ANALYSIS: Nigerian bourse, investors’ confidence and the troubles of minority shareholders

In January, details emerged of a peace deal between businessman Dahiru Mangal and the management of Nigeria’s indigenous oil and gas firm, Oando Plc, led by its chief executive officer, Wale Tinubu. In a statement made public by the oil firm on January 22, Mr Mangal withdrew a petition to the Securities and Exchange Commission, SEC, following a peace deal with Mr Tinubu, brokered by the Emir of Kano, Sanusi Lamido.

Mr Mangal, a shareholder of the company, had earlier in 2017 petitioned the SEC accusing management of the oil firm of gross misconduct. Oando, in one of its responses to the petition, also alleged that a proportion of shares owned by Mr. Mangal was acquired as a result of market manipulation and insider trading activities. But in October 2017, the businessman’s petition, together with another from Andsbury Plc, prompted the Nigerian Stock Exchange, NSE, to suspend the shares of the company on the Nigerian bourse and order a forensic audit into the operations of the oil firm.

The peace deal in January put paid to all insinuations of rifts between Mr Mangal and the management of Oando, with reports that Mr Mangal, apart from other concessions, was offered representation in the company’s board. Pictures would later surface in the media of a smiling Mr Sanusi, flanked by both men after a peace deal in Kano.

Yet, in the middle of the entire crisis and reconciliations, trading on the company’s shares was placed on full suspension, with the fate of minority shareholders hanging in the balance. At the time, the company’s shares traded at N5.99 before the full suspension––the halt of trading activities in a listed security for a period––was effected. The shareholders protested the situation, calling on concerned authorities to address the issues.

The crisis however lingered until April 2018 when the NSE lifted the ban placed on trading on the company’s shares.

Are Minority Shareholders endangered?

The January peace deal signed by Messrs Tinubu and Mangal, which saw Mr Tinubu retain his management position and Mr Mangal receive an offer of board representation, threw up issues among analysts, with many concerned about how major shareholders exert their influences to get things done their own ways while the minority shareholders are left in the lurch.

Ocean and Oil Holdings, co-owned by Mr Tinubu, enjoyed about 57.3 per cent stake in Oando while Mr Mangal., according to his claims, owned about 17 per cent stake in the company.

Earlier, in September 2017, the company’s shareholders had called for Mr Tinubu’s resignation following protests across the country, with allegations that firm’s financial position was poor. They also made reference to the report of the last Annual General Meeting of the company, held in Uyo, Akwa Ibom State, where the External Auditor, Ernst & Young, stated that Oando reported a comprehensive loss in 2015 and 2016.

Rotimi Fakayejo, a stock analyst and Chief Executive Officer of Entreprise Stockbrokers, told PREMIUM TIMES that minority shareholders would have to fall behind decisions of the majority shareholders due to the structure of companies and quantum of shares owned.

He said, “Voting in any AGM is not by number but by the quantum of shares that you have because if it’s by number, 5000 people with 100 shares each can come for the chairman or any of the directors.

“Basically, the minority shareholders would always have to fall behind the decisions that the majority shareholders take. To say that they are endangered, well, it’s always that way because in any circumstance, equity holders are always the last to be considered in the event of any eventuality for the company; if their continuity as a going concern is threatened because all other parties would have been considered.

“Majority shareholders have their own ways of benefiting from the company, either they are suppliers, whether they get credit (that would ordinarily not been released).”

There are, however, situations when the majority shareholders do not have their ways, analysts opined, adding that sometimes, minority shareholders don’t exert their influence largely due to ignorance.

Abdulrahaman Aliyu, a business analyst, explained that many (minority) shareholders do not attend AGMs and always fail to monitor the progress of companies they invest in. This, he explained, accounts for why many don’t have influence in how decisions are made and end up being powerless.

“Most minority shareholders care less about how things are done; they only lament when things go bad and they don’t get dividends for their investment,” he explained.

