INTRODUCTION
Africans have been denied an indigenous platform to invest in technology companies, despite the fact that many technology companies have a steadily rising valuation, such as Flutterwave, which reached a valuation of $3 billion in six years following its Series D fundraising round in early 2022 but is still not listed on an indigenous exchange[1]. The indigenous stock exchanges must duplicate the advantages provided by foreign stock exchanges like NASDAQ and NYSE in order to remove the restriction that prevents technology companies from being listed on our local stock exchange. There is no doubt that these have their own levels of strict registration as a global business listing platform, but investors at home need to be given a platform for investing in those tech-driven companies that operate primarily and generate revenue from the African community.
To ameliorate the foregoing and adopt a mechanism that would allow technology companies to list their stocks, the Nigerian Exchange Group (NGX) announced in October 2022 that it was working with the Securities and Exchange Commission (SEC), the Central Securities Clearing Systems (CSCS), and the Nigerian Pension Funds Operations Association (PenOp) to introduce a special purpose Tech board to provide entry and exit opportunities for local investors[2]. The "Rules for Listing on NGX Technology Board (the Rules)" were finally authorized by the SEC on December 15, 2022, as a result of this collaborative strategy. This decision came after the Regulation and New Business Committee of NGX RegCo—the regulatory arm of the Nigerian Exchange Group—debated the draft Rules, took into account stakeholder comments on the exposure draft, and received board approval[3].
NGX TECHNOLOGY BOARD SEGMENTS
The Technology Board is a specialized listing and capital-raising platform for technology-based businesses on the Exchange. The Exchange hopes to promote investments in homegrown tech startups through the Technology Board, increase their awareness, and ultimately expand the Nigerian capital market.
The NGX has three boards;
a. Premium,
b. Main, and
c. Growth—and 17 indexes.
The Premium Board and NGX Growth Board have occasionally been mistaken for the NGX Premium Index and Growth Board Index, respectively. Note, NGX boards are stock market listing platforms where businesses can offer their assets. On the other hand, the indexes are measurement tools for the NGX and not actual entities. They monitor and assess the market, assets held by listed businesses, or a segment of the stock market. Investors can compare and compute market price levels and performances with the use of this tool[4].
The segments introduced in the Technology Board are:
a. Start-Up Tech Segment; and
b. Big Tech Segment.
In contrast to the Startup Big Segment, which is the platform for startups and Fintech companies with market capitalizations between $1 million and $100 million, the Big Tech Segment is a Tech Board platform for tech corporations with market capitalizations between $100 million and $1 billion[5].
The Rules contain crucial details about admissions, listing criteria, disclosure, and notification requirements for Issuers, sponsors, investors, and their advisers.
Eligibility Criteria for Listing on the Start-Up Tech Segment of the Technology Board
a. Every Issuer that requests admission to the Technology Board's Start-Up Tech Segment must submit a written application to The Exchange and sign the necessary General Undertaking.
b. For an Issuer that meets the requirements, the Board of The Exchange may approve the listing of its securities on the Start-Up Tech Segment if the issuer:
i. Is a Public company limited by shares, a private company registers as a public company, Special Purpose Vehicle or holding as a public company to be listed.
ii. Has a core investor or technical partner with at least 1-year of operating record.
iii. Has a minimum of 2 shareholders or such numbers as the exchange may mandate periodically.
iv. Has been in operation for at least a period of 12 months before the application by the issuer to the exchange for listing as a Startup Tech Segment.
v. Estimated minimum market capitalization of not less than One Million US Dollars ($1,000,000) but not over One Hundred Million US Dollars ($100,000,000), at the prevailing Central Bank of Nigeria (NAFEX) conversion rate, on the date that the Exchange receives its application for listing on the Start-Up Tech Segment.
vi. Undertakes to ensure that its promoters or directors retain a minimum of fifty percent (50%) of their shares in the Issuer for a minimum period of six (6) months from the date of listing (Lock-Up Period) with no intentions to sell within that period.
vii. On the date the Exchange receives the Issuer's application to list, has a minimum float requirement of 5% of its issued share capital, or, if it is raising capital at the time of listing, has a free float value equal to or greater than Fifty thousand US Dollars ($50,000) [at the current NAFEX conversion rate], with the caveat that the Exchange may, from time to time, review and determine the free float requirements as it may deem fit.
viii. And such other information the exchange may request from time to time.
