-company and associated companies’ investments, the petition stated that “current inter-company balances with inter-company/associated companies amount to N3billion, which have been built over a period of years. Similarly, investment in such companies is now in excess of N1.3 billion without any commensurate return being accounted for.”


Dangote also said the pension scheme of the NSE was in trouble as a result of poor management, requesting that the scheme should be “urgently audited to gain a thorough understanding of the extent of the liability of the Exchange. “For instance, I am aware that in the 2008 Accounts, there was an actuarial valuation done which presented a deficit funding of N2.6 billion. A decision was made at that time to amortise this amount over a five year period,” he said in the petition.


He also claimed that out of the funding of the NSE pension, more than N423 million was with a named insurance company, but that the existence of the funds was yet to be ascertained. The petition suggests that the NSE is in financial crisis as it is running behind in meeting its obligations to clients and suppliers, expressing serious worry that the “NSE is currently experiencing financial difficulties mostly arising from undisciplined spending and financial imprudence exhibited by the management of the NSE,” said Dangote.


The petition, dated July 21, 2010, was signed by Dangote, the Forbes Magazine-listed billionaire cum entrepreneur and longstanding member of the Exchange, whose election as president of the Council had been affected by a March 12 court ruling.That ruling is currently being appealed, with another case for the discharge of the ruling also pending, Dangote’s lawyer, Ricky Tarfa, said last week.






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