Hmmm!!! Investors
in Nigeria’s capital market say N700 billion have been trapped in private
placements by firms. They urged industry regulators to wade into the perceived
scam. In response, the Security and Exchange
Commission (SEC) warned the investing public to steer clear of such private
placements, as many of them have not been approved.
Trapped
funds in Nigeria’s capital market — especially when it happens in less than
transparent manner — is considered a failure of regulation part of which
contributed to the market crash eight years ago. Continued scam in Nigeria’s
ailing capital market could also erode confidence and deprive the Nigerian
Stock Exchange (NSE) of the much-needed recovery in recession time.
Private
placement is a common method of raising business capital through offering
equity shares. The offer can be done by either private companies wishing
to acquire a few select investors or by publicly traded companies as a
secondary stock offering. Specifically, the investors are urging the regulators
to ‘wield the big stick’ on the firms that reneged on the promise to list their
shares in the secondary market of the NSE, which offers a comprehensive range
of products, including shares or equities.
The shareholders, who spoke with journalists, explained that companies which had undertaken private placement during the stock market boom period had tied down their funds without listing the shares on the Exchange to generate returns as stated in the prospectuses. They maintained that the situation has created much liquidity problem for the equities segment and further depressed the market, as these retail investors do not have the purchasing power to patronise the market.
According to
them, if part of the money is recovered and deployed to the stock market, the
bourse would have the needed funds to spur activities in the market, attract
more investors and bolster the economy. They added that the funds, if ploughed
back, would also mitigate the proliferation of ponzi schemes in Nigeria,
because investors would channel their money to the market. Ponzi is a form of
fraud in which belief in the success of a non-existent enterprise is fostered
by the payment of quick returns to the first investors from money invested by
later investors.
Investigations
revealed that many of the firms were successful in their bids and sourced
over N700 billion, but a large portion of the money was diverted into other
investment outlets outside the objectives declared in the prospectuses. The
President, Nigerian Shareholders Solidarity Association, Timothy Adeshinwo, recalled that between 2007 and 2009, several
companies deceived investors to take equity interest in their firms
through private placements. According to him, these firms lured
investors with the promise that their shares would be listed on the floor of
the NSE after a period of time. But seven years down the line, they
have defaulted. Citing IGI as an example, he alleged the firm had been holding
its yearly meetings behind closed doors, and unannounced, while the
participants are not the real shareholders of the company.
“They promised to list under one year and that at the completion of the issue, they would list the shares on the NSE. It was on their undertaken. They should fulfill their promise. They have been holding annual general meetings and they will not call shareholders. After the death of their chairman recently, they held an AGM and it was stage-managed. It was after the meeting that shareholders will hear about it. It is a very dishonest investment,” he said.
But in a
response to enquiry made by newsmen, the spokesman for IGI, Steve Ilo, said the decision not to
list the shares on the Exchange was based on shareholders’ resolution during a
meeting. He did not give further details even as he expressed surprise that the
issue came up again, after the National Assembly had earlier absorbed IGI of
any wrongdoing after investigating the matter.
The
President, Constance Shareholders Association, Mallam Abubakar Maikhil, noted that “there
are laws that guide the principle for companies that issue a private placement
and SEC do always warn investors against the private placement.” The
President of the Proactive Shareholders Association, Taiwo Oderinde, urged the regulators to review the
prospectuses of the firms and compel them to comply. In its reaction,
the commission, in a statement said it did not regulate private placements by
private companies. It urged the investors to contact the respective companies
for their share certificates.
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