Investors are still hurt almost eleven years after as they search for the promised returns on series of Private Placements (PPs) that had hit the market between 2007 and 2009. It is estimated that investors poured in over N800 billion into these private placements and lost almost everything. Some of the placements bordered on outright criminal behaviour through the instruments of the capital market.
While the apex capital market regulator looked aside between 2007 and 2009, several companies moved in and deceived private and institutional investors to take equity interest in their firms through Private Placements but reneged on their major promise to list shares on the Nigerian Stock Exchange (NSE).
Private placement (or non-public offering) is a funding round of securities which are sold not through a public offering, but rather through a private offering, mostly to a small number of chosen investors.
It is expected to be followed by a listing on an Exchange giving the private investors the opportunity to exchange the shares (or exit) in the secondary market.
In Nigeria, some of the companies took advantage of the investors through their Private Placements and ended up breaking their victims’ hearts as well as contributed largely to the record slump in the equities market.
Chief amongst the companies involved in the private placement sleaze is IGI Insurance Plc.
The private placement memorandum of IGI Plc dated as far back as July 31, 2006 shows that it raised N2.9billion through private placement of ordinary shares of 50 kobo each at N2 per share which was payable in full on application.
Industrial and General Insurance Company Plc (IGI) which was incorporated as a limited liability company on October 31, 1991 and commenced operation on January 1992 operated in 45 branches spread across Nigeria and had subsidiaries in other African countries, such as Uganda, Rwanda, Ghana and The Gambia, with representative offices in London and Washington, DC.
Insurance remained the flagship of the IGI Group but the company till date is not strong in its field raising questions on the whereabouts of the N2.9billion raised through Private Placement.
In 2015, the National Insurance Commission (NAICOM) issued regulatory orders on Industrial and General Insurance Plc. The Commission directed IGI to appoint an auditing firm from amongst KPMG, PWC and Delloitte to conduct a comprehensive financial review of the company.
Following its take-off in first-quarter (Q1) of 2013, NASD OTC platform was meant to provide liquidity for investors hoping to exchange the shares of these unlisted public companies.
Currently, at the NASD OTC market for unlisted securities, there is no liquidity and enough information on the company that could drive IGI Plc share price; the company is in the “Red” category of admitted securities on the NASD.
Bola Ajomale, managing director, NASD Nigeria, told Business Day that this market will make a platform available to all who want to trade in non-listed securities. “A whole lot of private placements were not listed. Funds trapped in private placement were worth over N800billion,” Ajomale had noted.
There are currently seventy-nine (79) companies that have registered their public securities with the Securities and Exchange Commission (SEC) and are automatically eligible to trade on the NASD OTC market.
“Shareholders who wish to trade their shares should approach a Participating Institution (stockbroker) who can trade on their behalf in an open and transparent market,” he said, adding that “the NASD platform creates a market for companies that did private placements which have not listed.”
Another company that participated in the Private Placement act is Geo-Fluids Limited, a firm operating in the Oil and Gas Services sub-sector of the Nigerian economy.
On May 21, 2008, Geo-Fluids Limited sought to raise N12 billion when it opened a Private Placement (PP) which closed on June 20, 2008. In raising the N12 billion, Geo-Fluids offered to investors by way of Placement 2.4 billion Ordinary Shares of 50 Kobo each at N5 per share.
While investors fret over these trapped funds, the Securities and Exchange Commission (SEC) in its mode of public offering insists that “private placements by private companies are not under the regulatory purview of the Commission.”
“As the name implies a private placement is a special kind of offer whereby the securities of a company are sold to specific or pre-arranged buyer(s). The company involved here could be private or public while the security may be debt or equity,” SEC noted.
As at 2008, over 300 private placements were being marketed with most of the executed ones over-subscribed. Among others, the level of their over subscription was attributed to the misleading information or promises by issuers and marketers in respect of listing on the Nigerian bourse, which helped sway unsuspecting investors into such placements.
On the part of the increased number of issuers, the private placement option became one of the easiest and most successful medium of raising capital for long term business expansion in recent times as against Initial Public Offering (IPO) of securities which are highly regulated.
“They promised to list their shares on the NSE within one year at the completion of the private placement. It was in their undertaking. They should fulfil their promise. They have been holding annual general meetings and they will not call shareholders,” shareholder of one of the companies said.
Aquitane Oil & Gas also raised N15 billion through a Private Placement. The company, operating in the downstream petroleum products marketing sector of the Nigerian economy offered by way of Placement 1.5 billion Ordinary Shares of N1 each at N10 per share.
Another is Negris Holdings Limited, one of the subsidiaries of Energy Company Nigeria Limited (ENCON) which floated a Private Placement specifically to raise the sum of N60billion by offering 3.3 billion shares of 50 kobo each to individual and institutional investors at N18 per share. Energy Company Nigeria Limited, the parent company of Negris Holdings Limited is an independent power producer established as a direct result of the deregulation of electricity supply industry in Nigeria.
Personal Trust Savings and Loans (mortgage bankers) did a private placement of N1.38billion ordinary shares of N1 each at N1.20 per share. The application opened on August 4, 2008 and closed August 25, 2008.
Also, ARM Properties Plc, a subsidiary of Asset & Resource Management Company Limited (ARM) raised N5.6 billion by way of Private Placement. The company offered 1.360billion ordinary shares of 50 Kobo each at N4.17 per share to a target group of investors which amounted to N5.6 billion. ARM Properties was expected to list its share by way of introduction on the floors of the Nigerian Stock Exchange as far back as end of fourth quarter (Q4) of 2008 but never did.
Batun Oil & Gas raised N500million through a private placement exercise with the promise to list its shares on the floor of the Nigerian Stock Exchange but never did. The company markets refined petroleum products.
IHEANYI NWACHUKWU
