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Nigeria’s primary market has started to show signs of recovery, with companies such as Skyway Aviation Handling Company (SAHCOL) and Nigerian Reinsurance Corporation and Singapore-owned Indorama Eleme Petrochemicals Limited planning initial public offer (IPO).
“Primary markets activities on the Nigerian Stock Exchange (NSE) in 2018 have not continued the pace of resurgence we saw in 2017, although the pipeline remains strong. The 2017 primary markets activities were dominated mostly by supplementary offers, listings by introduction, debt issuances, mergers and divestments,” said Oscar Onyema, chief executive officer, Nigerian Stock Exchange.
Public offerings in the Nigerian equity market dried up post-2008 following the market crash that wiped off circa 60 percent of market capitalisation. Though the IPO market has attempted to stage a few come backs but cautious investors have kept the market sentiment weak.
“A resurgent public offering would help deepen equity market, provide more investment options and trigger greater investor participation in the long-run,” said research analysts at Vetiva Capital Management Limited.
“Whilst the All Share Index posted its first positive return in 4 years in 2017– rallying 42percent over the course of the year, the primary market has remained relatively soft, with SEPLAT’s 2014 dual listing in Lagos and London being the most notable public offering in recent years”, Vetiva analysts noted.
In addition, 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 Initial Public Offers (IPOs) in the Nigerian capital market. The Nigerian economy exited recession with a marginal growth of 0.83percent in 2017 and is expected to grow by 2.5percent in 2018 based on the World Bank’s projections.
This optimistic outlook is also evident in the NSE’s trading activities with cumulative transactions from January to April increasing by 114.22percent from N509.38 billion recorded in 2017 to N1.091 trillion in 2018; evidently showing that Nigeria remains top of mind on the African continent for investors.
Though Nigerian stocks fell the most in two years in the trading week to June 1 with record N900billion loss as nervous investors shied away from assets they deem too risky, many analysts and money managers said the declines were not justified and did not reflect positive developments in Africa’s largest oil producer.
The move by SAHCOL, Nigerian Reinsurance Corporation and Indorama Eleme Petrochemicals follows the footsteps of the MTN Group, which is expected to list its Nigerian business in the second half (H2) of the year.
After listing in Ghana last month and recorded higher group profits, MTN aims to list on the NSE in 2018. “This might be a game changer for the NSE,” said Bismarck Rewane, CEO Financial Derivates Company.
He noted that positive investor sentiment trails development MTN listing on the Exchange. “It will deepen transaction volumes and value on the bourse; while improvements in leading economic indicators will improve investor sentiments”, he added.
These quotable companies are warming up to take advantage of emerging opportunities in the Nigeria’s Capital market to raise cheap funds.
“In line with the drive of operators and regulators to increase product offerings in the market, we could potentially see more issuances of rights, IPOs from large unlisted corporates as well as new products all together in the market. We believe the improved sentiment presents an opportunity for these instruments to be launched”, said Afrinvest West Africa in their 2017 equities market review and outlook for 2018.
Adedapo Adekoje president, Chartered Institute of Stockbrokers (CIS) who recently assured nervous investors of the market’s strong fundamentals said, “The good news is that we are having good valuations. Investors should buy on long term basis and not short term”.
While Skyway Aviation Handling Company and Nigerian Reinsurance Corporation are preparing for initial public offerings this year, Indorama Eleme Petrochemicals plans a public float in 2019.
SAHCOL is said to be going through the regulatory process ahead of a planned IPO in August when core investors will sell a stake, while Nigerian Reinsurance aims for an IPO in November in which the government will sell part of its stake.
Over the last few years, Nigeria’s economic landscape has been particularly challenging for the capital market. Between 2014 and 2016, capital raised on the NSE fell by circa 95percent, from N43.95billion to N2.59billion.
However, in 2017 the market saw a significant rebound as listing activity (IPO and Follow on offers) increased 1,622.03percent from N2.59 billion in 2016 to N44.51 billion in 2017.
“The Federal Government should intensify efforts in addressing insecurity problems in Nigeria and keep on reassuring of a safe investment environment. Our market is full of opportunities but we need to sustain the momentum of assuring both indigenous and foreign investors that the market is safe,” Patrick Ezeagu, chairman, Association of Stockbroking Houses of Nigeria (ASHON).
He noted that as the Exchange remains a barometer that gauges the mood of the economy, “we should address investors’ fears in order to enable them take advantage of good returns associated with our market. The current bearish trend is temporary as the market would bounced back soon”.
Iheanyi Nwachukwu
