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Market | Capital Market

How to List Your Business on The Stock Exchange

Nov 30, 2022   •   by   •   Source: NGX   •   eye-icon 217 views

The stock market is an important infrastructure within any economy because of its capital mobilization function and structures that incentivize businesses to operate optimally. As a mechanism for bringing together owners of excess funds with users of these funds like entrepreneurs, the stock market provides an opportunity for easy access to core funding that is accommodative of businesses regardless of the growth stage.

 

Many theories support the claim that the stock market is a driver of business growth, but beyond that, empirical studies provide evidence for these arguments. For example, a study published in 2021 by researchers at the Republic of Turkey central bank concluded that listed manufacturing firms grew bigger (in sales, assets, and workforce) after listing compared to unlisted counterparts.

 

In Nigeria where there are no less than 40 million businesses from nano and micro to large co-operations, the 152 listed companies on the Nigerian Exchange (less than 1% of total businesses in Nigeria) have a combined valuation of around ₦24 trillion which is as much as 14% of nominal GDP). 

 

Some of the benefits of listing, beyond growth, include international exposure and brand promotion, price discovery and generational transfer of wealth

 

Types of Listing on the Stock Exchange 

  • Listing by Introduction (LBI) 

This occurs when the objective of a company is not to raise new capital or issue new shares but to create an avenue for existing shareholders to trade their stakes.

  • Initial Public Offerings (IPOs)

An IPO is the process of introducing a company to the public for the very first time. IPOs take two forms

  • Offer for subscription - the unissued portion of authorized share capital is offered to the investing public
  • Offer for sale - offering already issued and paid-up shares

 

  • Merger And Acquisition

A backdoor listing method where a business can buy a majority stake in an already listed company and by meeting the listing requirements of the exchange, the acquirer becomes publicly traded.

 

The Various Nigerian Exchange Boards 

The Nigerian Exchange currently has three boards namely, 

  1. The Growth Board                       
  2. The Main Board                 
  3. The Premium Board.

 

These boards have different rules for listing to ensure adequate coverage of the different categories of company’s growth stage in accessing the pool of international and local funds available in the market. Specifically, the level of commitment to high standards of disclosure and corporate governance, the initial level of financial performance, minimum market capitalization requirement, and free float differ across the boards.

 

The Main Board

The main board, is divided into three segments and requires the company seeking listing to meet one of three qualifying standards: A, B, or C. 

 

Initial listing standards under Main Board Standard Segment A include 

  • Company must be registered as a public limited company with no restrictions on the transfer of fully paid shares, 
  • Company must be an entity with at least three (3) years operational track record, 
  • Company must have pre-tax profit from continuing operation of not less than ₦300million cumulatively for the last three (3) fiscal years and at least ₦100 million in two (2) of the years.
  • Company must have a 3-year financial statement compliant with the applicable SEC rules, with the most recent statement not more than 9 months old, at the time of listing application. 
  • The equity of the company must also equal or exceed ₦3billion.
  • The issuer (company intending to list) is required to ensure the availability of a minimum of 20% of the issued share capital for the investing public and it must be held by not less than 300 shareholders. 
  • The promoters and directors of the issuer, if the listing is by IPO, are required to hold a minimum of 50% of their shares in the company for, at least, 12 months from the date of listing and are restricted from direct or indirect sales or offering of the securities during the 12 months. 
  • Ensure that the securities are fully paid up at the time of allotment or registration in compliance with the applicable SEC rules
  • Have a functioning website and a governance process that is in line with the SEC Codes

Standard Segment B is similar in some respects to Segment A, the major differences to Standard A are highlighted below

  • In case the company does not have three years (3) operating track record, one of its core investors is required to have a minimum of three years (3) operating track record. 
  • Similarly, where the issuer does not have financial statements for the last 3 years, a strong technical partner with a substantial stake and involvement with management can suffice if they have the required operating track record. 
  • The pre-tax profit from continuing operation requirement is set at ₦600 million and above cumulatively for the last one or two fiscal years. 

A unique requirement of Standard Segment C is to have a market capitalization of ₦4 billion or more at the time of the listing, while the requirement of pre-tax profits is not applicable.

