December 15, 2010, 0914

When Proshare issued its breaking news story at 3.25pm yesterday “NBC Plc to Delist, Sends Notice to NSE”, it elicited a sense of concern and worry about an emerging trend and its implications.  Surprisingly, the shares were not placed on technical suspension.

 

These are early days but the market should be worried, seriously. This move would naturally translate into a reduction of market capitalization, but the more important one is the reduction of the diversity in listed securities, which would impact adversely on liquidity.

 

However, the immediate effect is the blow on the image of The Nigerian Stock Exchange (NSE) as an avenue for raising capital and trading in the securities of listed companies.

 

Obviously, if the owners of NBC Plc believed in the former they would not contemplate delisting; same with the latter. The NSE and SEC should be worried that our market is perceived as having failed in both important criteria of successful markets.

 

Of course, it could be argued that the nature of the business of Nigerian Bottling Company Plc is such that they may not be too dependent on the public capital market for their funding. But the company also enjoyed public relations capital as a listed entity, which should justify its remaining on the bourse when capital raising opportunity is not a major attraction.

 

We should also worry for other reasons.

 

NBC Plc is just one the companies in the AG Leventis Group with presence on The Nigerian Stock Exchange (NSE). Are the other companies also programmed for delisting?

 

How about the history of the listing of NBC Plc on “The Exchange”?

 

NBC Plc and the rest of the companies in the AG Leventis Group came to “The Exchange” on the back of the Indigenisation Programme (12th November, 1973), which raises the question of the sensitivity of NBC Plc to the sensibilities of the Nigerian public.

 

Owners of the AG Leventis Group are simply telling Nigerians that they are no longer obliged to partner with them in their business, just as the owners of Cappa & D’Alberto have done, shouting “to hell with Indigenisation”.

 

We should be worried about the timing of the proposed transaction and the associated valuation.

 

Are Nigerians getting fair exit value?

 

Who is looking out for Nigerians? NSE or SEC? Certainly, neither of the two institutions! The NSE was reported as simply saying that a company was free to list or delist.

 

It can’t be that simple. There is something called an “Exit Price”, which should be scrutinized by both the NSE and SEC, if they know their duties to Nigerians.

 

The proposed structure by NBC Plc according to the statement released “envisages a cash consideration to be paid as compensation to shareholders for the cancellation of the shares of the Company which Hellenic (through its subsidiaries) does not already own. The terms and conditions thereof will be incorporated in a Scheme document to be circulated within the stipulated statutory period to all the Company’s shareholders for their consideration”.

 

“The proposed Scheme includes a cash payment of N43 per NBC share as consideration to the minority shareholders. The proposed price would provide all minority shareholders with a premium of 37.4% to the 30-day average closing price and 43.2% to the closing price of NBC shares on the NSE on December 13 2010 which was N30.03 per NBC share”.

 

Market insiders know that it is because Cappa & D’Alberto Plc has not been forthcoming on this issue (justification of its proposed Exit Price) that it has remained on the Daily Official List of The Exchange.

 

Also, the fact that NBC came to “The Exchange” under the Indigenisation Programme should warrant an engagement with the owners in such a manner that this announcement ought not to have been made in the first instance.

 

Even though the Indigenisation Programme has since been scrapped, there is no denying the fact that there is still a need for foreign companies operating in Nigeria to partner with Nigerians by listing on “The Exchange”.

 

From a market policy perspective, what would be our reason for asking MTN, Etisalat, Shell, Elf, etc to list on The Nigerian Stock Exchange (NSE) when companies like NBC Plc are delisting? NBC is one of the major companies of The NSE and its proposed action impacts on the thinking of those foreign companies the market is desirous to attract for listing on “The Exchange”.

 

Is it possible that NBC Plc is delisting because it finds the demands of listing on The Nigerian Stock Exchange too onerous?

 

Market insiders know that NBC Plc was one of the companies that made a representation to “The Exchange” seeking an exemption from the reporting of their financial forecasts to the market as required under the ISA (2007).

 

Market insiders know that the previous management of “The Exchange” brought this to the attention of SEC, which like most civil service structure, simply opined that it was the law, instead of being an advocate for the market. NBC Plc, it is believed, felt strongly about this issue and its impact on its business, given the uncertain Nigerian business landscape and the legal implications of such announcements.

 

Observable Deductions

From the NBC Plc price trend below, it is evident that the stock has not fully recovered since the NSE downtrend. Also, although the NSE has been implementing strategies to turn the market around, it appears that none of the strategies have helped to restore market and investors confidence. This might have been a big frustration for the management of NBC Plc, though it may also have it own motives, considerations and future expectations.

 

They probably believe that the market has undervalued their stock; therefore, instead of seating back and watching the market cannibalize their stock, they made a decision they believed is in the best interest of the company & their majority shareholders – pay a premium to current minority shareholders and delist.

From a technical analysis perspective, a look at the price and volume for the last 90 days (see below), shows that NBC Plc has been on a curious downtrend until the announcement yesterday – The stock might have attracted investors who are looking to cash in on the premium that the company is offering.

Further, a review of its impact on the market appears to be minimal (until we start to factor the possible action(s) of other members of the AG Leventis Group).

 

From the analysis below, NBC Plc has 1.3 billion units of shares in issue with a market capitalisation ofN41.26 billion. This placed the company in the sixth position within the Food and Beverages sub-sector of the NSE (a sector rated in the 3^rd position in the market in terms of market value – 11.28%; after the Banking and Building Materials sectors with 35% and 30% stake in the entire Nigerian Capital market capitalization respectively).

NBC Plc’s delisting therefore will take out 4.71% and 0.53% contribution to the Food and Beverages sector and total market capitalization respectively.

 Conclusion

Whereas the impact on the market, as is, will not cause a serious dent on the Market Cap; the market should still be worried because if the concerns over onerous listing requirements are the reason for the proposed delisting of NBC Plc, then more companies within the AG Leventis Group will be in line for delisting.

 

Is it possible that the owners of NBC Plc are unhappy that their company could not get a waiver on the Listing Requirements – waiver that had been liberally dispensed in certain questionable circumstances by SEC/NSE that do not compare with theirs in terms of clarity?

 

 

Contributions by the Proshare Research Group, Dr. Chukwumah Biosah, Olufemi Awoyemi and the Analyst-at-Large, Viewpoint Inc, Market Development Consultants to the Proshare Research Service. All opinions on this page/site constitute our best estimate judgement as of this date and are subject to change without notice. Investors should see the content of this page as one of the factors to consider in making their investment decision. Proshare Limited, its employees and analysts accept no liability for any loss arising from the use of this information. All enquiries should be directed info@proshareng.com