T.The Nigerian stock exchange recently completed its demutualization process, created a new holding company and turned to its vision of becoming Africa’s leading capital markets infrastructure provider.
We spoke to Oscar Onyema, OON, Chief Executive Officer of NGX Group Plc., To get his insights into the demutualization process and impact on the Nigerian financial ecosystem and society.
You have just completed a demutualization process. In other words, can you tell our readers who are less familiar with this term what this means?
Demutualization is a process by which a member-owned company legally changes its structure to become a profitable, shareholder-owned company. In a demutualization process, members can receive structured compensation or ownership conversion rights in the form of shares in the new for-profit company. The trading rights of the members are also decoupled from property. Demutualization will therefore enable the company to conduct its business as a profitable entity. This would also mean a change in the operational structure and management.
As part of the Nigerian Stock Exchange’s demutualization plan, a new non-operational holding company, the Nigerian Exchange Group Plc (hereinafter: NGX Group), was established. The group has three operational subsidiaries, namely: Nigerian Exchange Limited (NGX Limited), the operational exchange; NGX Regulation Limited (NGX REGCO), the independent regulatory company; and NGX Real Estate Limited (NGX RELCO), the real estate company.
When and why did you initiate this process?
The demutualization of exchange concludes a claim that was conceived many years ago. We believe Nigerian capital markets should play a role commensurate with Nigeria’s status as Africa’s largest economy. Because of this, we’ve put a lot of thought into how we can expand the market to reflect the size of the Nigerian economy. Demutualization was the clear way forward as it gives us the flexibility to access capital and improve our governance, structure and expand our business across different industries and regions.
More importantly, demutualization strategically enables us to provide liquidity to our members while stimulating the capital market ecosystem to grow at the same pace as the economy. In addition, the exchange will perform in a similar way to other demutualized exchanges such as Nasdaq, the New York Stock Exchange, the London Stock Exchange and the Johannesburg Stock Exchange, which have seen significant periods of dramatic growth after being demutualized.
Can you please explain the steps you took to complete this trip?
The journey began with members of the NSE approving the demutualization idea for the exchange at an extraordinary general meeting in March 2017. In August 2018, the President signed the Act Demutualizing the Nigerian Stock Exchange Act 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) gave its approval in a letter without objection from the NSE, which led to the court-ordered session and general meeting in March 2020, where members unanimously approved the necessary resolutions to convert from a nonprofit Limited liability organization into a profitable limited liability company owned by the shareholders.
In May 2020, the Federal Court of Justice in Lagos issued a resolution approving the demutualization regulatory scheme that eventually led to final approvals from the SEC and the Corporate Affairs Commission (“CAC”). With these approvals, NSE can now activate its transition plan for a new operating structure and holding company.
How will this demutualization affect you as an exchange and what are the benefits?
Many member-owned exchanges around the world are demutualizing to unlock their true value and diversify their businesses. Well positioned with demutualized NGX to enable strong economic growth and contribute to the development of Nigerian capital market as Nigeria becomes more attractive to foreign investors. Other advantages of demutualization are:
- Participation opportunities for investors
- Improved corporate governance
- Access to broad pools of capital
- Diversification of companies
- Increased global brand and visualization of the stock market
- Technical innovation
How will this also affect the Nigerian financial ecosystem and society?
The demutualization of the NSE is critical in that it creates new strategic opportunities that will enable the group to realize its vision of becoming Africa’s leading capital markets infrastructure provider. It will also lead to a more agile exchange that can better support the growth of the capital market and economy through increased capital market activity, improved investor confidence, as well as opportunities for new dynamic relationships, strategic partnerships and flexibility in raising capital, both locally and internationally.