Failure by Union Bank of Nigeria (UBN) to launch a N50 billion Rights Issue in the second quarter of 2017, it promised at its 48th Annual General Meeting (AGM) held in Lagos, has been linked to the lack of local investor’s confidence, mistrust and decline of 20 per cent free float of public share to 14.11 per cent, investigations by The Daily Times has revealed.
It is, however, worthy of note that free float is commonly known as the percentage shares of a company on the exchange held by the public for trading activities.
In a petition, which was addressed to the Senate President, Federal Republic of Nigeria, National Assembly, exclusively obtained by The Daily Times, tagged, ‘Investor’s Confidence in the Capital Market: Issue of Public Float Shares Flagrant Abuse’, stated, “We, concerned shareholders’ group deem it duty bound to brief you on latest development, that may further erode investor’s confidence in our capital market. This calls for urgent action to prevent calamity, as it is now, the current situation may eventually kill the market confidence, if not addressed drastically, soonest.”
The document was signed by the President, Renaissance Shareholders Association of Nigeria (RSAN), Amb. Olufemi Timothy and the Secretary, Mr. Ralph Ogedengbe, noting that investor’s confidence remains the fatal oxygen that the capital market thrives on, and if not protected and duly safeguarded, the market may die abruptly.
According to the petition, based on all these aforementioned, “we hereby seek your Excellencies’ urgent attention and action on the issue of abuse of public (free) float of shares on the Nigerian Stock Exchange (NSE).”
The local investors, in the note explained that investor’s confidence could only be sustained if the market regulators; NSE, the Securities and Exchange Commission (SEC), are very strict about its rules on disclosures and transparency. One of such rules that seem to be carelessly or not strictly enforced was the free float post-listing rule.
“On the NSE, we have observed that the compliance on the free float shares rules are treated with levity instead of ensuring strict compliance by companies, the authorities of the exchange look the other way, thus allowing this critical post-listing rule be flouted at the expense of investors. The issue of public float (Free Float) remains a potential threat to our market ability to grow and develop and investors’ confidence.
“It is obvious that an exchange that treats free float with levity, less strictness, may soon suffer, lose investors’ respect and confidence, as you will agree with us that low public float of shares on any market. creates room for manipulations, which also negatively alters the ability to buy and or sell such company’s shares (with low public float)”, it stated.
It therefore, notes that The NSE has a post-listing rule of 20 per cent free float of shares for companies on the exchange (Mandatory). “But to our chagrin and dismay, many companies have persistently violated this rule without any restriction from the exchange authorities which now serves as basis for others to follow.”
According to the petition, “the investing public remains in darkness, with fears of losing their investment, as to the reasons they permit this abuse and latest development on what the exchange was doing on this act to protect the market and investors (being aware of the danger) and why this trend has continued unabated.”
While speaking in an exclusive telephone chat with our correspondent over the weekend, Olufemi Timothy said, he is one of the people who objected to the Union Bank’s right issue since last year, because it is wrong to come for right issue at a point that so many people are at disadvantage.
In his words: “We minority shareholders are at disadvantage, because when local investors are in a recession economy, how can you say you want to do right issue? When you know that the other party will not be able to subscribe, and you want to bring your own money from foreign countries, which is cheaper now. If you bring dollar from abroad now, you can buy the whole of Nigeria, and you know there is a core investor who is a foreigner an American in Union Bank.”
He said further that the core investors have insisted that they are bringing dollar to come and buy their own right, and this is coming at a time that they know Nigeria is in recession.
He said, “No way, Nigeria minority cannot buy. I said they only want to explore the situation and buy out the minority, because this is not the appropriate time to do right issue and if you know you have that kind of money, find a way of giving it into the bank without touching the equity, equity investment is not encouraging in the present Nigeria, because the country is in recession.
“I think by now, they are also having problem in bringing the dollar; and they cannot come out and our own association has always been advocating that no foreign national, who is a major investor, should come for right issue by now, because at the end of the right issue, free float of shares would be abused.
There is no way they will not buy more than 80 per cent, on the basis, regulators should regulate well, if they are patriotic. they should not approved any right issue that abused public float of 20 per cent. So, if any foreign investor wants to increase his stake, it should not be more than 80 per cent in the company.”
