On Thursday, May 16, 2019 Africa’s leading telecommunications company MTN made history in Nigeria by being the first mobile network operator to list shares on the floor of the Nigerian Stock Exchange (NSE). Trading on the Premium Board, the company listed around 20.4 billion ordinary shares by Introduction, after receiving approval from The Securities and Exchange Commission (SEC).

Entering the market by ‘Introduction’ means the company listed units of ordinary shares of its existing shareholders on the local Exchange without issuing new shares for public purchase as would have been the case if the listing was done via an Initial Public Offering (IPO). In other words, the general public can only buy MTN Nigeria’s (MTNN) shares provided the existing shareholders are willing to sell.

Investor excitement met with a natural desire for a pie in the country’s biggest telecommunication company, setting the stage for a spike in the telco’s share price. What followed was a market frenzy that resulted in an upward trajectory in the share price for six consecutive days, leading to a rise in the stock value by 20 percent in just two days of trading and by 60 percent on the fourth day.

The six-day rally in particular, saw MTNN’s equity price soar from a listing value of N90 per share on May 16, 2019, to N149 per share on May 23, 2019, as the All Share Index (ASI) of the NSE responded in the same manner, recording a bullish run driven by the bellwether stock.

However, a combined force of increase in tradable stock made available by existing shareholders and reduced pressure from public investors led to a price bubble bust last Friday that saw the stock value drop to N140 per share. Traders had begun to bid and offer for the security on the floor of the bourse as against the initial off-market or cross deal trading carried out exclusively between existing shareholders. The fall continued into this week as MTN Nigeria fell by a further 7.41 percent to close at N130 at the close of market on Monday.

Alleged market manipulation

Few hours after its entry into the stock market, stakeholders got worried about the free float accommodation and some other allegedly unapproved waivers MTN Nigeria was granted by the capital market regulator to prepare for its listing.

Moreover, the nature of the listing which somewhat restricted public access to the most-wanted stock on the market raised some concerns. This coupled with the speed at which the stock was gaining daily value against the background of the limited volume of shares available for trading, led to allegations of market rigging and that MTN shares.

Suspicions grew among public investors and stakeholders. It was one of two options, shares were either being hoarded – market manipulation – to propel a higher share price before any share offering through an IPO or that the Exchange was conniving with existing shareholders of the company to avoid releasing larger share volumes for trading.

Given the off-market trading among existing shareholders and the resultant increase in share price on the exchange so far, analysts say investors and stakeholders waiting to purchase MTN shares through a public offering might do so at a very high premium whenever the telco decides to float the IPO. This appears to give further credence to claims of an induced scarcity of the listed MTN shares before a public offering.

The surrounding controversies propelled the SEC to launch an investigation into the process that led to the listing of MTN Nigeria. Last week, This Day cited a source saying that the application of the telecom firm was initially turned down by the NSE Council due to “grey areas and requests for certain waivers made by the company” before it was later reconsidered, without the authorisation of the SEC. Thus, the investigation will cover all aspects of the listing, the share-crossing, the activities of the preference shares, all the transactions on MTN Nigeria shares so far and the entire listing to see if it is in compliance with the listing rules.

The alleged shares manipulation scandal, which has rocked the telecoms company since its listing just two weeks ago, appeared to have gotten more complicated after officials from the Economic and Financial Crimes Commission (EFCC) stormed MTN Nigeria’s head office in Lagos last Friday and questioned top officials of the telecoms company after requesting documents related to the listing of the company’s shares. The SEC has denied inviting the EFCC into its ongoing investigation.

The incident, confirmed by the company, may have contributed to the first decline in the share price suffered late last week since it was listed on the Nigerian bourse. In a statement signed the company’s Secretary, Uto Ukpanah, MTN said it was never accused of any wrongdoing by the EFCC.

“We wish to reiterate that we received all regulatory approvals required to list our shares on the Nigerian Stock Exchange, as publicly confirmed by the Nigerian Stock Exchange and the Securities and Exchange Commission (SEC) … As a law-abiding and responsible corporate citizen, we are cooperating fully with the authorities. We are committed to good governance and to abiding by the extant laws of the Federal Republic of Nigeria,” MTN declared in the statement.

On its part, the telecoms industry regulator, the Nigerian Communications Commission (NCC), has maintained confidence in the listing of MTN Nigeria shares despite the suspected manipulation. Executive Vice Chairman of NCC, Professor Umar Garba Danbatta, recently said that with MTN shares available in the capital market, Nigerians would buy shares and by purchasing the shares of MTN, they would be financially empowered and socially transformed.

“Through the MTN listing on the NSE, the Commission had translated into action an important function of the Commission, which is to promote local investment and ownership in the telecom sector,” Danbatta said.

Loopholes in the listing process

Several contrasting reactions have trailed the visit of the EFCC to MTN’s office, with a majority of public views seemingly against the invasion by the anti-graft agency as it is perceived to be discouraging to other foreign investors in the country.

Rightly so, the Nigerian government under successive administrations has quite a reputation for often engaging in confrontations with foreign investors. Some of which end in large settlement fines, revoking of licenses or shutting down of operations. Only a few foreign multinationals in Nigeria have a pleasant time in the country. The likes of Etisalat, Shoprite, HSBC, MTN, and many others have been so badly treated that their experiences cannot encourage others to come in. However, jumping to such conclusion without considering the facts in this scenario of MTN listing would be an outright fallacy.

A careful examination of the listing process and subsequent events that ensued after a week of trading frenzy in the stock clearly indicates a fault in the way high-value stocks are listed on the Exchange. In a market memorandum released by Proshare Nigeria, the firm made an attempt to provide “clarity above the noise of adversarial comments in the public space” surrounding the MTN listing on NSE.

Findings in the report titled ‘Beyond The Noise: MTN’s Post Listing Reactions, Gaps in Rules and Lessons Learnt’, show fundamental flaws in the regulations that guide Listing by Investigation on the NSE. They highlight the need for the Exchange and the apex regulator, the SEC, to review existing rules and practices for the purpose of having a more transparent process of pricing newly listed securities, especially top-cap stocks.

More so, concerning the lack of liquidity in MTN shares on the market and the sudden rise in its equity value despite reportedly tradable quantities being scarce on the bourse, the study recommends that regulatory authorities have to address the loopholes to provide direction and authenticity to the process of issuing new share offerings to new investors.

“The need for faster response to specific market changes and general market developments (that is price sensitive) has been established in this case. Both SEC and the NSE would have to include in its annual review mechanism, a process for reviewing market developments as a basis for rule and internal governance practice modifications,” the report said.

The conflicting interest between existing and potential investors should be resolved by a market architecture that makes sure the pricing of new offers and their liquidity on listing dates are assured, Proshare notes. This would help to guarantee a market governance framework that is consistent with international best practices and does not expose market regulators to insinuations of prejudice.