Consider this fictitious account of the rise and fall of a non-existent company. Any similarities between the account below and any real or imagined persons or body corporate, in the words of folks at BLACKHOUSE Studios, is a miracle!
So, a group of smart Investors from SMARTINVEST Ltd. hatch a scheme to takeover a second-tier listed company, Ebidomo Agro-Edibles PLC (EAP) whose share price has remained at 50kobo/share for the last 10 years. They create a holding company called LIFEiBETA Holdings to which they advance a loan of N100m used to mop up 60% of EAP shares before most people could notice (based on relationships with the REGISTRARS but that’s a different story). As smart investors, they don’t stop there. They set up an offshore company in a Tax Haven called EVERGREEN Offshore Holdings and provide guarantees to some foreign banks who then on the basis of that, provide EVERGREEN a $50m loan. The stage is now set for their grand plans to unfold.
The market is agog with rumours that some smart investors are taking over the hapless, unproductive EAP. The market having heard of the mop up of shares goes into a frenzy and trades up the stock from 50kobo/share to N5.50/share in just 9 months. A technical partner is announced, EVERGREEN Offshore Holdings headed by a Veteran Expat who knows Nigeria perhaps a little too well, and a wonderful prospectus is developed showing how EAP will be transformed into a tier-one listed company. Excellent projections, solutions for the dairy, meat and leather markets with social benefits of curbing the Farmer-Herdsmen crises, entry prospects into the government’s school feeding programme and the share price is now a mouth-watering N15/share.
Like fresh blood from a wounded seal alerts the sharks, or the calls of a trapped buffalo or the bleating of one lost sheep alerts the predators, all this stirring in the muddy waters of the market is like a red rag to crazy investing bulls! The political elite and a good matrix of High Net-worth Individuals (HNIs) smell a kill and come straight out to take positions in the emerging company. Of course, a retired General is named the Chairman, a partner from SMARTINVEST is named the new Managing Director, the other one CFO and thus, Ebidomo Agro-Edibles makes its transformation into a tier-one listed company suitably rebranded as AGRISTAR PLC. There is a great influx of investors – individual and institutional, as everyone wants a piece of the rising star!
This is followed by a period of rapid growth where the company “qualifies” for various government subsidies, gets “special facilities” from the Central Bank, manages to “acquire” a string of strategic assets the government just happened to be disposing of, gets Pioneer Status and is excused from taxation for 10years, and manages to get some import duty waivers approved. The numbers are phenomenal, and the original smart investors are hailed as wonder boys and the grand plan is now to expand on this success by spreading activities across Africa to take advantage of the “one trade regime” – Africa Single Market. For this mega vision, more funds would have to be raised.
The plan is to list on the Nigeria Stock Exchange’s Premium Board and then list on the Johannesburg Stock Exchange. If that plan succeeds, next stop would be the London Stock Exchange! Pundits are already making their speculations and meetings are taking place deep into the night by groups of Nigeria’s investing elite to see what this means and how best to position for it. But alas, shock election results throw out the ruling party for the opposition. The opposition brings in new anti-corruption rules and tighter controls and rationing over FOREX. A Bank Verification Number (BVN) is introduced along with a Corporate Governance Rating System (CGRS) at the Stock Exchange.
AGRISTAR is scored on its Business Ethics and Anti-Corruption; Transparency & Disclosure; Internal & External Audit & Control; Stakeholder & Shareholder Rights; Board Structure & Responsibilities and is found wanting. The company rated itself 80%, that is above the pass threshold of 70% set for CGRS triggering an independent review which came back with a moderated score of 48% and with that, at that moment, the company’s hopes of listing on the Premium Board were dashed.
The share price of AGRISTAR is now under pressure, and there are real fears of a serious decline. Finally, more questions are being asked by the investing public. How did SMARTINVEST takeover Ebidomo Agro-Edibles, was any insider dealing involved? What about the cross-directorships, were there serious conflicts of interest? The risk-management at AGRISTAR was also questioned: was this effective? What role could a whistle blower policy have played?
Following the shocks and revelations around the CGRS rating of AgriStar PLC, minority shareholders are bringing a suit against the directors. Do they have a case? The Prospectus used to raise funds for AGRISTAR was it defective in any way? Did the AGRISTAR board behave responsibly? The public it turns out is now not satisfied with the quality of transparency and disclosure by AGRISTAR PLC as it seems not to have safeguarded shareholders adequately. The link between SMARTINVEST, LIFEiBETA and EVERGREEN was not stated in the prospectus.
Of course, the story shared above is completely fictitious. Would anyone imagine they could set up such a scheme and get away with it? Surely Nigerian investors are not that gullible and would never fall for such gimmicks as were used in this story? It would be a miracle if such schemes were proven to exist with concrete evidence, say by a reader? But then again, I believe in miracles and would really love to hear your take on this. The Nigeria Stock Exchange has done excellent work rebuilding investor confidence in the market so we all have a responsibility to keep the magicians away and stop their operations, so we build a robust, deep and healthy market. You might just be the one with the key, the missing piece, what do you think?