In the last 15 years, over 80 companies have left the Nigerian Exchange (NGX) either voluntarily or by regulatory action. The reasons are either they are pursuing strategic opportunities elsewhere or governance, liquidity crisis, and regulatory challenges.
While already delisted companies like Capital Hotels, Ardova Plc, Union Bank, and Flour Mills of Nigeria are premised on pursuing some strategic opportunities for their private investors, a combination of liquidity issues, macroeconomic challenges, and legacy governance challenges triggered the delisting of several others.
Meaning of delisting
Delisting is the process of removing a company’s stock from a stock exchange voluntarily or involuntarily. A voluntary delisting refers to a situation where a company chooses to delist, perhaps for good business reasons including where companies have opted to pursue their long-term goals and strategic objectives as private entities.
Conversely, involuntary delisting is where the Exchange forcefully delists a company because it cannot meet the exchange’s postlisting requirements. If a company is unable to meet its post-listing requirements, it’s no longer an investment-grade company that can be listed in the market.
So, such a company is compulsorily delisted by the stock exchange. When companies delist voluntarily or are delisted, it does not mean that is the end of the shareholders.
As long as the companies remain Public Liability Companies (Plcs), they are still regulated by the Securities and Exchange Commission (SEC), which is the apex regulator of the capital market.
A delisted stock can no longer be traded on that exchange, in this case, on the Nigerian Exchange Group (NGX).
However, the stocks could only be traded on the NASD, a formal Over-The-Counter (OTC) Securities Exchange duly registered by the Securities and Exchange Commission (SEC) to operate a formal OTC market in Nigeria.
NASD was derived from the company’s origin, the “National Association of Securities Dealers”. Trading on NASD is, therefore, a down-grade. “It’s compulsory by regulation for their shares to be bought and sold on NASD,” Mr. David Adonri, the Managing Director and Chief Executive of Lagos-based Highcap Securities Limited, told New Telegraph over telephone.
Implications
Beyond losing access to public capital and its various advantages, the implication of exiting the capital market include the possibility of reputational and credibility damage to the company, especially if the delisting is due to regulatory violations or poor performance.
New Telegraph recently reported that over 20 quoted companies were delisted from the NGX the last two years for various reasons.
“These exit considerations reveal a few key issues in the market, such as the absence of clear incentives for being listed, the difficulties in raising capital, the low valuation of publicly listed companies compared to private companies, and the low exit pricing,” analysts at Proshare noted in a recent report.
“Companies, particularly foreign ones, prefer to go private because of the high opportunity cost of being listed on a Nigerian Exchange.
Analysts believe this should worry the management of the NGX and the Securities and Exchange Commission (SEC), as most companies have indicated their intention to keep operating in Nigeria but under a private arrangement,” the analysts concluded.
Apart from the foregoing, shareholders of failed companies lose their investments, particularly where the company gets liquidated and therefore permanently out of business.
Shareholders are the last of stakeholders to be considered in the event of liquidation. “The failure of a quoted entity means total loss to all the investors.
All the majority and minority shareholders lose their capital in such a company. In that particular situation, there is nothing any persons can do. And that underscores the point that investing in equities is a very risky business.
The shareholders are the residual risk bearers,” said Highcap Securities’ boss stated.
According to him, if a company is bankrupt, and the assets of the company are being shared to the beneficiaries, the shareholder is the last person to get anything.
After the staff get settled whatever the company is owing them, the government will be paid taxes. And then creditors, people who lent money to the company, (secured lenders) will be paid next before the unsecured lenders will be paid.
“If any assets are still left, they will be distributed to shareholders,” said Adonri, stressing that shareholders are the residual risk bearers of the enterprise.
However, in the case of voluntary delisting where, for strategic business reason, a company decides to exit the Exchange, the majority shareholders can
From corporate perspectives, delisting, in recent times, has been a strategic decision for companies to avoid the direct and indirect costs of being listed
pay off the minority shareholders. Thus, the company becomes wholly owned by a core investor after minority shareholders are settled out.
