NGX, Shareholders at daggers drawn over capital raise

The controversy over the N35 billion capital raise for which the management of Nigerian Exchange (NGX) Group is seeking approval from shareholders appears to be heating up.

Already both parties are in a mess of law suits and counter law suits with Nigerian Exchange Group looking resolved to torpedo plans by Shareholders to stop her capital raising proposal.

The Intriguing Issues
On September 7, the Nigerian Exchange Group Plc issued a notice of its 61st annual general meeting (AGM) scheduled for September 30. The notice signed by Mojisola Adesola, Company Secretary/ Head of Compliance, hinted at a proposal for a capital raise to the tune of N35 billion, over which the Group’s Board of Directors will be seeking shareholders’ approval.

Some shareholders are not convinced as to why the Oscar Onyema led NGX Group wants to raise a N35 billion fresh funds. They suspect it as a strategy to hijack ownership of the Exchange from them.

While the NGX is bent on going ahead with the AGM as planned and needed approval of majority shareholders, the concerned group of shareholders are hell bent on stopping the AGM or at least ensure that the Capital Raise Proposal is approved.

It is against this backdrop that both interested parties approached the court seeking injunction to stop each other from actions contrary to its interest.

In apparent response to a suit filed against them by the NGX Group Plc stopping them from interfering with the planned AGM and/or process of its fund raising, the shareholders filed a counter application, in Federal High Court Lagos, for an interlocutory injunction to stop the AGM, the notice of which was published in some national newspapers.

Counsel to the shareholders, Messrs S. O & C Legal Practitioners noted in the publication that rather than address their concerns, “NGX Group Plc instead filed a suit” against them.

In its suit marked FHC//CS/ 1808/2002, the NGX is praying the Federal High Court Lagos to restrain the shareholders from interfering with the validity of the AGM, and also allow the AGM to take place, and that resolutions passed are valid and lawful.

The Suit is between “Nigeran Exchange Group versus Olajuwon Olayinka, Idris Ibironke, Bamidele Olawoye, and All Members Of The Class Of Shareholders Of Nigerian Exchange Group Plc Represented By And Having The Same Interests As The 1st And 2nd Defendants” and is pending before the Hon. Justice T.G Ringim, sitting at the Lagos Division of the Federal High Court, Oyinkan Abayomi Drive, Ikoyi Lagos.

Shareholders’ Grouse
The shareholders who spoke to our correspondent over the telephone said that the Nigerian Exchange Group has shortchanged them, by not giving them any returns on their investments since after the demutualisation of the Nigerian Exchange.

They also alleged that the Group of Company led Oscar Onyema are planning to use back door to hijack the Exchange, take it over completely from them using the approach of raising the money (N35 billion) that the present shareholders won’t be able to participate in given the situation of the economy.

Shareholders are questioning what the huge sum of money is meant for. They argued that the company is not into manufacturing but a fee-based service entity.

“Some of the shareholders believe that it is a ploy to take over ownership of the organization. Having seen that it is such an organization that can generate a lot of revenue, they want to use backdoor to dilute the shares and become majority shareholders by claiming they want to raise money overseas in foreign currency,” said Mr. Sola Adeniyi.

Continuing, the Managing Director and Chief Executive Officer, Bestworth Assets and Trust Limited stated “They (referring to NGX Group board of directors) believe that most current local shareholders won’t be able to subscribe to the offer since it is going to be dollar denominated. Then the hard currency will come from nowhere and the offer will be fully subscribed.

“Then all the original shareholders will suddenly become very minute minority shareholders over night. This is a serious matter. And our shareholders are deeply concerned about that,” said the dealing member of the Exchange.

Another shareholder who pleaded anonymity said “Oscar Onyema and his management team are yet to be weaned from the breast milk of old mutual stock exchange ran by him for a decade as non-profit making organization.”

“We can excuse him for not giving returns for the first year after demutualisation. But by second year going into the third year, he is yet to deliver any returns. And now he is talking of diluting our shares by this fresh capital raising.

“He should be able to give something in return. It should not be that at the end of every year, you made money but has spent all and nothing is left. It is not acceptable,” said the angry stockbroker.

Quoting another commentator on the poor performance of Oscar Onyema’s management team, the dealing member said “Someone else has said that we all need to go back and apologize to Ndi Okereke-Onyiuke, former Director General of demutualised Nigerian Stock Exchange. Yes, we should go and tell her sorry, we have sinned against you.”

The stockbroker questioned the NGX management bogus staff size as well as spending spree on trainings and travels, insisting that the Oscar Onyema led management is spending every kobo it has made in since after demutualisation.

“The present structure of the exchange is typical of Nigeria’s civil service approach of staffing. Do we really need the number of staff they are running with, and do we really need to be paying so much in salary and overhead cost?

“Assuming the Exchange is a personal company belonging to one individual like Dangote, will he actually employ that number of staff and be paying them the remuneration they are getting now, and spend all that they are spending on overhead?

“If all those overhead and cost of training are going into the bottomline, then you will see that the revenue will be much higher and there won’t be any need to raise fresh capital for anything,” the stockbroker stated.

NGX Group and N35bn Capital Raise

InsideBusiness learnt that NGX strategies for the fund raising is through a hybrid, a combination of debt and equity. By equity, the Exchange plans raise over 50 percent of the needed funds while debt will be about 40 percent.
The equity raise is expected to be through placing and rights. Placing means that NGX will place its needs before a preferred “Multilateral Institution” who is bringing value, expertise or more money into the Group to drive activities in the market.
Through Rights, existing shareholders will exercise their rights by buying more units at discount price. The third strategy is issuance of debt instrument.
Through a combination of these, the NGX is hoping to raise the N35 billion but that is if and only if shareholders approve the proposal at the AGM.

Justification For Fund Raising

The NGX argument for the fund raising has been that relying on the Exchange alone to make money for the Group will not be sufficient to drive the Group activities. According to a source close to management, the other reason for the fund raising is to drive activities in the subsidiaries of the Group so that they can add value in terms of revenue.

“What they are trying to do is to engage value activities through other subsidiaries apart from the trading platform so that the subsidiaries will be able to contribute to the Group earnings.

“They also want to invest in the Exchange to broaden some other things they want to or they are doing. It is all about enhancing profitability,” said our source.

Dealing Members’ Sentiments

However, Dealing Members of the Nigerian Exchange, the stockbrokers, are not comfortable with Oscar Onyema’s rhetorics. Our correspondent learned that the Exchange recently reached out to them to allay their fears regarding suspicion that someone is going to hijack ownership of the Exchange from them.

The dealing members are not alone in this feeling. Other shareholders who bought into the company after the Group demutualized into a publicly quoted company are also apprehensive of the development.

However, there is a provision in the Memorandum and Articles of Association (MEMART) of Nigerian Exchange Group Plc. dated 15th September 1960 as amended by a Special Resolution passed on the 3rd of March, 2020 which specifies that “No single individual or organization should hold more than 5 percent stake in the Exchange.”

“Assuming anybody or group wants to hijack the Exchange ownership structure, then they will need to think this provision. I don’t know how they will go about it or maneuver it,” said Tajudeen Olayinka, Managing Director and Chief Executive Officer, Valmond Securities Limited.

He said “I know that Dealing Members and some shareholders have protested against the NGX plan to raise fresh funds. But if they (referring to Dealing Members and shareholders) have their way, then it behooves them to exercise their rights by providing the N35billion funds.”

In his personal opinion, shareholders need to allow the NGX Group to go ahead if they want to uplift the Exchange by funding some activities, especially in the aspect of technology, stressing that technology doesn’t come cheap.

© Inside Business

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