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Sanctions, key to developing Nigerian capital market

Sanctions, key to developing Nigerian capital market

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Chinwendu Obienyi

Developed economies around the world are not immune to sanctions whether it is an economic one or not, rather, these sanctions are put in place to restore confidence, instill the culture of good corporate governance practices among companies as well as attract investors.

The capital market is not an exception. This is because in order to develop the capital market, institutions must abide by corporate governance codes and meet regulatory standards laid down by regulatory bodies.

The set of policies and law in the code will put the market operations of public corporations under tighter regulatory oversight for better performance and as a result, infractions will also be more speedily dealt with.

With this development, the era of insider abuse, low professional standards, conscious and unconscious biases, deliberate corruption such as declaration of false profits and other unethical practices will reduce.

However, the Nigerian capital market has moved forth and back on some issues, which have resulted in stunted growth over the years. This has invariably affected the Nigerian economy, which is in search of long term funding for the purpose of capital formation through infrastructure, especially privately funded infrastructure.

Such issues revolve around companies breaching listing rules, delisting, corporate governance and late submission of audited financial results.

Thus when Daily Sun stumbled on X-Compliance Report of the Nigerian Stock Exchange (NSE), it observed that 36 quoted companies failed to file their audited financial statements after the regulatory due date, precisely full year ended December 31, 2017 and third quarter of 2018.

These companies include Abbey Mortgage Bank Plc., Academy Press Plc., International Breweries Plc., Mutual Benefit Assurance Plc., NPF Microfinance Bank Plc,  AG Leventis Plc., PZ Cussons Nigeria Plc., Meyer Plc., Presco Plc. and Royal Exchange Plc., among others.

The Exchange, in its X-Compliance report, explained that the initiative was designed to maintain market integrity and protect investors by providing compliance-related information on all listed companies.

The report thus stated: “Companies that are listed on the Exchange are required to adhere to high disclosure standards, which are prescribed in Appendix 111 of the Listing Rules.

“Financial information, which is periodic disclosure and ongoing material events disclosure should be released to The Exchange in a timely manner to enable it efficiently perform its function of maintaining an orderly market.”

The Securities and Exchange Commission (SEC) and NSE, in their quest to achieve a world-class capital market, reiterated that they will continue to maintain zero tolerance posture on dealing member firms and quoted companies on violations of rules and regulations.

However, some analysts are of the view that sanctions pose bigger risks to development of the market as penalties or fines imposed affect shareholders of these companies who are penalised.

Speaking to Daily Sun, Patron, Noble Shareholders Solidarity Association (NSSA), Chief Timothy Adesiyan, noted that the size of fines imposed on these companies have effects on dividends as well as drive potential investors away from the country.

He said, “we have been crying about this for long now, that these penalties demoralise potential investors as well as existing ones in the market because these monies that are supposed to be paid to shareholders are being used to pay fines as these regulators are guilty and live on shareholders’ funds as parasites but I am not saying sanctioning companies for not meeting up with the regulatory requirements is bad but the volume of the penalties is so much that they are eating into the shareholders’ fund.”

However, Economic analyst, Dr. Austin Nweze, disagrees with Adesiyan’s view, saying that sanctions bring confidence rather than chaos.

According to Nweze, sanctions are necessary to keep the economy of a nation moving in the right direction which in turn births investments.

“These shareholders have to hold the management of these companies accountable at different AGMs as sanctions are more about good corporate governance. I know it will eat into their dividends as some of these companies might not pay dividends in 2018, so sanctions must be so that companies will fall in line and obey the Exchange’s rules because where rules are absent, chaos rises,” Nweze explained.

For his part, Research Analyst, Capital Bancorp Plc, Victor Chiazor, believes that these penalties or fines  checkmate the excesses of some of these companies.

His words: “The truth is that when there are no implications for your actions, people tend to do whatever they like and so I believe sanctions put some of these companies in check. Most companies who are aware of deadlines work round the clock to beat those deadlines but the truth is, in a way, those sanctions again would force most of them, especially those who want to meet those deadlines, to be better at what they do. But for those who do not meet the deadlines, those sanctions may not necessarily make them better, especially those ones who keep doing it all the time.”

He, however, called on NSE to find better ways of engaging with the companies on how to reduce the trend of failing to meet regulatory requirements.

“It might be better for NSE to engage the public to know if they actually engage these companies who fail to file on time as this might raise issues that are not available to the public. If a company fails to file on time and it is noticeable that this same company keeps failing to meet regulatory requirement, then NSE has to review with them the standards once again, find out what the issues are and for any company that does not give significant reason, I think at that point, sanctioning them might continue,” Chiazor said.

The post Sanctions, key to developing Nigerian capital market appeared first on The Sun Nigeria.

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