Nigeria Moves to Boost Stock Market Liquidity by Unlocking Tightly Held Shares
Nigerian regulators are stepping up efforts to boost liquidity in the country’s equity market by reviewing rules around free-float requirements for listed companies. Many of Nigeria’s largest firms are tightly held by controlling shareholders, limiting the number of shares available for trading and raising the risk of sharp price swings. Current rules require major companies to make at least 20% of shares—or a minimum of 40 billion naira ($29 million)—available to the public.
The spotlight on free float intensified this year when MSCI Inc. tightened its definition of the measure, prompting some passive investors to sell stocks in emerging markets, including Indonesia. In response, Nigeria plans to implement rules that ensure more companies meet the minimum free-float requirements, said Temi Popoola, CEO of the Nigerian Exchange Group, emphasizing the need to optimize existing share availability and improve data accuracy.
Currently, Dangote Cement Plc has about 11% of its shares publicly traded, while Bua Cement Plc has less than 3%. Both meet regulatory thresholds due to the total number of shares exceeding 40 billion naira. However, such low free-float levels restrict liquidity and limit investment opportunities, highlighting the importance of reforms to encourage broader participation in the market.
Nigeria could take a cue from India, which in 2010 mandated listed companies to maintain a minimum public shareholding of 25%, with incremental annual increases for those below the threshold. The move helped India attract $1.25 trillion in foreign investment and build one of the largest retail investor bases in the world. Experts say a similar approach in Nigeria could draw more foreign inflows into the equity market.
Beyond adjusting public-shareholding rules, Nigerian regulators are also exploring whether equity and index weightings should reflect free-float levels instead of market capitalization alone. “All of these efforts are part of a broader objective to deepen the market and support growing investor participation,” Popoola said. Benchmark providers like MSCI and FTSE Russell consider free float when assessing how easily investors can trade a stock, making these reforms crucial for Nigeria’s appeal to both domestic and international investors.
source: Businessday