21st July, 2015
Free fall of listed equities prices at the Nigerian Stock Exchange (NSE) has stalled the implementation of the new par value approved by the Securities and Exchange Commission (SEC).
Investigations by the News Agency of Nigeria (NAN), revealed that the implementation of the new policy was temporarily suspended following the depressed character of returns on investments at the nation’s bourse.
A management source, who pleaded anonymity, told NAN on Tuesday that “the exchange was worried about the free fall of equities prices and decided to halt implementation of the policy at this critical period.”
According to him, the exchange was being mindful that implementation of the policy might contribute to further fall of equities.
NAN also reports that the All-Share Index, which stood at 34,061.89 as of June 2, lost 3,013.90 points or 8.85 per cent to close trading on July 16 at 31,047.99 points due to equities price depreciation, particularly blue chip equities.
The market capitalization, in the same vein, lost N998 billion to close trading at N10.576 trillion on July 16 as against N11.574 trillion recorded on June 2.
SEC had on June 2 approved the one kobo new par value rule submitted by the National Council of the Nigerian Stock Exchange (NSE).
The exchange, in a statement issued to stockbrokers, said “otwithstanding its par value, the price of every share listed on the exchange shall be determined by the market, save that no share shall trade below one kobo per unit.”
It added that the par value of the company shares traded on the NSE floors had been revised downwards to one kobo from the previous 50k.
Par value is the nominal value of a share as stated in the Memorandum of Association of an Issuer.
Price floor is the amount below which the price of one unit of a share shall not be permitted to trade, and the minimum amount which must be paid for a share in the event of a drop in the unit price of that share.
It stated that the NSE was yet to officially communicate when the implementation of the rule would commence.
The NSE in the statement said that the draft rule was considered by the Rules and Adjudication Committee of Council (RAC) on Oct. 21, 2014, and approved for exposure to stakeholders for comments.
It said that the draft rule was exposed for stakeholders’ comments between Oct. 29 and Nov. 12, 2014.
The statement added that the NSE Council approved the draft rule at its meeting on Feb. 26, 2015 for submission to SEC.
The Association of Stockbroking Houses of Nigeria (ASHON), said the par value rule approved by SEC, would enhance liquidity at the nation’s bourse.
Mr Emeka Madubuike, ASHON President told NAN that modification of shares par value from 50k to one kobo would boost trading in dormant companies.
Madubuike, who applauded the approval, said stocks that had been on offer at the exchange because of 50k par value would witness increase with implementation of the rule.
He said some of these stocks had been on offer because buyers were offering below 50k par value, noting that the rule would boost investors’ confidence in listed stocks.
“Most stocks have been on offer for long because of the par value issue but if allowed to float the market will determine the price”, Madubuike said.
The ASHON president said that investors would no longer carry shares without seeing buyers once the rule was implemented.
He said the market conducted an extensive study on the issue which involved shareholders and operators before it was approved.