Apparently
dissatisfied with level at which investors are short-changed in share
reconstruction exercises, stock market investors have stressed the need for
listed firms to stick to the initial policy of share buyback to enable
shareholders to get value for their investment.
Indeed,
the shareholders, who opted for a ‘share buyback’, argued that post share
reconstruction, the stock price of many listed firms are often adjusted
downward below the initial price, thereby short changing investors.
A
share reconstruction is a process whereby a company reduces the total number of
outstanding shares it has by cancelling out shares it does not need while share
buyback is the re-acquisition by a company of its own stock. It represents a
more flexible way (relative to dividends) of returning money to shareholders.
The
shareholders therefore suggested that the regulatory authorities should insist
on the process of share buyback and ensure that companies implement share
reconstruction properly, noting that investors are being cheated if these
strategies are not correctly implemented.
According
to them, with the little signs of recovery and capital appreciation witnessed
in the market in recent time, there was need for the whole gamut of the market,
including listed firms to be cautious and avoid any action and decision that
could erode investors’ confidence in the market.
Specifically,
the Publicity Secretary of the Independence Shareholders Association of
Nigeria, Moses Igrude, in an
interview, explained that the law stipulates that listed firms’ should opt for
share buyback whenever there is need to reconstruct their shares.
He
said: “Share reconstruction is not the best; there is
nowhere the law said firms should do share reconstruction by fiat. When you
want to reconstruct your shares, you need to buy it back and give the market a
notice on the percentage you want to buy either 20 or 25 per cent and you buy
it over time. That is how it is supposed to be done.
“But now, the board will just come up, go to the regulators and said
we are reducing by 20 per cent, 30 per cent or 40 per cent at the end of the
day, shareholders will be left with nothing and the argument is that they will
raise the price and when they raise the price, it will balance up with what
they have reduced.
“Reducing the price is not the issue; it is only management
performance that can drive your price in the market so to us, it is not the
best, it is a way of cheating the shareholders. The regulators should look at
it critically, it is not the best, and we have been saying it that they are not
the best, regulators should insist that they should follow the law.
“The law says that if someone has paid for, you must pay back the
money to shareholder or you must buy back from the market. They are now saying
they should do fiat and that is not the best. Union bank did it, Cadbury did it,
Standard Alliance followed and the latest is C&I Leasing.”
The
President, Constance Shareholders Association, Mallam Shehu Mikail, noted that retail shareholders are robbed of
their portfolio in the process of share reconstruction because the number of
shares prior to the exercise is reduced significantly post reconstruction.
According
to him, in most countries, instead of embarking on share reconstruction, a
corporation can repurchase its own stock as a ‘buy back’ by distributing cash
to existing shareholders in exchange for a fraction of the company’s
outstanding equity; that is, cash is exchanged for a reduction in the number of
shares outstanding. He noted that the company either retires the repurchased
shares or keeps them as treasury stock, available for re-issuance. “Why can’t we go for this option, this is the only way we can
attract more retail shareholders and increase market confidence,” he
asked
The
President, Proactive Shareholders of Nigeria, Taiwo Oderinde, explained that
some companies embark on a scheme of share reconstruction when they think their
share price is stagnant. (GUARDIAN)
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