News Column

Unending Controversy Between Companies and Shareholders

May 19, 2014

Emma Maduabuchi

Nigerians were recently given an opportunity to look once again at challenges confronting shareholders in Nigerian business environment. It is on record that Nigerian shareholders have had reasons in the past to complain about some of the challenges that have short-changed them.

Such complaints ranged from their inability to claim their dividends, to lack of information on how the market grows, as well as what some described as excessive use of pool voting by some companies to reap off a certain class of shareholders. Others have complained about the hash business environment that have not allowed companies to make good profit so that to pay out better dividends to its shareholders; while others complained of the inability of government, through its regulating agencies to clean up the environment.

Opportunity to look at such issues was somewhat unwittingly resurrected by Nigerian Breweries (NB) Plc's, when it recently announced the amount of dividends it would be sharing to its shareholders.

According to the company, shareholders whose names were published in the company's May 5 register will receive dividend of N4: 50 per ordinary share of fifty Kobo each. That, however, will be subject to the approval of the company's 68th Annual General Meeting coming up in May 15.

This was disclosed by Nicholals Vervelde, the Managing Director and Chief Executive Officer (MD/CEO) at the company's 2014 Pre-Annual General Media Briefing held in Lagos. He explained that the company has maintained its leadership position in the market despite the numerous challenges that confronted the company in the past business year.

"Despite the difficult operating environment, we recorded growth in all segments of the market and indeed out-performed the market. We sustained our enviable leadership position in the market ... The operating environment is expected to remain challenging in 2014 but we remain confident that we will continue to maintain our market leadership as well as take advantage of any growth opportunities that occur" he said.

He explained that the company's operating activities increase by 7 per cent, while profit after tax grew by 13 per cent, even though further impacted by lower financing costs. Speaking further, he said that the total brewed market recorded significant role in it while the investments the company made over the years and most recently with acquisitions and subsequent merger of the acquired companies placed it in the best of positions to compete.

Although shareholders were delighted with the amount of dividend to be shared, they were of the opinion that it must not take the eyes of relevant authorities from the several issues surrounding shareholding in Nigeria.

When Daily Independent spoke to some

Shareholders of company and financial and money market analysts have however expressed divergent views on the matter. While some argued that there was nothing to cheer about. Those with this view insist that was the reason people invested was to reap dividends. Nevertheless, some other express contrary view insisting that the country's hash business environment made the NB Plc's dividend sharing worthy of celebration.

For instance, Boniface Okezie, President of Progressive Shareholders of Nigeria (PSHN), was one of those who expressed such thoughts. He said such companies that declared their dividends for their shareholders should be commended because they could have invented any excuse to refuse to pay dividends, or even decided to plow the little profits they made back into the business.

"For any company to declare dividend at all for its shareholders in the country today it calls for cheer and that company should be commended because it is not easy to do business in this country and make profit. The company could have decided to plow the profit back into the business and find any excuse not to pay dividend" he said.

He however said that posting dividends should not be enough for Nigerians to take their eyes off the important issues of shareholding and doing business in Nigeria. He, like several other respondents, was not happy that government and its regulatory agencies have not made the business environment conducive for businesses in the country to thrive, make profits and subsequently pay dividends.

He told Daily Independent that government and its regulatory agencies have rather lived off the company rather than work to enhance the company. He said it was unfortunate that government have failed to recognise groups speaking out against the ills in the industry and fighting for its good, but chose to describe them as militants in the stock exchange.

One of the issues that the news brought was a recent call by a section of retail investors in Nigerian quoted companies on Nigeria Stock Exchange (NSE) for the country's Security and Exchange Commission (SEC) to protect them from what they called "reap off of their funds".

The call was made by leaders of shareholders associations who revealed that effort by Cadbury Nigeria to reduce the holdings of Nigerians in the company through payment of money to shareholders not commensurable to the real value of their equity in the market did not secure votes of minority shareholders in the company.

They claimed that in spite of opposition from Nigerian retail investors in the company, Cadbury's capital reduction plan scaled through, as pool voting was deployed by the company at its Extraordinary General Meeting (EGM) held in Lagos in December last year.

According to reports, this was in spite of the fact that earlier protests by shareholders, as the core investor in Cadbury Nigeria, with 75 per cent equity funds for increased stake.

Shehu Mikhail, National Coordinator of Constance shareholders of Nigeria, complained that even as the SEC was focused at ensuring that majority shareholders do not vote at such critical meetings, effort should be put in place that before such rule was actualised.

It is on record that Capital market regulators have also recently mulled rules that prevent majority core shareholders and directors from voting on crucial issues at EGM.

Several stakeholders had kicked against such rules

under the capital reduction plan. Cadbury had planned to return excess capital of N11.9 billion to its shareholders by cancelling two out of every five ordinary shares currently held by each shareholder. Consequently, it reduced the share capital account by an amount equivalent to the par value of the cancelled shares and share premium accounts by about N11.27 billion.

The bone of contention Mikhail said hinged on the amount the returned money would be based. While the shareholders maintained that it should be based on the market rate of N48 per share, the company preferred a capital per cancelled share of N9.50.

It was further revealed that the company used the 30-day volume weighted average price of the stock at the NSE to pay for fractional shares that may arise from the transaction. The capital reduction was expected to take effect in the first quarter of this year.

Okezie has however revealed that he and his colleagues had urged the SEC to prevail on Cadbury to pay shareholders returned money based on prevailing market price of N48 per share, before the execution of the transaction, otherwise they would challenge the capital market transaction in court.

It would be recalled that Cadbury in 2009 sourced N17 billion from shareholders through a rights issue under which the foreign core investor increased its controlling stake in the Nigerian company to about 75 per cent by buying renounced shares from Nigerian shareholders. Four years after, the board of the company said it had surplus cash.

While Nigerian minority shareholders were suspicious of the underlining motive for the capital reduction, the board of the company said it was necessitated by current cash position of the company in relation to its operations and the need to optimise their return on capital.

Perhaps in reaction to accusations that regulatory agencies had not been doing enough, and to ensuring sound corporate governance in the nation's capital market, SEC recently waded into issues relating to corporate governance breaches in Ecobank Transnational Incorporated (ETI).

Both the intervention and its outcomes affirmed Nigeria's pole position in market regulation in Africa. It constituted a pathfinder on regulatory imperatives for multi market jurisdiction players in the robustly evolving African business landscape.

ETI has been described in certain quarters as a celebrated indigenous African multinational success story, with its holding company of the Ecobank Group, and which has footprints in 34 countries across West, Central and East Africa.

As a backdrop to the pacesetting intervention, SEC Nigeria highlighted the consumer protection motivation by quickly assuring investing publics that the Commission would take all necessary steps to speedily conclude the investigation and that the outcomes would enhance the ETI franchise rather than diminish its brand equity as well as project the alertness of the African regulatory environment to governance breaches by enterprises.

How far can SEC go on this and other trying issues? How much can it achieve? Time will tell.

For more stories on investments and markets, please see HispanicBusiness' Finance Channel

Source: AllAfrica

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