The Securities and Exchange Commission (SEC) is making move to stop listed companies from distributing gift items at annual general meetings (AGMs).
The capital market regulator is also ensuring that quoted companies do not convene any meeting with select group(s) of shareholders prior to an AGMs or an extra-ordinary general meetings(EGMs).
These move by SEC were contained in an exposure draft of sundry amendments to SEC’s Rules and Regulations, exposed to the market last Friday.
Justifying the proposed rule, the commission said public companies spend a significant amount of money on corporate gifts at AGMs/EGMs and this has a great impact on their profitability.
“Few of the companies are making reasonable profits and even fewer can afford to pay dividends. If the amount budgeted for gifts at AGMs/EGMs can be reserved for other relevant operational or administrative expenses, it would positively impact on their earnings per share,” it explained.
Explaining further, SEC said: “It has been observed that some companies arrange meetings with select groups of shareholders ahead of general meetings to discuss proposed resolutions and agree on strategies which are often detrimental to the interest of other shareholders.”
Specifically, the proposed rules provide that, “public companies shall not distribute gifts to shareholders, observers and any other persons at AGMs/EGMs. Public companies shall not convene any meeting with select group(s) of shareholders prior to an AGMs/EGMs.”
SEC stated that any company that violates the provisions of (4) and (5) above shall be liable to a penalty of not less than N10 million.
In another proposed new rule, SEC is moving to reinstate the individual sub-broker function to the market.
Individual sub-broker function was removed in November 2017. However, SEC said the deletion of that rule generated a lot of comments from the Nigerian Stock Exchange (NSE) and Association of Stock Broking Houses (ASHON), who thereafter requested for the reinstatement of the function.
“The Rules Committee revisited the issue and the commission agrees that reinstatement of Individual Sub – broker function will help in enhancing financial inclusion, deepening the market, and attracting more retail investors as well as enable the Sub – brokers have more presence at the grass root level,” SEC explained.
According to the commission, an application for registration as an individual sub-broker shall be filed on Form SEC 2 as provided in schedule III of these rules and regulations and shall be accompanied by certified copy of certificate of registration of business name (where applicable);evidence of minimum net worth of N500,000;sworn undertaking to comply with the provisions of the Act and the rules and regulations as may be required from time to time by the Commission; evidence of compliance with rule 20(4) and sworn undertaking to keep proper records and render returns.
FSDH Merchant Bank Limited has urged Nigerians and foreign investors to take advantage of the numerous investment outlets in the country’s financial market.
The bank stated this in a report titled: Investment Opportunities in the Nigerian Financial Market,” obtained at the weekend.
FSDH, however pointed out that despite the growth in the savings and investment products in Nigeria, the country still records low savings and investments
The ratio of Gross National Savings to the Gross Domestic Products (GDP) in Nigeria is one of the lowest among some selected countries including Nigeria, Kenya, South Afica, India, Malaysia, China, United Kingdom, and USA.
In addition, it noted that despite the impressive growth in mutual fund in Nigeria in the last five years, the ratio of mutual fund assets to the GDP estimated at 0.5 per cent as at December 2018 was still very low.
Shedding more light on the report, the Head of Research at FSDH Merchant Bank, Ayodele Akinwunmi, pointed out, the above numbers show that there are lots of growth opportunities for saving and investment in Nigeria.
According to him, low savings in the financial system means low amount of money would be available for lending purposes and the available funds would command high interest rate.
Furthermore, he pointed out that low savings and investment also limit the ability of a country to create wealth and lift its people from poverty
It also means that government at all levels would have limited access to raise tax revenue to embark on development purposes while corporates would have limited access to capital to expand their businesses, he said.
Akinwunmi listed some of the identified reasons for low savings and investment in Nigeria to include high unemployment, weak purchasing power and inadequate knowledge of investment products that are available and how they work for the benefit of investors.
The investment products were listed to include the Federal Government of Nigeria Bond (FGN Bond), FGN Savings Bond (FGNSB), Nigerian Treasury Bills (NTBs), Commercial Papers (CPs), Mutual Funds, Real Estate Investment Trusts and Stocks
For the FGN Bonds, the government uses the investment instrument to borrow money from the investing public and pay interest (coupon) to the investors (usually referred to as the bond holders).
Usually the FGN pays interest twice in a year to the Bond holders throughout the life (tenor) of the Bond and pays the principal at maturity. The tenor of the FGN Bond ranges from 3 – 30 years and the bond is issued monthly with a minimum investment sum of N50,001,000. The Bond can be used as a collateral to obtain loan from any financial institution in Nigeria and the income from it is free from tax.
On the other hand, the FGNSB targets retail investors and those who do not have the required minimum investment sum to invest in the FGN Bonds.
The minimum amount to invest in FGNSB is N5,000 and the maximum is N50million. FGNSB is of two tenors – two and three years. It is issued for five days starting from the first Monday of every month.
Government pays interest on the bond every three month and it is traded on the floors of The Nigerian Stock Exchange (NSE). The Bond can be used as a collateral to obtain loan from any financial institution in Nigeria and the income from it is free from tax.
Similarly, through the NTBs, the federal government borrows money from the public on a short-term basis (within one year).
NTBs are issued at a discount to the face value. This means that investors pay an amount that is lower than the face value and while the government will pay the investors the full face value at maturity. NTB in Nigeria has three tenors which are 91, 182 and 364 days and is issued twice a month. NTBs can be used as a collateral to obtain loan from any financial institution in Nigeria and the income from it is free from tax.
In the same vein, through corporate bonds, companies in good credit and financial standing borrow money from the financial market on a long term basis.
Corporate bonds share certain similar features with the FGN Bonds in terms of payment of coupon, tenor and qualification for tax exception. However, it carries higher investment risks than the FGN Bond. Companies fix the minimum investment sum to invest in their bonds.
Also, companies in the private sector issue CPs to raise short-term finance to fund their business operations. CPs are issued in tenors ranging between a minimum of 15 days and a maximum of 270 days. CPs are also sold to investors at a discount to the face value. Usually, the minimum investment in a CP is N5million. The income on it is free from tax.
In addition, investment managers use mutual fund to pool fund from retail investors and low-income earners and invest the money in financial instruments. Mutual fund invests in financial instruments such as NTBs, FGN Bonds, CPs, Real Estate and Stocks and Commodities. Therefore, when an investor buys a unit of a mutual fund, he is indirectly buying the underlying securities.
In Nigeria, the Securities and Exchange Commission (SEC) regulates mutual funds operations and the professionals that are involved in them. Most mutual funds are open-ended investment schemes. This means that new investors can buy additional units and sell units at any time.