He said,“So, most of the foreign investors have become lawless; they know there is a law in Nigeria that says 20 per cent must be free float, and the highest share you can hold is 80 per cent. I don’t know what is wrong with the Union Bank that it cannot come out for it so-called right issue that is so arrogant about, even though it is good for minority investors.
I think, Union Bank are burning their fingers now, because they cannot do right issue by now, if you have that money, you should assist the company, after all, you are the management, the chairman of the board. They must understand that there is a law in this country that says there is 20 per cent free float of shares, which every foreign investor must obey.”
According to him,“With just 14.11 per cent free float of shares as against the 20 per cent threshold, simply means that Union Bank is already abusing the law and still want to do right issue and the regulators are not doing anything about it”, he lamented.
But on a contrary view, National Chairman, Progressive Shareholders Association of Nigeria (PSAN), Mr. Boniface Okezie, told our correspondent at the weekend, that after the right issue was approved by the shareholders at the bank’s last AGM, which was held barely two months ago, that the lender would still have to do some compilation and filling with SEC.
He defended the bank that may be SEC has not make the approval and that the lender is still on track, adding that it is not yet too late because the second quarter has not been exhausted.
“I belief anytime they finished with the arrangement they will come onboard, because to do a right issue of N50 billion is not easy and a lot of underground work has to be perfected”, he explained.
Responding to question on the likelihood of local investors buying into the right issue if eventually goes life, Okezie, said, “The most important thing is to prepare the minds of foreign investors, who are currently the majority shareholders. Nigerians must not be left out because, they are already shortchanged, because of the structure of the shares Funke Osibodu (former CEO of UBN) bided that time, given the majority to the so called investors.”
He said, “So, for Nigerians to get themselves back in the system, they have to take their rights. Failure to do so, they are given the chances for the foreign investors to mop up; and that is why it is very important for Nigerians, who are investors in the bank, to take up their rights when it is open.”
While commenting on the likelihood of the majority shareholder getting more than the regulated 80 per cent shareholding, he said, “I think, they would have that at the back of their minds that they cannot have more than 80 per cent as the core investors, because there is a regulated 20 per cent free float of share, so as to prevent from being de-listed from stock exchange.
I don’t think Union bank wants to be delisted from stock exchange; they know their limits because Nigeria investors would not be happy, and that is why Nigerian shareholders need to be repositioned and take their shares back.”
Reacting on the delayed right issue, Head, Corporate Affairs & Corporate Communication, UBN, Ogochukwu Sylvia Ekezie, told our correspondent on the telephone at the weekend that, everything was on course.
According to her, “We are now going through the regulatory approval; and everything is with the SEC, and once the approval comes through, it will go ahead as planned.”
She said that there is an application process to the right issue; and that the bank is going through the process now, assuring that aside the approval process there is no issue.
But when pressed to comment on the bank’s current 14.11 per cent free float of share as against the 20 per cent required by the NSE, she said: “I’m not in position to answer that question; that is a question somebody else is in a better position to answer.
So, if you can send me an e-mail or get back to me on Monday, but know that whatever it is that we are doing the regulators are very much aware, NSE, SEC and all the regulators are involved. We would be in compliance with whatever the regulators expect.”
According to a financial expert, Mr. Teslim Shittabey, who postulated that companies planning right issues that have lesser free float shareholdings are likely to succeed, because the majority shareholders would easily pick their right issues, which bulk of the offer.
In Union Bank, Atlas Mara Limited and Union Global Partners Limited, own 85.89 per cent of its total shares.
However, the Chief Financial Officer of the bank, Mrs. Oyinkan Adewale explained in a video message posted on Youtube, that the right issue would be used to fund the bank’s growth. “We would lend part of the fund to selected group sectors of the economy,” she said.
According to her, the bank’s lending process would be very strict, ensuring that it meets risk acceptable criteria.
Union Bank which is planning to raise N50 billion, is battling higher Non-performing loan ratio, which stood at 7.65 per cent in Q1 2017 and liquidity ratio which is just 7 per cent higher than the 30 per cent regulatory minimum.
Although the lender’s gross earnings grew 24 percent to N33.8 billion during this period, its PAT declined 4 per cent to N4.5 billion.