Michael Eboh
19 November 2008
An expert in the Nigerian financial market and Senior Advocate of Nigeria (SAN), Mr. Anthony Idigbe has called on the regulatory authorities in the Nigerian capital market to relax the stringent conditions for share buyback for quoted companies if the policy is to achieve the required effect in the market.
Speaking at a workshop organised by the Capital Market Correspondents Association of Nigeria (CAMCAN) at Ijebu Ode, last weekend, Idigbe called on the Securities and Exchange Commission (SEC) to step up its efforts at amending the regulations guiding share buyback so as to make it attractive to companies and investors.
He said, The new rules on share buyback may prove very useful to protect the general public and investors in the capital market but is capable of discouraging foreign direct investments. There are still a few loopholes here and there and some downside. Further it would seem that some aspects of the regulation are either too arbitrary or too stringent and it is expected that after some time soon, there would be further review to finetune the regulation to enable the achievement of positive aims of share buyback whilst arresting any abuse of the concept."
He lamented the cumbersome nature and high cost of undertaking the share buyback option and also the various legislative logjam and overlap between the Company and Allied Matters Act (CAMA), the Central Bank of Nigeria, SEC and the Nigerian Stock Exchange (NSE), calling for a coordination of activities among the various authorities to allow for an effective and successful implementation of the transaction.
He called on the authorities to check the abuse by companies and their flagrant disregard for the tenets of the share reconstruction exercise, adding that sanctions should be meted out to erring companies who fail to follow best practices and who rip off investors through the process.
According to Idigbe, "The controversy surrounding the recent share reconstruction exercise - admittedly during a period where there has been market meltdown - is the fact that virtually all the banks have adjusted the value of the shares below the expected value it should have in the market, leading to protests and outcry to SEC as the capital market regulator.
It is hoped that the Commission would pay closer scrutiny to publicly quoted companies that seem to be abusing the concept of share reconstruction at the expense of the returns on value they are meant to give to their shareholders' portfolio."
He, however, commended SEC for its efforts at sanitising the capital market and protecting investors from losing their investments. He further stated the various regulations put forward by SEC in respect to share buyback would help in curbing sharp practices by directors of companies and would also prevent corporate raiders from taking advantage of low price of a company's share to put the company out of business.
"The new more detailed SEC rules regulating share buyback is an interesting development for the Nigerian Company Law and practice as well as a welcome development aimed at curbing sharp practices of directors who would want to perpetuate themselves in office.
It would also help to prevent corporate raiders from taking advantage of the low price of a company's share to put the company out of business. Share buyback has immense benefits to companies, but can also have a negative effect if it is not done in the proper perspective.
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