Triggers
From corporate perspectives, delisting, in recent times, has been a strategic decision for companies to avoid the direct and indirect costs of being listed: direct costs in the sense of filing fees, listing requirements, disclosure rules, and corporate governance standards and indirect costs of low valuation compared to corporate rivals and an inability to raise enough capital for growth and expansion, among others.
A few mid-cap companies listed on the Nigeria Exchange Limited (NGX) have chosen to exit the market due to a cocktail of problems including paying multiple taxes, coping with high operating costs, and dealing with the falling value of the naira.
Despite notable market growth in the recent years, the listed equities market has witnessed misalignment with the broader economy.
In fact, the trading activities on the NGX have mirrored about 125 stocks, with about 36 others constantly dormant, signifying they are struggling and cannot court the attention of investors.
“We realise companies are facing an unfavourable business environment, issues with loss of foreign exchange on companies as a result of the devaluation of the currency, double taxation, and inability of investors to remit their foreign exchange proceed and settle their foreign creditors for services rendered,” a concerned stakeholder remarked.
Incentives
In a bid to address the rising trend of companies delisting from the Nigerian Exchange (NGX), Mr. Teslim Shitta-Bey, lead analyst at Proshare, has called for strategic incentives rather than restrictive measures to retain and attract companies to the stock market.
One of the primary incentives Shitta-Bey proposed is tax relief for listed companies. He suggested that while non-listed companies could face a corporate income tax of 30 per cent to 35 per cent, listed companies should enjoy a reduced tax rate of 20 per cent to 25 per cent.
This, he argued, would serve as compensa – tion for adhering to the stricter governance and transparency requirements that come with being listed.
“When you are listed, you distribute the gains of your operational efforts to a wider category of investors,” he said, adding that this inclusive approach benefits both companies and the broader economy.
Shitta-Bey further emphasized that beyond tax incentives, the government could play a pivotal role by giving preference to listed companies when awarding federal or state contracts.
“If I’m a construction company listed on the NGX, I should have an edge over non-listed companies for government contracts because listing signifies high governance standards,” he noted.
Beyond encouraging private sector listings, Shitta-Bey urged the government to set an example by listing state-owned enterprises on the NGX. He cited the Nigerian National Petroleum Corporation (NNPC) as a prime candidate for partial listing, suggesting that even a 5% float, akin to Saudi Aramco’s model, would promote transparency and good governance.
“When a company like NNPC is listed, its books will be audited, and the public will have access to quarterly and annual reports. Shareholders will ask questions, and this drives better corporate governance,” he explained.
To further enhance the market’s appeal, Shitta-Bey recommended unbundling NNPC into separate upstream, midstream, and downstream entities, each with its own market valuation.
This, he asserted, would attract both domestic and foreign investors, strengthen market confidence, and ensure more accurate corporate valuations.
In conclusion, Shitta-Bey stressed that creating meaningful incentives — tax breaks, contract preferences, and government-led market participation — is essential to reversing the delisting trend and building a more vibrant, transparent, and attractive Nigerian capital market.
Cost of capital key to firm’s retention
For Mr. Tajudeen Olayinka, a senior market operator, key incentive for companies listed on stock exchanges primarily is to raise long-term capital at a lower cost.
However, he noted that regulatory burdens and certain economic challenges often drive companies to delist. To encourage companies to stay listed, the Managing Director and Chief Executive Officer of Wyoming Securities Limited, suggested that authorities address concerns around capital accessibility and competitive pressures.
Last line
Olayinka stressed that a stock exchange provides a fair pricing mechanism for shares and corporate bonds, making it easier for firms to attract investment.
He therefore urged policymakers and regulators to create an environment where listing remains advantageous, ensuring companies can raise funds efficiently while managing regulatory demands.
