Investors have placed more than 207 million ordinary shares of leading companies in Nigeria’s key sectors of banking, telecommunications and manufacturing worth about N5.8 billion on securities lending platforms for borrowing.
A review of the securities lending status at the Nigerian Exchange (NGX) Limited yesterday showed that the market opened with a total of 207.62 million ordinary shares of blue-chip companies valued at N5.76 billion.
The companies in the securities lending market included Guaranty Trust Holding Company (GTCO) Plc, the holding company for Nigeria’s largest financial institution, Zenith Bank International Plc, MTN Communications Nigeria Plc, Dangote Sugar Refinery (DSR) Plc and United Bank for Africa (UBA).
Securities lending is the lending and borrowing of shares and bonds by investors for a period of time under an agreed arrangement.
Traditionally, the borrower will provide acceptable collateral to the lender in the form of cash or other acceptable securities of equal but often greater value than the lent securities in order to protect the lender against any default by the borrower. The borrower must return the securities at the end of the agreed period.
According to the report, a total of 31.095 million ordinary shares of GTCO valued at N855 million were available for lending. Also, a total of 77.333 million ordinary shares of Zenith Bank worth N1.875 billion were available. A total of 11.196 million ordinary shares of MTN Nigeria worth N1.84 billion were available. UBA has 45 million shares worth N340 million in the market while a total of 43 million ordinary shares of DSR worth N774 million were placed for borrowing.
Under the securities lending arrangement, the lender temporarily loan its securities to the borrower. Borrowers seeking to borrow securities would typically do this through a security lending agent.The borrower would need to enter into a Global Securities Lending Agreement with the securities lending agent, who is typically the custodian of the securities. The securities lending agent would need to have a Securities Lending Authorisation Agreement in place with the owner of the security before the security can be lent.
Once the security is lent, the legal title of the security passes from the lender to the borrower, but any benefits arising from corporate actions such as scrip issue or dividend payments are retained by the lender, the beneficial owner.
The lender regains title when the securities are returned by the borrower at the end of the loan tenor or when the lender calls for the stock if the agreement was a call tenor. The securities recall process is usually stipulated by the terms and conditions of the securities lending contract.