Editor’s note: This is general educational information about the rules governing share buy-backs by companies listed on the Nigerian Exchange. It is not investment advice. It is based on the exchange and regulatory documents listed at the end.
A company that buys its own shares removes them from the hands of investors, but it does not necessarily destroy them. In Nigeria the answer to where those shares go is set out in two places that do not say quite the same thing: Chapter 14 of the Issuers’ Rules of Nigerian Exchange Limited, whose current version was approved by the Securities and Exchange Commission on 15 June 2023, and Rule 398 of the Commission’s own consolidated rules. Between them they define a process with a hard ceiling, a fixed funding source, a mandatory public trail and a one-year lockout on new issuance.
The ceiling and the approvals
The ceiling is fifteen per cent. Both rulebooks set it. NGX Rule 14.1(b) provides that an issuer shall not acquire more than fifteen per cent of its issued shares, or such other amount as the Commission may approve from time to time. Rule 398(3)(i) frames the same limit as an aggregate that shall not exceed 15% of existing issued and paid-up equity capital in any given financial year.
Getting there requires a sequence. The issuer’s articles of association must contain a clause authorising a buy-back at all. The directors must resolve at a board meeting on a specific volume or range of volumes over a period not exceeding two years, and must communicate that decision to the exchange on the day of the meeting. The issuer must obtain a formal no objection from NGX before starting. Shareholders must then approve by special resolution, and the notice of the meeting must be accompanied by an explanatory statement that NGX approves before it circulates.
That explanatory statement is the disclosure spine of the whole exercise. Rule 14.1(f) requires it to state the number and description of shares to be repurchased, the directors’ reasons, the source of funds, any material adverse impact on working capital or gearing measured against the most recent published audited accounts, the names of any directors or their associates who intend to sell into the buy-back, the consequences arising under the takeover rules, and what the issuer intends to do with the shares afterwards.
The funding source is not discretionary. Both rulebooks confine it to profits that would otherwise have been available for distribution as dividend, or the proceeds of a fresh issue made for the purpose. Rule 398 adds financial tests around that: the audited accounts relied on must be no more than nine months old, the residual debt to equity ratio must not exceed 2:1 after the buy-back, the board must file a declaration of solvency, and the auditors must write to the Commission on the company’s going concern status. A company defaulting on its obligations, including dividend payments, may not buy back at all.
Cancellation, or the treasury shelf
The question the title poses has two answers in Nigerian law depending on which document is consulted. Rule 398(3)(x) states flatly that shares bought back shall be cancelled in accordance with the procedures set out in the Companies and Allied Matters Act; a separate provision, Rule 398(3)(xvi), requires a monthly report of shares bought, total amount paid, and shares cancelled. NGX Rule 14.1(g) tracks that, requiring cancellation within ten business days of the last date of completion and a register of cancelled securities.
But NGX Rule 14.3(a) then provides that the issuer may cancel repurchased shares or hold them as treasury shares in line with the provisions of the Companies and Allied Matters Act, and Rule 14.1(f)(7) requires the explanatory statement to say whether the issuer will reissue the shares, keep them as treasury shares, or use them for an employees’ share scheme. The rulebook goes on to describe how treasury shares behave. They remain listed on the exchange but do not count towards the issuer’s free float. Every publication about dividends and general meetings must state that treasury shares carry no dividend entitlement and no voting rights. They can only be resold or reissued with the exchange’s approval.
That free float carve-out has direct consequences. NGX sets a minimum free float of twenty per cent of issued and fully paid-up shares for both the Main Board and the Premium Board, with a value floor of N20 billion and N40 billion respectively, and ten or fifteen per cent for the Growth Board segments with a N50 million floor. Companies that fall short appear by name in the exchange’s weekly X-Compliance Report with a compliance status indicator and a dated compliance deadline. A buy-back parked in treasury rather than cancelled reduces the float without reducing the share count, which is precisely the combination that moves a company towards that schedule.
The lockout and the window
Two timing rules constrain when a buy-back can run and what can follow it. A company that has bought back its own shares cannot issue the same kind of securities by public issue, rights issue or bonus issue until one full year has elapsed after completion, unless NGX approves otherwise. And Rule 14.1(f)(8) bars an issuer from purchasing its own shares within fifteen days before the publication of its annual or interim results.
That fifteen-day bar aligns the buy-back with the exchange’s closed period regime. Rule 17.17 of the Issuers’ Rules, amended with SEC approval on 9 April 2021, expressly lists amalgamation, mergers, takeovers and buy-back among the events that trigger a closed period, and Rule 17.18 sets the closure running from fifteen days before the end of the financial period under review, or fifteen calendar days before the board meeting called to consider the matter, whichever is earlier, and ending twenty-four hours after the price sensitive information reaches the exchange’s Issuers’ Portal.
Analysis: two rulebooks, one unresolved answer
The gap between Rule 398(3)(x) and NGX Rule 14.3(a) is not a drafting slip, it is a dating problem. The Commission’s consolidated rules were signed in June 2013, when Nigerian company law did not contemplate a company holding its own shares. NGX’s Chapter 14 amendments were approved in June 2023, and they refer the treasury share question out to the Companies and Allied Matters Act, 2020. The exchange rule is the later instrument and it assumes a statutory permission the older Commission rule was written without. A reader working from the Commission’s consolidated text alone would conclude that cancellation is mandatory, and would be reading a rule that the exchange’s own current rulebook does not enforce that way.
What the disclosure regime does establish is that a Nigerian buy-back leaves a public record at each stage. The decision reaches the exchange on the day the board takes it. The explanatory statement names any director who intends to sell into the offer. A public announcement is required at least five days before the programme starts and again at its conclusion, and Rule 398(3)(xvi) requires monthly reporting of shares bought, total amount paid, and minimum and maximum prices. For open market purchases the company may use no more than two stockbroking firms per programme, and neither may be its subsidiary.
What the rules do not establish is intent. None of the required disclosures test whether the repurchase is a considered use of surplus capital or a defence of a share price, and the explanatory statement asks the directors for reasons without prescribing what an adequate reason looks like. The document that comes closest to answering it is the one filed afterwards: the monthly report showing at what prices the shares were actually bought, against the market price over the same period, in which the company’s own purchases formed part of the traded volume. Anyone assessing a Nigerian buy-back has more to work with in that filing than in the resolution that authorised it.
