Early last month MSCI announced it is considering removing Nigeria from the MSCI Frontier Markets Index given restrictions on the country's currency trading and the resulting deterioration of its forex liquidity impacting investors’ ability to repatriate capital. On Tuesday it revealed that it will apply special treatment to Nigeria in the MSCI Equity Indexes, see full statement below.
ANNOUNCEMENT FOR THE MSCI GLOBAL STANDARD INDEXES SPECIAL TREATMENT OF NIGERIA IN THE MSCI EQUITY INDEXES
In light of continuous deterioration of foreign exchange market liquidity, MSCI will apply a special treatment for Nigeria in the MSCI Equity Indexes.
More specifically, following feedback from the investment community, MSCI will not implement changes for any securities classified in Nigeria in the MSCI Nigeria Indexes or composite indexes which Nigeria is a component of, including the MSCI Frontier Markets 100 and MSCI All Nigeria Indexes, as part of the upcoming May 2016 Semi-Annual Index Review (SAIR). Such changes include migrations between size-segments, additions of the newly eligible securities, including sizable IPOs, potential Foreign Inclusion Factor (FIF) and Number of Shares updates as well as GICS changes. MSCI will, however, implement deletions from the relevant indexes or reductions in the FIF caused by low foreign room, low liquidity or prolonged suspension.
In addition, MSCI will not apply changes in the MSCI Factor, Thematic, ESG or other derived indexes for any securities classified in Nigeria, as part of the May 2016 Semi-Annual Index Review. MSCI will revert all pro forma additions, deletions and full market cap adjustment factor changes for these securities that result from the index review, on the index review announcement date itself. The pro forma files distributed starting from the index review announcement date will already reflect the results of this reversion. For other securities that are a part of these indexes, the pro forma full market cap adjustment factors calculated on the rebalancing date will continue to apply, and will not be reverted.
Note that if not implementing a change in the full market cap adjustment factors of any one of the affected securities in an Index, results in the security failing to be compliant with constraints of the respective index methodology, such as concentration constraints in the MSCI Capped Indexes methodologies, the change will be implemented in order to ensure compliance with the relevant constraints.
Further, starting immediately and until further notice, MSCI will defer the implementation of corporate events not requiring a Price Adjustment Factor (PAF), such as placements, block sales, recapitalizations, sizable IPOs and will exceptionally freeze potential migrations due to corporate events until further notice for the MSCI Nigeria Indexes. In contrast, MSCI will continue implementing corporate events requiring PAFs, such as stock splits, consolidations, rights issue, buybacks as well as deletions resulting from delisting, bankruptcies and merger and acquisitions at the time of the event.
Sizable corporate events which are likely to cause potential reverse turnover will be reviewed on a case by case basis. The treatment of such specific corporate events would be announced to all clients with sufficient advance notice through regular Index email announcements.
As a reminder, the MSCI Nigeria Indexes are currently classified under Frontier Markets. Introduction of restrictive measures, such as capital or foreign exchange controls, which can lead to material deterioration of equity market accessibility, may result in the exclusion of such market from the MSCI Frontier Markets Indexes and a reclassification to Standalone Market status. MSCI continues to welcome feedback on the level of accessibility in Nigeria and will continue to monitor the situation and issue further communications as needed.