Inside the Nigerian Stock Exchange's Demutualization
The Nigerian Stock Exchange recently concluded its demutualization process, creating a new holding company and moving toward its vision of becoming Africa’s leading capital market infrastructure provider.
We spoke with Oscar Onyema, OON, the chief executive officer of NGX Group Plc., to get his insights on the demutualization process and the influence on the Nigerian financial ecosystem and society.
You have just completed a demutualization process. For our readers who are less familiar with this expression, can you please tell us, in other words, what does this mean?
Demutualization is a process by which a member-owned company legally changes its structure in order to become a profit-making company owned by shareholders. In a demutualization process, members may receive structured compensation or ownership conversion rights in the form of shares in the new for-profit company. Also, the trading rights that members have are decoupled from ownership. Demutualization will, therefore, enable the company to conduct its business activities as a profit-making entity. It would also mean a change in operational structure and leadership.
Under the demutualization plan of the Nigerian Stock Exchange, a new non-operating holding company, the Nigerian Exchange Group Plc (‘NGX Group’), has been created. The Group has three operating subsidiaries, namely: Nigerian Exchange Limited (NGX Limited), the operating exchange; NGX Regulation Limited (NGX REGCO), the independent regulation company; and NGX Real Estate Limited (NGX RELCO), the real estate company.
When and why did you initiate this process?
The demutualization of the exchange concludes an aspiration that was conceived many years ago. We believe that the Nigerian capital markets should play a role commensurate with Nigeria’s status as Africa’s largest economy. As such, we thought deeply on how to expand the market in such a way that it is reflective of the size of the Nigerian economy, and demutualization was the clear path to take because it gives us the flexibility to access capital, improve our corporate governance structure and expand our business across various verticals and geographies.
More importantly, demutualization strategically places us in a position to provide liquidity to our members while stimulating the capital market ecosystem to grow at the same pace as the economy. Furthermore, this move will see the exchange evolve in a fashion similar to other demutualized exchanges, such as Nasdaq, the New York Stock Exchange, London Stock Exchange and Johannesburg Stock Exchange, which have experienced significant periods of dramatic growth following their demutualization.
Can you please elaborate on the steps you have taken to complete this journey?
The journey began with Members of the NSE approving the demutualization idea for the exchange at an Extraordinary General Meeting (EGM) in March 2017. This was followed by the signing of the Demutualization of The Nigerian Stock Exchange Bill into law in August 2018 by the President and Commander-in-Chief of the Federal Republic of Nigeria, President Muhammadu Buhari GCFR. In December 2019, the Securities and Exchange Commission of Nigeria (SEC), in a No Objection letter, gave its consent to the NSE, which led to the Court Ordered Meeting and EGM in March 2020, where members unanimously agreed to the requisite resolutions to convert from a not-for-profit entity limited by guarantee into a profit-making, public limited liability company owned by shareholders.
In May 2020, The Federal High Court, Lagos, granted an order authorizing the scheme of arrangement for the demutualization exercise, finally leading up to the final approvals from the SEC and Corporate Affairs Commission (“CAC”). With these approvals, NSE can now activate its Transition Plan to a new operational structure and holding company.
How will this demutualization influence you as an exchange, and what are the benefits?
Globally, many member-owned exchanges are demutualizing to unlock their true value and diversify operations. With demutualized NGX well-positioned to enable strong economic growth and contribute to the development of the Nigerian capital market as it will make Nigeria more attractive to foreign investors. Other benefits of demutualization include:
- Investor participation opportunities
- Improved corporate governance
- Access to broad pools of capital
- Diversification of businesses
- Increased global brand and visualization of the exchange
- Technological innovation
How will this also influence the Nigerian financial ecosystem and society?
Demutualization of the NSE is pivotal in that it creates new strategic opportunities that will enable the Group to realize its vision of becoming Africa’s leading capital market infrastructure provider. It will also give rise to a more agile exchange that is better able to support the growth of the capital market and the economy through increased capital market activity, improved investor confidence, as well as opportunities for new dynamic relationships, strategic partnerships and capital raising flexibility, both locally and internationally.
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