Arbico Plc has fallen below the minimum shareholding requirement for minority retail shareholders as more than 80 per cent of the construction company’s shares are held by core investors, directors and their related parties.
The overconcentration impinges on liquidity and efficient price discovery and makes the stock to be susceptible to price manipulation.
A regulatory report at Nigerian Stock Exchange (NSE) indicated that the Lagos-based building construction company now has 19.96 per cent of its issued shares in the hands of minority retail shareholders, four basis points below the 20 per cent requirement for its category of listing.
Minimum number of shares available for the general minority retail investing public, known as free float, is a major listing requirement at the stock market. Companies listed on the Exchange are required to maintain a minimum free float for the set standards under which they are listed in order to ensure that there is an orderly and liquid market in their securities.
Under the rules at the Exchange, companies listed on the premium board are required to have 20 per cent free float or more than N40 billion of their capitalisation in the hands of general investing public. Companies on the main board are required to have a minimum free float of 20 per cent of their market capitalisation, implying that 20 per cent of the companies’ shareholdings must be available for minority retail shareholders. However, companies on the Alternative Securities Market (ASeM) are required to have 15 per cent free float.
Free float, otherwise known as public float, refers to the number of shares of a quoted company held by ordinary shareholders other than those directly or indirectly held by its parent, subsidiary or associate companies or any subsidiaries or associates of its parent company; its directors who are holding office as directors of the entity and their close family members and any single individual or institutional shareholder holding a statutorily significant stake, which is 5.0 per cent and above in Nigeria.
Thus, free float’s shares do not include shares held directly or indirectly by any officer, director, controlling shareholder or other concentrated, affiliated or family holdings.
Arbico, which was listed in on the main board of the NSE in December 1978, hitherto had a wide free float with large minority retail shareholders, but changes in capital structure have seen growing concentration of shares in the hands of majority core investors and directors.
The NSE indicated that it has commenced discussions with Arbico with a view to resolving the fee float deficiency.
Companies are usually given a timeline to free up shares and cure their free float deficiency. Failure by deficient companies to restructure their share capital at the expiration of the deadline or secure extension of the deadline may lead to delisting of their shares from the NSE.
Free float deadline is usually in deference to application by the management of a company for some period to comply with the free float. However, the company is required to provide quarterly disclosure report to the NSE on the efforts being made to fully comply by the deadline.
By the expiration of the deadline, a company is mandatorily required to have completed partial divestments or dilution of the ‘non-public’ shareholdings to free the required percentage of equity stake for public holding, unless the management of the NSE grants fresh waivers and extensions for the companies. In the extreme instance, a company with deficient public float may opt to delist its shares.
Alternatively, deficient companies may opt to move from the main board to the ASeM or in the extreme cases, opt to delist their shares from the Exchange.
The Exchange meanwhile usually tags companies with free float deficiencies with a red alert of “Below Listing Standard”, which implies non-conformity with the requisite listing and corporate governance requirements.
Stock markets maintain minimum public float to prevent undue concentration of securities in the hands of the core investors and related interests, a situation that can make the stock to be susceptible to price manipulation.