 

The Premium Board

This board is more stringent than the main board and the key requirements include 

  • Market capitalization must be a minimum of ₦200 billion at the date of application, 
  • Company must score a minimum of 70% under the NGX’s Corporate Governance Ratings System (CGRS),
  • Free float greater or equal to ₦40billion, in addition to some main board requirements. 

 

The Growth Board

The Growth Board was established as part of the NGX’s initiative in elevating the Nigeria Capital market and meeting the needs of businesses at every phase of their lifecycle. The board targets fast growth companies such as SMEs operating in various sectors including Technology companies. 

 

The Growth Board is designed to encourage growth-oriented companies with good corporate governance standards to list. It aims to encourage companies with high growth potential to seize the opportunity of raising long term capital and promote liquidity. The Board is divided into two segments namely the Entry Segment and The Standard Segment.

 

 

Objectives of the Growth Board

  • To encourage companies with high growth potential to seize the opportunity of raising long term capital and promote liquidity. 
  • To cater for various market segments and to ensure all spectrum of businesses/companies in various growth phases can be listed.
  • To highlight the benefits available in the capital market for Start Ups, SMEs and Technology companies.
  • To provide market operators with a platform and access to potential pipeline of companies for listing on the NGX

 

The Eligibility Criteria for Growth Board Entry Segment

Route 1:

  • A public company limited by shares; 
  • Company with at least two (2) years in Operation;
  • The company must have audited financial statements (IFRS standard);
  • The company must have revenue growth by a minimum rate of 20% cumulatively in its last (two) 2 years of operations

 

Route 2:

  • Company is a new business that can provide evidence of investment in it by: A core investor or a strong technical partner that has a minimum of two (2) years’ operating track record, or  A majority shareholder who is either a High Net Worth individual or is a director of a listed company
  • Market capitalization >/= Fifty Million Naira (₦50m) on the date The Exchange receives the Issuer’s application 
  • Minimum free float of 10% of its issued share capital;  
  • A Designated Adviser
  • Minimum of 25 shareholders 
  • Directors retain a minimum of 50% of their shares in the Issuer for a minimum period of 12 months from date of its listing

 

The Eligibility Criteria for Growth Board Standard Segment

Route 1:

  • A public company limited by shares; 
  • Company with at least two (2) years in Operation;
  • The company must have audited financial statements (IFRS standard);
  • The company must have revenue growth by a minimum rate of 20% cumulatively in its last (two) 2 years of operations

Route 2:

  • Company is a new business that can provide evidence of investment in it by: A core investor or a strong technical partner who has a minimum of four (4) years’ operating track record, or A majority shareholder who is a High Net Worth individual; 
  • Market capitalization >/= Five Hundred Million Naira (N500m) on the date The Exchange receives the Issuer’s application 
  • Minimum free float of 15% of its issued share capital;  
  • a Designated Adviser
  • Minimum of 51 share-holders 
  • Directors retain a minimum of 50% of their shares in the Issuer for a minimum period of 12 months from date of its listing

 

Listing Process

There are steps that companies would typically take on the journey to the Nigerian Exchange. Once the company’s promoters have decided to consider listing, the services of financial advisers and issuing houses should be sought after. Financial advisers are important because they are professionals with the capacity to tell a company’s story and convince the investment community to buy into the vision of the management. 

 

The next step involves obtaining a mandate from the board and shareholders to proceed with the listing. This stage is followed by the documentation of relevant information and filing of the paper works to successfully list. 

 

The completion of documentation clears the path for approaching the industry regulator (e.g., CBN, NCC, NAICOM, etc.)  and financial market regulators, like SEC, for necessary approvals.

 

Thereafter, all parties to the issue are required to sign the offer document. In the case of an IPO, application forms will be distributed through accredited receiving agents. Successful shareholders receive an allotment of shares and issuers receive payments while receiving agents get commissions. 

 

The next stage is the Undertaking, where the issuer signs a declaration to abide by post-listing requirements. This step leads to the admission of a company’s shares to the Daily Official List for trading. 

 

A Final Note

Listing on an Exchange is a significant milestone that opens any business to new opportunities. It is also important for businesses that need long-term and growth-friendly capital, especially in an economy where 80% of businesses are reported to shut down within the first five years due to the lack of access to capital. 

 

It is important to also note that the Nigerian Exchange is a democratic platform in the sense that it does not discriminate against businesses regardless of size, in so far as their operations are legal, registered and in compliance with Nigerian and financial market laws. 

 

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