Running on empty: The lack of direction by the Board of the Nigerian Exchange Group


When on March 30, 2017, members of the then Nigerian Stock Exchange passed a resolution at an extra-ordinary general meeting authorising their national council to commence the process that would demutualise the Exchange, it felt like a ray of sunshine for the average mom and pop to share in this wealth creating platform called The Nigerian Stock Exchange.

The idea to demutualise had been in the works since 2001; however, was not until 2015 that the Securities and Exchange Commission issued rules on the demutualisation of exchanges in Nigeria.

The demutualisation of The Nigerian Stock Exchange was eventually completed on March 10, 2021, a process that created 432 new shareholders made up of 255 dealing members (stockbrokers) and 177 ordinary members (individuals).

A demutualised Exchange was perceived as a major powerhouse for wealth creation. This was reflected in the price of the shares as it was listed at a price N27.90 as stockbrokers confirmed that their clients were falling over themselves to become shareholders.

People were extremely reluctant to sell because of the strong profit prospects. These stockbrokers confirm that on a daily basis it got to a point that there were demand for over 50 million shares with no sellers offering to sell a single share, “AND THEN THE NIGHTMARE STARTED”

In September 2021 the NGX published its 2020 Financial Account, the first published result as a demutualised exchange. The result was nothing short of a nightmare, sheer disaster.

The new demutualised Exchange recorded an operating loss of =N=93.96 million compared to a =N=12.992 billion profit recorded by its closest rival Exchange, FMDQ for the same period.

With no inclination or determination to come out and bat for their newly minted shareholders the executive management and board of the NGX had no reservation spending the =N=6.02 billion income made that year on personnel and operational costs, out of =N=6.11 billion; that was 98.52% of their income (spending over =N=3.1 billion on just 269 staff members).

To confirm the board and management’s insensitivity to a return on investment to shareholders at that 2020 annual general meeting, instead of proffering ways to address improved returns to shareholders, their major preoccupation was to argue that The company’s executive management was not being compensated enough and to demand that shareholders dig deep into the company’s shareholders funds and allot 200,419,990 ordinary shares for the operation of a long term incentive plan for executive management consisting of a deferred bonus plan (DBP).

The equivalent value of this share bonus scheme (gift) to staff, if the company had in the alternative sold those shares in the open market at the company’s listing price would be =N=5,571,675,722.00.

The board was not done yet. At that same general meeting, they also asked shareholders to approve for the payment of =N=126,000,000.00 to all non-Executive members of the erstwhile National Council of the Nigerian Stock Exchange as at 31st of December 2020.

That was the 9th of September 2021. Fast-forward to the 7th of September 2022, the Nigerian Exchange Group published its full-year account for 2021 as posted on its website and guess what? The haemorrhaging is still persisting.

Just like in 2020, the company reported Income for the year 2021 of =N=6.80 billion and expense of =N=6.52 billion. And just like they did in their 2020 AGM the board and management intend to demand that the shareholders reward the Board and Executive Management for such sorry performance.

The Board, in their published notice to shareholders, are beating their chest and saying to the shareholders that they have done excellent work and that shareholders should allow them to continue on this downward trajectory for another Year.

The Board, from the published notice to shareholders are seeking =N=35 billion of new capital, preferably in “Dollars”, without providing an articulated capital allocation plan as well as utilisation plan.

Two questions, if I were a shareholder, would love to ask at this meeting holding on the 30th of September 2022: (1) Why should I trust you with new money when all you have done is frittered what you have for your personal benefit with no recourse to me, the shareholders that invested my hard-earned money into the company (2) why has the net cash position been dropping? Rather than increasing, it dropped over the years from =N=11.5 billion in 2019 to, =N=10.3 billion in 2020, to =N=7.0 billion in 2021.

The Shareholders of The Nigerian Exchange Group need to wake-up and end this nightmare; the NGX should be a bastion of everything that is desired in a listed company.

World class Corporate Governance
Current Chairman and Chief Executive have been at the helm for close to 11 years
Competitive Return on Investment and Return on Equity
Company has done two years post demutualisation without paying a single kobo dividend
Best in class Expense Management programme (cost to Income earned)
FMDQ cost/income of 46% for 2021
NGX cost / income of 96% for 2021
The current market price of shares of NGX of =N=19.80 as against the listing price of =N=27.90 is a statement and reflection of investors negative perception, not just on the NGX Group and the people running it, but a declaration of non-confidence on the people running and overseeing the actual Exchange. Even the chairman alludes to this in the Chairman’s statement in the just published annual account “the Group is trading at about 17x compared to the global peer average of 20x, which suggests that its shares are undervalued relative to other Exchanges globally.

In my humble opinion, the current board and executive management is self-serving and are running on empty, empty on value creating ideas; empty on their ability to lead; empty on discipline; empty on empathy and compassion for their shareholders; empty on trust; empty on corporate governance.

Dele Ajanaku is Secretary General of Nigeria for All Nigerians, an advocacy group

Culled from Nairametrics

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