SEC par value rule: N154.7bn worth of stocks affected

The new par value rule introduced by the Securities and Exchange Commission (SEC) is expected to affect a total market capitalization of N154.7billion worth of stocks listed on the Nigerian Stock Exchange (NSE), findings has disclosed.

This figure represents 1.35 per cent of the N11.43 trillion equities market capitalization as at June 18, 2015.

 Market analysts have debunked its negative impact on the market capitalization, expressing optimistic that the liquidity level of the affected equities may improve when market factors determined its prices.

The managing director of Highcap Securities Limited, Mr. David Adonri said that market capitalization for the affected stocks in aggregate is not up to two per cent of the total market capitalization, this cannot affect the market capitalization of the Exchange.

The president, Association of Stockbroking Houses of Nigeria (ASHON), Emeka Madubuike, said modification of shares par value from 50k to one kobo would boost trading activities in dormant companies. He also insists that the new rule would boost investor confidence in dormant stocks going forward.

Commenting further, The managing director of APT Securities and Funds Limited, Mr. Garuba Kurfi said, “Prices of every listed equity on the exchange, cutting across every sector will be fully market based determined by the forces of demand and supply, as all stocks could trade as low as N0.01 instead of the current 50 kobo as much as the supply continues to outset the demand.

“We expect this amendment to engender improved market efficiency in price discovery mechanism of the market as price would reflect all public available information in-line with global best practice.”

According to Kurfi, on implementation of this rule, we expect a sharp significant drop in investors' net-worth, as most stocks that are currently trading at 50 kobo may decline to one kobo on weak fundamentals and sentiments, implying a potential 98 per cent value loss.

“Although, the prices may fall gradually, investors can take advantage of the prices and exit earlier before the price hits the bottom down of one kobo.”

He however noted that the liquidity level of the affected equities may improve at market determined prices, fair valuations.

SEC had recently approved the par value rule submitted to it by the National Council of the NSE, which revises the price floor of company shares traded on the Exchange to one kobo from the previous price floor of 50kobo.

However, despite the approval of the rule, it becomes effective when the Exchange announced the effective date.