Eligibility Criteria for Listing on the Big Tech Segment of the Technology Board
a. Written Application by the issuer to the exchange and execute the general undertaking.
b. The Board of the exchange may authorize the listing on the exchange if the issuer;
i. Is seeking to be listed on the Big Tech Board of the exchange.
ii. Has a core investor or technical partner with at least 1-year of operating record.
iii. Has a minimum of 5 shareholders or such numbers as the exchange may mandate periodically.
iv. Has been in operation for at least a period of 12 months before the application by the issuer to the exchange for listing as a Big Tech Segment.
v. Has a minimum free float requirement of 10% of its issued share capital; or has the value of its free float equal to or above $5,000,000, at the prevailing NAFEX conversion rate) on the date that The Exchange receives the Issuer’s application to list if been listed for the first time.
vi. Achieves a market capitalization that is above one hundred million US Dollars ($100,000,000) or equal to one billion US Dollars ($1,000,000,000) based on the NAFEX conversion rate on the date The Exchange receives the Issuer’s application to list on the Big Tech Board.
vii. Undertakes to ensure that its promoters or directors retain a minimum of fifty percent (50%) of their shares in the Issuer during the Lock-Up Period and that they do not directly or indirectly sell or offer to sell such securities during that period;
Benefits of Listing on NGX
a. Businesses that are listed on the market have access to long-term funding from a variety of local and foreign investors eager to participate in this emerging African success story.
b. Issuers can rely on a listing and trading environment that upholds the highest standards of corporate governance for all market participants.
c. NGX institutional services are aimed at assisting issuers in creating long-lasting businesses that outlive the founders.[6]
Method of Listing on the NGX Technology Board[7]
Direct Listing;
Initial Public Offer;
Memorandum Listing
Accelerated Book Building;
Dual Listing;
Reverse Acquisition/Takeover/Merger;
Depositary Receipts;
Special Purpose Acquisition Companies (SPACs); or
Any other method that the Board of The Exchange may prescribe from time to time;
Depending on their valuation, the Exchange may allow the listing of securities in Naira and foreign currency denominations, allowing the issuers to obtain cash by their strategic goals and capital requirements.
Obligations of Tech Companies Upon Listing on the NGX
The following standards must be met for the exchange to periodically examine an issuer's eligibility to continue or be retained with the issued listings on a board of technology as either a Startup or a Big Tech Issuer[8].
i. Filing with the Exchange its unaudited or audited quarterly accounts as approved by its Board of Directors;
ii. Submission of audited annual financial reports and statements to The Exchange;
iii. Minimum free float requirement of 5% for companies listed on the Start-up Tech Segment and 10% for Big Tech Segment for the Technology Board Segment on which the Issuer is listed;
iv. Minimum Corporate Governance requirements as may be prescribed by The Exchange for the Segment on which it is listed; and
v. All other continuing listing obligations as stipulated under the Listings Rules of The Exchange and apply to the Technology Board[9].
The Board of The Exchange may, in its sole discretion, grant an extension of time of such length as it may deem fit, following the submission by an Issuer of a written request for an extension of time that includes a reasonable justification for why it was unable to satisfy the requirements outlined in these rules or any other additional requirements that may from time to time be prescribed by The Exchange[10].
Differences in the Listing requirements for the Technology Board Segments
Generally, both have similar requirements but there are points where they differ which we see as a necessity for prospective investors to note in consideration of their choice of investment segments.
Startup Tech Segment | Big Tech Segment |
1. A minimum of two shareholders or such number of shareholders as the NGX may determine from time to time[11]; | 1. A minimum of five shareholders or such number of shareholders as the NGX may determine from time to time[12]; |
2. A minimum market capitalization of not less than $1 million but not more than $100 million at the CBN NAFEX conversion rate, on the date the NGX receives the application for listing; The NGX has the discretion from time to time to review the capitalization requirements[13]. | 2. A minimum market capitalization of not less than $100 million and not more than $1 billion at the NAFEX conversion rate, on the date the NGX receives the application for listing;] The NGX has the discretion from time to time to review the capitalization requirements[14]. |
3. If raising capital at the point of listing, should have a minimum float of 5% of its issued share capital, or the value of its free float should be at least $50,000 at the NAFEX conversion rate at the time the NGX receives the issuer’s application[15]; The NGX has the discretion from time to time to review the free float requirements | 3. If raising capital at the point of listing, should have a minimum float of 10% of its issued share capital, or the value of its free float should be at least $5 million at the NAFEX conversion rate at the time the NGX receives the issuer’s application[16]; |
Dual Share Arrangement
Applications from Issuers that have dual-class share arrangements may be taken into consideration by the Exchange to list on the Tech Board. In this case, the Board will take into account listing the company while taking into account the eligibility of the criteria in listing in any of the Tech Segments. An Issuer with a dual share arrangement must make this disclosure in its periodic report to the exchange on the implementation of the arrangement and any inconsistencies with the arrangement and the implementation of steps to protect investors' rights and interests.
