Rabiu Abdulsamad makes N10.57bn from insider dealing, as BUA takes advantage of NGX loophole

Nigerian billionaire, Rabiu Abdulsamad, tightened his control in BUA Foods in January, despite his company yet to meet the free float rule of the Nigerian Exchange Limited (NGX).

Abdulsamad, through BUA Industries Limited, a majority shareholder of BUA Foods, increased his indirect shareholding in the sugar producer by purchasing a total of 500,000,000 shares on January 5, 2022.

This is despite a closed period that started January 5, which gives only the public – excluding the company’s directors, employees or related parties – access to trade BUA Foods shares.

“In compliance with the post listing requirements of the Nigerian Exchange Limited for listed Companies, BUA Foods Plc hereby declares that a closed period for trading in the Company’s shares commenced from January 1st, 2022 in respect of the Unaudited Financial Statements for the Fourth quarter ended December 31st, 2021 and the Company’s Audited Financial Statements for the year ended 31st December, 2021.

“Accordingly, no Director, Manager and other related and interested parties of BUA Foods Plc, privileged to have sensitive information, which may materially affect the price of the securities of the Company, and persons connected to them may directly or indirectly deal in the shares of the Company, until 24 hours after the release of both the Q4 Unaudited Financial Statements and 2021 Audited Financial Statements for the year ended 31st December 2021 to the Nigerian Exchange Limited and the Public.” BUA Foods said in a statement on January 25, 2022.

Ripples Nigeria noted that the Q4 financial statements was released on January 28, 2022, which means BUA Industries, as a related and interested party of BUA Foods, traded shares of the firm 23-days before the closed period ended.

According to BUA Foods, “Parties are considered to be related if one party has the ability to control the other party or exercise significant influence over the other party in making financial and operating decisions. Related parties include: Entities over which the company exercises significant influence.”

Abdulsamad’s firm makes N10.57 billion from insider dealing

BUA Industries Limited paid N20.12 billion to acquire the 500 million stock, bought at N40.25kobo per share, a filing by BUA Foods to NGX shows. Nearly two months after, the investment is now worth N30.70 billion.

In 54 days, Abdulsamad’s BUA Industries Limited made N10.57 billion from its insider dealing, according to Ripples Nigeria analysis, as BUA Foods share has appreciated by 53.5% between January 5 till date.

Read also: Flour Mills counters BUA Foods amid blackmail, price-fixing allegations with Dangote Sugar

Although Securities and Exchange Commission (SEC) and NGX listing rules states that dealing by an insider should be reported to the capital market regulator and authority in 48hours after a trade, the firm disclosed its transaction 54 days after to the investing public – it’s not known if the SEC and NGX received the report during the required due date.

BUA Foods yet to meet listing requirements

According to the capital market authorities, free float is the volume of a company’s share available for the public to purchase, and the listing rules says that quoted firms are required to have 20%.

However, BUA Foods free float is 0.17% according to Business Day, which means the control of the company is concentrated at Abdulsamad, giving him substantial influence over the direction of the firm.

This means buying and selling of shares in a company with free float below 20% is largely done by a small group of investors holding significant influence, and it reflects high volatility for investment, while companies with 20% or above equates low volatility and are more preferred by institutional investors.

BUA Foods has until January 4, 2023 to comply with the free float requirement, making its latest insider dealing shocking, considering its supposed to be freeing up shares, not mopping it up.

Why is Abdulsamad buying more shares amid low free float?

BUA Industries Limited acquiring more shares further limits the number of shares available to the public, causing scarcity of its stock, which compels prospective investors to jostle for the available stocks.

This will drive its equity value or share price up, while also increasing BUA Foods market capitalisation – in simple terms, it’s a way of controlling an asset’s price.

BUA Foods is towing the line of BUA Cement when the sister-company listed in January 2020, leaving the public with 1.5% available share for purchase – this skyrocketEd the cement company’s share value from its listed price of N35 per share to N85 in one year – it now trades at N70.75kobo.

Forbes had stated that the listing by Rabiu two years ago “seemed to defy logic.” and history seems to be repeating itself through BUA Foods, which has even enjoyed more growth thanks to Abdulsamad tightening his control over the public company and freeing up less shares than required, as the price of the equity is now N61.4kobo per share, from the listing price of N40.

BUA Group taking advantage of NGX rules to create price bubble

Price bubble is an asset that is overvalued beyond it’s normal market value, and scarcity is one of the tools used to inflate the asset’s price, as it causes FOMO (fear of losing out) among investors, causing panic buy.

BUA Cement had 1.5% of its total share volume available for purchase, and BUA Foods has a free float of 0.17%, reflecting a culture of creating artificial scarcity in the first year of BUA Group listing its companies.

Abdulsamad is taking advantage of the loophole in NGX listing rules for main board quoted equities, which overlooks companies that fail to meet the 20% free float before going public, as long as they have the requirement for the minimum value of their shares, which is N20 billion.

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