Some analysts in finance and investments sector agree that the proposed plan by the Nigerian Stock Exchange (NSE) to establish rules that will stabilise prices of newly listed companies will attract more issuers into the equity market.
This is even as operators stressed that the nations’ capital market remained the barometer around which economic development revolves and it should be made attractive enough to compel more companies to its fold.
A research analyst at Cordros Capital, Peter Moses, said the rule is to ensure orderliness in stock trading in the secondary market, and partly, to encourage more corporates to consider listing on the Exchange.
However, he pointed out that the rule could potentially encourage intending corporates that are looking forward to public listing to offer their shares to investors at overvalued prices and still care less about impressive earnings performance needed to support the share price afterwards.
He said: “Meanwhile, we are tilted more towards giving the NSE the benefit of doubt over the mechanism and workings of the new rule, particularly in the areas of requirements for price stabilisation, permitted price stabilisation, stabilisation duration, and permitted stabilising activities.”
In his remarks, the Chief Executive Officer, FSL Asset Management, Tola Odukoya, said that apart from encouraging more issuers to list their shares in the market, the measure will as well expand the market capitalisation of the exchange and also increase the market capitalisation to Gross Domestic Product (GDP) ratio of a country.
He explained: “If you have observed in recent years, especially in the past 10 years, a lot of people are averse to the stock market as a result of the crash and many companies that wanted to list have not listed. The reason is that when they list, their share price begins to go down. Yes, they are listed but they have lost value as a result of the listing and that is because people are still risk averse and the economy is not buoyant like that.
“So, I believe that if the rule is put in place, it will encourage issuers to list their securities on the exchange and the key issue I am looking at is the ability of that to improve the market capitalisation to GDP ratio by increasing market capitalisation of the equity market.
“More importantly, it will improve the representation of the real economy on stock exchange, and therefore equally improving the quality of the stock exchange ALL Share Index, ASI, as a key indicator of the performance of the economy”, Odukoya added.
It would be recalled that in its effort to curtail the usual free-fall in the share prices of newly listed companies, the NSE had said that it would develop a set of rules that will stabilise share prices post-listing and also facilitate their distribution to the public.
The Exchange explained that the proposed rule is aimed at supporting and maintaining the price of listed securities for a limited period after the listing or offer, thus establishing an orderly market for securities in the immediate secondary market.