All shares in each class for which the listing is sought shall have the same rights regarding dividend, capital, redemption, unrestricted transfer, attendance and voting at meetings, and rank pari passu in all other aspects. No Issuer should adopt a dual share arrangement if it did not have such an arrangement before its listing without the approval of the Exchange[17].
Corporate Governance Requirement
The issuers must adhere to the corporate governance and code of conduct of the exchange because this will be included in the periodic report submitted to the exchange[18].
Fees
With the Commission's permission, the Exchange periodically examines, determines, and publishes the appropriate fees for listing an issuer's securities on the Technology Board[19].
Transfer or Migration Between Listing Segments
A startup tech segment may migrate to a big tech segment upon application and compliance with the Exchange's eligibility requirements. On the other hand, an issuer listed as a big tech segment that does not comply with the requirements may be transferred to a startup tech segment, and the issuer must also comply with the startup tech segment's eligibility requirements[20].
Sanction
Such punishments may be imposed by the exchange on defaulters and may be periodically reviewed. The defaulter may request an extension of time for filings, after which the exchange may find them by the following fine;
a. Start-up Tech segment: The first ninety (90) calendar days of non-compliance will result in a daily fine of Ten thousand Naira (NGN 10,000), after which the securities of the Issuer will be delisted from trading on The Exchange until the accounts are presented.
b. Big Tech Segment: The first ninety (90) calendar days of non-compliance will result in a daily fine of Twenty thousand Naira (NGN 20,000), after which the issuer's securities will no longer be able to trade on The Exchange until the accounts are presented[21].
The Exchange has the right to impose the following penalties for noncompliance:
a) a fine not less than ten percent (10%) of its annual listing fee or any amount as may be prescribed by The Exchange;
(b) Private or public censure;
(c) Mandatory Compliance training;
(d) suspend the Issuer’s securities;
(e) Issue any other penalty that is appropriate in the circumstances[22].
If the violation that resulted in the imposition of the aforementioned penalties is not remedied within the time frame set by The Exchange, The Exchange may terminate a Technology Board Listing, and The Exchange will disclose the names of the directors or majority shareholders of the defaulting issuer[23].
Conclusion
Given the doubts that investors have about the legitimacy and sincerity of tech companies, this Rule is a welcome addition to the Nigerian technology industry and investment community. It provides guaranteed legal backing for all active tech companies. It is apparent that, in contrast to Nigeria's current boards, choosing a preferred listing is not influenced by the price but rather by the added advantages that an exchange can provide. The approved Tech Board has different listing requirements from the current Growth, Main, and Premium Boards because it is exclusive to the technology industry. With the implementation of this Rules as planned in 2023, it will attract more investments to the tech sector, raising the country's revenue. With the right partnerships and visibility, the NGX Tech Board has the potential to be a great success and a portal into the African market for investors, large tech businesses, and Nigerian entrepreneurs.
[1] Tage Kene- Okafor, ‘ African fintech Flutterwave triples valuation to over $3B after $250M Series D‘, https://techcrunch.com/2022/02/16/african-fintech-flutterwave-triples-valuation-to-over-3b-after-250m-series-d/
[2] Desmond Okon, ‘NGX eyes $1bn tech market, to launch specialised board for listing‘, https://www.thecable.ng/ngx-eyes-1bn-tech-market-to-launch-specialised-board-for-listing
[3] Ada Ada, ‘SEC approves NGX Technology board listing rules‘, https://dailytimesng.com/sec-approves-ngx-technology-board-listing-rules/
[4] Christiana Ngene, ‘ BUSINESS IN AFRICA / NGX NEWS
NGX Premium, Main, Growth Boards- which is best to list on? ‘, https://africareinvented.com/ngx-premium-main-growth-boards-which-is-best-to-list-on/
[5] Rules for Listing on the Technology Board, Rule 2
[6] Christopher, ‘BENEFITS OF LISTINGS A COMPANY ON NIGERIAN STOCK EXCHANGE‘,https://financialquest.com.ng/benefits-of-li%e2%80%8bstings-a-company-on-nigerian-stock-exchange/
[7]Rules for Listing on the Technology Board, Rule 5.1
[8] Rule 7.1
[9] Rule 7.2
[10] Rule 7.4
[11] Rule 3.2.3
[12] Rule 4.2.4
[13] Rule 3.2.5
[14] Rule 4.2.7
[15] Rule 3.2.6
[16] Rule 4.2.6
[17] Rule 6.1
[18] Rule 8.1
[19] Rule 9.1
[20] Rule 10.1
[21] Rule 1.2
[22] Rule 11.3
[23] Rule 11.5
