Premium Board: NSE’s Bold Step towards Global Exposure

The launch of a Premium Board is capable of boosting the performance of the Nigerian Stock Exchange, writes Goddy Egene

Since the Oscar Onyema led management took over at the Nigerian Stock Exchange (NSE) in 2011, it has made efforts aimed at transforming the exchange so that it can play its crucial role of supporting economic growth by way of providing an efficient and sustainable capital market. In consonance with the transformation journey, the NSE launched the Premium Board last week.

The philosophy behind the creation of the new board was to provide a platform for local entities that meet the required standard to be exposed to accessing cheap capital from the global market.

Part of the listing rules states: “The Exchange through the Premium Board aims to provide for greater global visibility for eligible Nigerian entities, which will make it easier for them to attract global capital flows and reduce the cost of borrowing.”

Prior to the launch of the Premium Board, the NSE had two boards, the Main Board and the Alternative Securities Market (ASeM),

Qualification

It was expected that about 10 companies will make the new board. However, the NSE said only three companies met the stringent requirement of the NSE to qualify for the pioneer listing on the Premium Board. They are Dangote Cement Plc (with market capitalisation of N2.87 trillion), Zenith Bank Plc(N587.43 billion), and FBN Holdings Plc (N277.7 billion).

According to the NSE, the listed companies all passed the Corporate Governance Rating System (CGRS) before applying for the Premium Board. The CGRS comes in three stage and directors of prospecting are expected pass the test for the entity to qualify.

In line with the rules guiding the operations of the new board, an Issuer aspiring to be listed on the Premium Board will have to seek admittance by making a written request to the NSE as well as execute the General Undertaking for listing on the board.

Such entity must have already been listed on the Main Board of The Exchange however, new entrances wishing to list on the board may be admitted provided they meet the other stipulated standards.

This includes submitting itself for evaluation under the CGRS test and scores a minimum rating of 70 per cent. In addition, the entity must have achieved a market capitalisation that is equal to or excess of N200 billion ($1 billion) at the point of applying for listing.

The NSE test for listing on the Premium Board is a threefold practical assessment process which involves each director of the company carrying out a self-evaluation. The proceeds of the self-evaluation are then presented to the company’s stakeholders, while the NSE carries out and independent survey of the self-evaluation to collaborate it with the stakeholders’ assessment. The next stage is to get experts, who then took the inputs from that survey, go ahead to analysis them with a view to make sense out of them.

The last stage is the judiciary awareness test. Here each director of the companies is required to do a test. The results of all assessments are then put together and appropriate weighting done to score your performance. The standard is that each director must score 70 per cent to be judged to have passed your corporate governance rating.

Remaining on the Premium Board

Once listed on the Premium Board, an issuer is expected to keep to the highest standard of corporate governance as well as keeping the post listing requirements of the NSE. To ensure that listed companies comply with the required standards, The Exchange from time carries out evaluation on the performance of issuers. The period for such evaluation is determined by the NSE.

Given that one of the reasons for establishing the board is to ensure that issuers operate by stringent corporate governance standards, entities that have the opportunity to be listed on the board must comply with the Securities and Exchange Commission (SEC)’s Code of Corporate Governance.

The issuer is further required to disclose in its annual report a list of its codes of corporate governance to which it subjects itself.

Besides, in accordance with global operating standards, the annual report of the issuer should include a statement signed by the Chairperson of its Board of Directors and the Company Secretary, disclosing the extent of its compliance with the provision of the code of corporate governance. Where it fails to comply, a detailed statement of the facts of its non-compliance and explanation thereof must be included in the annual report.

Sanctions

Bearing in mind the fact that people and institutions will always err, the NSE has put in place some stringent sanctions for breaching any of the listing rules, some sanctions have been put in place, including fines, suspension from trading, delisting from the NSE or transfer to another board or public reprimand.

NSE CEO’s Comments

Speaking at the launch of the Premium Board the Chief Executive Officer of the NSE, Onyema said: “The exchange is a member of the United Nation’s Sustainable Stock Exchange Initiative, which is designed to encourage stock exchanges to influence their ecosystem to adopt sustainable ways of doing business around Environmental, Social, and Governance dimensions. The Premium Board is one result of our commitment to place corporate governance front and centre as a way to improve the climate for doing business in Africa. We expect that companies on the Board will enjoy the highest levels of visibility and appeal to investors looking for large companies with the highest standards of corporate governance.”

Expatiating on the Premium Board Index (PBI), which was launched simultaneously to act as a performance assessment of the listed equities on the Premium Board, Onyema said, the PBI would serve as a benchmark for investors looking to track the performance of large firms with excellent corporate governance and sustainable business models.”

“Typically, similar indices outperform their market wide index by double digits. The NSE Premium Board Index had a four year average return of 17.65 per cent versus the All Share Index return of 11.31 per cent over the same period”, he stated.

Also speaking on this development, the Executive Director, Business Development, NSE, Mr. Haruna Jalo-Waziri, stated that “the launch of Premium Board and the Premium Board Index is in line with The NSE’s commitment to promoting and continuously developing a more transparent, liquid, accessible market. The Premium Board is for issuers with minimum market capitalisation of N200bn and highest corporate governance standards. Companies aspiring to be listed on the Premium Board must achieve a minimum score of 70 per cent on the stringent CGRS. In addition, they are required to maintain a minimum free float of 20per cent of their issued share capital or a free float value equal to or above N40 billion.”

Companies’ Comments

Commenting on the new board, the CEO, Zenith Bank Plc, Mr. Peter Amangbo said: “To us in Zenith Bank it is history being made, and we are very happy and pleased to be part of its. It takes a lot for any company to be listed on the Premium Board, in terms of disclosure, in terms of corporate governance; it is a very rigours process for any organisation to go through.

According to him, making it to the elite board is even more of a responsibility.

“As an organisation, you are like the first among equal, you are like a flag bearer to other listed organisation so you are expected to do everything correctly, you are expected to set standard. At the end of the day if you do things correctly in terms of performance, you will found out that it will reflect on the valuation of the company. So we expect that Zenith Bank will be rewarded.”

Speaking in the same vein, the CEO of FBN Holdings, Bello Maccido said: “You are expected to meet the highest standard of corporate governance. You can see from our records that we have maintained our reputation as an institution.”

“However, we expect more inflow of investment into our companies as well as a positive impact on the share price of the FBN Holding stock on the floor of the NSE”, he added.

In line with the rules guiding the operations of the new board, an Issuer aspiring to be listed on the Premium Board will have to seek admittance by making a written request to the NSE as well as execute the General Undertaking for listing on the board