In a friendly and educative session on Thursday, investors, regulators, shareholders and other stakeholders discussed major issues facing Nigeria’s capital markets, probable solutions and means to deepen the market.
The discussions held during BusinessDay 2018 Capital Market and Investors Forum with the theme “Catalysing Listings in a Thriving Markets” outlined the need for long term capital in the nation’s capital markets.
Oscar Onyema, the Chief Executive Officer (CEO) of the Nigerian Stock Exchange (NSE) explained in his keynote speech the several factors that have resulted in a lack of Initial Public Offerings (IPO) since January 2015.
“The combined effects of the 2015 national elections, slump in commodity prices, global economic slowdown, recession and FX market illiquidity resulted in a dearth of IPOs in the Nigerian capital market,” Onyema explained.
The NSE head disclosed that the last IPO was by Transcorp Hotels in January 2015.
Since then, “Capital raised on the NSE fell by 95 percent between 2014 and 2016, from N43.95 billion raised in equities in 2014, to N2.59 billion raised in 2016.
“Listing activities on the NSE is currently dominated by supplementary offers, listings by introduction, debt issuances, mergers and divestments, since 2015.”
Nigeria’s equity market capitalization declined 27.54 percent to N9.54 trillion in 2016 from N13.16 trillion in 2014, before rebounding 42.12 percent in 2017, closing the year at N13.62 trillion.
Onyema also disclosed the several initiatives that the NSE is putting in place to attract new listings on the exchange which include the launch of the Premium Board.
This board is meant to showcase “deserving companies that have met the highest requirements on liquidity, corporate governance and sustainability. The premium board offers issuers the benefits of greater visibility and opportunities to attract liquidity from impact investors, and Sovereign Wealth Funds,” Onyema said.
Onyema noted that interest in the Premium Board from issuers and investors remains high and in 2018, four companies migrated to the Premium Board, and the Premium Board index continues to outperform the all share index (ASI), with a 16.02 percent return as at April 20, 2018; compared to 6.72 percent return for the ASI.
He further disclosed that the Exchange recently launched its Corporate Governance Index (CG Index) to provide investors with additional data points and strengthen listed companies by tracking their corporate governance practices.
“The Exchange is also developing a co-branded index series with MSCI – a globally recognised index service provider. This index could potentially generate higher order flow into our market, as it showcases the index constituents on a respected, global platform with trusted index methodology. Issuers could leverage on this initiative to attract sustainable funding for their growth objectives.”
Patience Oniha, Director General (DG), Debt Management Office (DMO) who was the keynote speaker at the event said one of the prerequisite for a robust economy is a vibrant capital market.
“There are lots of advantage that’s comes with listing, as it helps to mobilize funds which we really need as there is still a lot of money in the informal sector that we need to move into the formal sector. Listing promotes transparency, access to information, allows for corporate governance and helps in objective compilation of data and credit listing,” Oniha said.
“We have to discipline ourselves in the things that support the market which will help in attracting both local and foreign investors.”
The DMO DG further advised that progress start from the regulators of the capital markets as they need to review their policy and make it attractive by doing more in technology which will create room for more people who are previously excluded from the capital market.
“Nigeria’s capital market is essential in developing the economy as it provides a platform that will drive investment in the economy and improve infrastructure,” Director General of DMO concluded.
Amid all these expected positives, the dearth of new listings in equities, debts, derivatives, and Exchange Traded Funds (ETFs) as well as other alternative asset classes is increasingly attracting questions from many schools of thought which was the main focus of the first panel discussion with the theme “The role of Alternative Asset Classes in Deepening the Market.”
The moderator of the panel Ali Tomdio senior manager at Capital markets services said lots of alternative assets are barely in existence in Nigeria’s capital market.
Adeniyi Falade managing director of Crusader Pension said regulators need to improve governance compliance and get more private equity firms listed on the NSE.
“Liquidity test, valuation test and governance test must be passed to ensure investors can invest in alternative assets and also ensure investors fund are protected which will attract more funds,” Falade said.
Babatunde Obaniyi, managing director of investment banking at United Capital said it’s impossible to charge a market driven tariff in the capital market because the infrastructure is not certain.
“Regulatory frame work, quality of asset and structure of the economy are factors that affect capital markets,” Obaniyi said.
Osaro Eghobamien (SAN), managing partner at Perchstone & Graeys said Legal infrastructure must be domiciled in trust as regulators need to create credit enhancement scheme which will create specific transaction and ensure good corporate governance.
Eghobamien added, “We need to create tax and accounting treatment for investors which is not necessarily for tax waivers but tax neutrality.”
Uche Val Obi (SAN) managing partner at Alliance Law Firm said Stakeholders must unite and commit to developing the capital market.
“Inconsistency, delays and conflicts in policies are a hindrance to capital market growth most especially decision of investors who appreciate certainty as billions of dollars has eluded Nigeria because of uncertainty,” Val Obi said.
Kennedy Ichibor vice president at Zenith Capital Ltd said there are issues of aversion to risk and high opportunity costs in Nigeria’s market.
Adekunle Adebiyi vice president at MBO Capital said Private equity is still highly risky in the capital market, whereas private equity has proven overtime to outperform other asset classes in other part of the world.
The second discussion a fire side chat which was moderated by Frank Aigbogun, Publisher BusinessDay had on the panel leading regulators in the capital market which include Haruna Jalo-Waziri, managing director of Central Securities Clearing System (CSCS), Bayo Olugbemi managing director of First Register, Bola Onadele-KoKo managing director FMDQ OTC securities Exchange, Bola Ajomale CEO of NASD OTC, Oscar Onyema, CEO of NSE who was represented by Tony Ibeziako, acting divisional head listing, business and head primary market NSE.
“The structure and size of fees, confidence in the market, processes, and state own level of consultation is some of the issues that have hindered the growth of our capital market overtime,” Ibeziako said.
Ibeziako added “We are building a market that will be pegged on best international practices, a market that is transparent, a market that imbibes good corporate governance in its DNA, a well-run market.”
Haruna Jalo-Waziri, managing director of CSCS said the cost of governance in the capital market is very huge but is hardly taken into consideration because it has no monetary value.
“The investment bankers collect about 7 percent spread when you are coming into the market; however, even though the issue of fees might be a major issue, it is still far cheaper to borrow from the capital market than from the bank.”
“We need to build institutions that are strong enough to withstand the individuals that come and go,” Jalo-Waziri said.
Bola Onadele-KoKo managing director FMDQ OTC securities Exchange said the problem Nigeria has is lack of respect for capital.
“You have to be serious in other to attract capital and until we have people in our government that are transparent, accountable and accessible, we cannot talk about getting our market right,” Onadele-KoKo said.
Bola Ajomale CEO of NASD OTC said the integrity of the players in the market matters a lot.
Ajomale added, “For there to be growth in our capital market, there is need for cohesiveness of the government for a sustainable economy.”
Bayo Olugbemi managing director of First Register said when an enabling market is not there, you cannot be talking about getting the market right.
The annual event had in attendance government officials, apex and self-regulatory organisations, capital market operators, investment bankers, policy makers, chief executive officers (CEOs), economists, researchers, analysts, academics, and private equity firms.
DIPO OLADEHINDE, MICHEAL ANI & BUMMI BAILEY
