Impact of Dual Listing on the NSE and LSE

Securities markets are organized to provide cost effective means for the companies listed on them to raise capital. Thus, there need to be a balance between the demand and the supply sides of a securities market to guarantee its efficiency and ensure the most cost-effective approach to capital raising and securities pricing. Evidence in various economies, both developed and developing, has shown that in markets where this balance is lacking or where the supply of capital by investors significantly lags behind the demand by listed companies, the rate of listings by companies in these markets has been very low relative to the rates observed in balanced and developed markets.

With only 171 listed equity securities and a total market capitalization (inclusive of debts) of N20.7 trillion (US$67.5 billion) as at 3rd November, 2017, The Nigerian Stock Exchange seems rather small to meet the capital needs of the Nigerian economy that produced an annual output of US$405 billion in 2016 (as measured by Nigeria’s Gross Domestic Product). The market capitalization of only the nine Nigerian companies that were listed on the London Stock Exchange (LSE) as at 20th November, 2014 (US$14.2 billion) was about a fifth of the equity market capitalization of the NSE as at that date (US$70.3 billion). This gives further credence to the limit of the capital formation ability of the NSE. This may partly explain the small number of companies listed on the NSE and the preference among many other Nigerian companies, especially the large ones, to source for financing from other well capitalized exchanges and international markets.

In a bid to improve capital formation for the vast number of Nigerian companies and prevent a situation whereby the NSE loses out completely due to the preference for international listing by these large companies, in November 2014, the NSE signed an agreement with the LSE which, according to the NSE, was designed “to strengthen cooperation and jointly promote mutual development between the two exchanges”. One of the aims of the agreement was to support companies to dual-list their shares on both exchanges thereby giving the companies access to the more liquid and highly capitalized LSE (with a total market capitalization of over US$6 trillion as of December 2014) while contributing to increased listing on the NSE. In addition, since the signing of the agreement, the two exchanges have organized annual dual listing conferences which began in 2015.

As at 31st October, 2017, the response to the agreement by Nigerian companies has been unimpressive as only one Nigerian company (incorporated in Nigeria), Seplat Petroleum Development Company Plc, was dual listed on both exchanges (Seplat was actually listed on both exchanges in April 2014, 7 months before the dual listing agreement was signed). However, with the framework for dual listing by companies already established by the signing of the agreement, and the annual conference bringing together capital markets stakeholders and potential companies, more Nigerian companies are expected to take advantage of the dual listing arrangement. This is more so that the dual listing arrangement is pivotal to the goal of the NSE of achieving a US$1 trillion market capitalization.

However, this dual listing option is expected to be taken by large Nigerian companies rather than the smaller ones that may be retrained by costly listing requirements and fees. Large oil and gas, banking, and constructions corporations are expected to lead the pace in this regard given that many of them are already familiar with capital raising in international capital markets.

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