Mr Fakayejo added that decisions taken at AGMs have far-reaching consequences on companies’ operations. “In any event,” he said, “majority shareholders are not fully protected because for any decision to be recognised, it has to be the outcome of an Annual General Meeting or Extraordinary General Meeting and it is your vote that count and the weight of your vote is dependent on the quantum of shares. In the case of Oando, Mangal has more than five per cent of holding but even the other ones were still able to ‘oppress’ him.”

Analysts opined that shareholders are most endangered in situations when the majority shareholders are also in charge of the operations and management of the company. The conflict of interest, it is expected, often breed situations where it becomes difficult to separate shareholding interest from ownership concerns.

“When the management is also the majority shareholder, I think that’s when the minority shareholders might be in serious trouble,” said Mr Fakayejo. “The Ocean and Oil, ably represented by Mofe Boyo and Wale Tinubu; they are majority shareholders and top management (In Oando) and you can see what’s happening. But when you look at other companies where the management is not the same as the majority shareholder, there is so much sanity in the system because there are checks and balances.

“What you see in Oando, you definitely will not see in Total because those representing the top management are not necessarily shareholders. There have been situations where the majority shareholders in management are also doing well, like the case of Custody and Allied Insurance (in which) the CEO is the second largest shareholder. So it is not cast in stone that if it goes this way, it definitely will go the other way but the bottom-line is that situations where minority shareholders are endangered often play out when management is the problem.”

Crisis Of Management As Majority Shareholder

In 2016, Nigeria’s only publicly quoted broadcasting company and pioneer private broadcast medium, Daar Communications Plc, said it recorded a loss of N 3.4 billion, based on result of the company’s 2013 and 2014 operating years.

Records of its financial reports showed that it reported a net loss of N2.139 billion in 2016, and N1.510 billion loss in the year 2015.

The company, which opened its initial public offering (IPO) between February and March 2008, offered 1.8 billion ordinary shares for subscription, which was expected to yield a net proceed of N8.752bn, and another 960,000,000 units for sale by Daar Investment & Holding Company Limited (the parent company), all at N5.00 per share, with BGL Securities Ltd, Skye Bank and Fidelity as lead issuing Houses.

In its three-year forecast between 2008 and 2010, the company projected profit before tax of N3.217 billion from total turnover of N10.294 billion in 2008; with outlook that it would grow to N4.258 billion from N13.686 billion before realising N5.772 billion profit from revenue of N17.668 billion in the 2010 full year.

But ten years on, the company has not realised any of its projections, with many minority shareholders complaining of its poor financial results and failure to pay dividends.

“I have never received a dime from Daar Communications as dividends,” Folasade Adebola, an investor, told our reporter. “They have consistently reported losses over the year, it’s frustrating.”

But analysts said investors in Daar Communications may never earn anything from their investment in the company due to a number of reasons, chief among which are concerns around corporate governance and the crisis of management as majority shareholders.

“They (investors) have never (received returns from shares investment in Daar Communication) and they will never. It’s money lost. That also goes to the issue of investors’ confidence in the market,” Mr Fakayejo said.

“Investors are not immune against such in our market; when management can tell any dick and harry to put accounts together, nobody scrutinises such account. What is only required of listed companies, as part of their post-listing requirements, is that they must render their account. What the account looks like is immaterial to the rule and regulation. And that is a serious gap. And until that gap is looked at, many investors in Nigerian market may not come back again.”

There are other companies where such abuses triggered by conflict of interest in the area of majority shareholding and management occur, according to analysts, including Tantalizers Plc, among others.

Way Out

Mr Fakayejo suggested that an addendum be added to the Companies and Allied Matters Act, CAMA, which would stipulate reasons why the management of a company be removed from the majority shareholders.

“I think the solution is to add an addendum to CAMA that account must be scrutinized and further explanations can be sought when necessary,” he explained.

“Also, in such a situation, the moment you want other people to join you in running your company, the management in that organisation has to be tenured. Maybe after three or four years, you have to step back; maybe you become chairman and other people have to come in so that there will be more transparency and accountability. For now, there is nothing of such. You can do what you like,” he said.