Category: Equities

The board of directors of Flour Mills of Nigeria Plc has recommended 20 per cent increase in dividend payout for the 2019 business year as the integrated food and agro-allied group started to reap the benefits of its balance sheet restructuring.

Shareholders will receive a dividend per share of N1.20 for the year ended March 31, 2019 as against N1 paid for the 2018 business year.

The company’s full year result showed a 30 per cent reduction of its financing cost and a strengthened balance sheet, enabling the group to increase its dividend by 20 per cent. Flour Mills’ total net debt reduced by N21.2 billion and financing costs by 30 per cent to N22.9 billion by March 2019.

Group Chief Finance Officer, Flour Mills of Nigeria Plc (FMN), Anders Kristiansson, said the company’s strategy to restructure the balance sheet base and optimize the financing costs has started to yield the desired results.

“The business showed increasing levels of efficiency. Despite ongoing pressures on consumer disposable income in many of our target categories, we delivered a stronger fourth quarter than last year,” Kristiansson.

Group Managing Director, Flour Mills of Nigeria, Paul Gbededo, said the company had made substantial progress in the immediate past year, even in the face of an adverse and challenging business environment.

“Our growth and efficiency initiatives across our various functions and businesses have started to show anticipated gains as we continue to focus on organic sales growth and position the business for continuous profitability,” Gbededo said.

He explained that Flour Mills has undergone several functional and structural changes last year, with innovation and focus on its consumers.

“We are positive that we will see even greater achievements in our financials in the following quarters as we continue to focus on value creation for our shareholders,” Gbededo said.

In spite of the prevailing economic headwinds and harsh operating environment, which is further heightened by the logistics challenges in Apapa, Flour Mills has continued to make remarkable progress. For instance, the group’s strategic directive to focus on market expansion while realigning its food and agro-allied businesses ensured its sustainable growth and profitability.

In 2018, the company undertook a series of strategic actions designed to improve returns and deliver maximum gains for its investors.  Top of such actions was the restructuring process that saw all Flour Mills’ group businesses in the agriculture sector aligned under Golden Fertilizer company, a fully owned Holding company.

Nigerian women have been advised to cultivate strong savings and investment culture in order to build financial legacies for their children.

Wife of the Vice President of the Federal Republic of Nigeria, Mrs Dolapo Osinbajo gave this advice as the keynote speaker at the fourth series of the FSDH Merchant Bank Roundtable Series in Lagos.

Speaking on the theme “Women, Money and Building a Financial Legacy”, Osinbajo said women should focus more on making financial investments and reduce unnecessary consumption in order to achieve stable financial status.

She decried the fact that societies like Nigeria celebrate success but despise the processes that lead to it urging women as parents to instill their children with habits that will set them on the path of success in their endeavours.

According to her, considering the state of the economy and the challenges of bequeathing trans-generational wealth and legacies, women should be more prudent with resources and avoid excessive display of wealth.

She outlined that women’s priorities should be how to build sustainable wealth that will support the family, cater for the children and achieve a befitting financial legacy.

“Women must make the right choices for building a lasting legacy for their children,” Osinbajo said.

She also stressed the need for them to make informed investment decisions while encouraging women to gain financial education and explore investment opportunities in areas like real estate and the stock market that can generate wealth for them.

She further made a strong case for community impact and investment in the poor and underprivileged children and families.

Citing her pet project as example, Osinbajo said she had made conscious efforts to invest in less-privileged children through the “Liberty Schools Project” that has seen over 200 children as beneficiaries.

She admitted that her pet project had made her to sacrifice several pleasures and luxury items urging wealthy and influential women to join the cause of impacting Nigerians that are indigent, through charity.

She also called for legislations that will enforce increase in gender participation in the socio-political activities in the country.

 

An investment fund set up by the German government has acquired 39.25 per cent in Royal Exchange General Insurance Company (REGIC) Limited, a subsidiary of Royal Exchange Plc, an insurance-based investment holding group quoted on the Nigerian Stock Exchange (NSE).

The investment fund- InsuResilience Investment Fund (IIF) was set up on behalf of German government by KfW and managed by Swiss-based Impact Investment Manager BlueOrchard Finance Limited.

In a regulatory filing yesterday at the NSE, Royal Exchange stated that the acquisition has been approved by the National Insurance Commission (Naicom), the primary regulator of REGIC.

In the statement signed by Company Secretary, Royal Exchange Plc, Sheila Ezeuko, the board of Royal Exchange stated that the proceeds of the acquisition would help REGIC to spur growth by increasing its risk capital and supporting its underwriting capacity in agriculture, thus extending its outreach to low income farmers.

With 10 decades of operations in Nigeria, REGIC is reputed as one of the largest non-life insurance companies in Nigeria. Through REGIC, IIF plans to reach out to more than one million Nigerian farmers by 2025.

Based in Luxembourg, IIF was set up by KfW, the German Development Bank, on behalf of the German Federal Ministry for Economic Cooperation and Development (BMZ). The overall objective of IIF is to contribute to adaptation to climate change by improving access to and the use of insurance in developing countries.

IIF seeks to reduce the vulnerability of low-income households and micro, small and medium enterprises (MSMEs) to extreme weather events.  IIF is structured as a public-private partnership and it combines private debt and equity investments in two investible sub-funds as well as technical assistance and premium support. Deriving from its investment goals, IIF aims at achieving both financial return and social impact.

BlueOrchard was founded in 2001 by the United Nations as the first commercial manager of microfinance debt investments. It has since gradually expanded into many asset classes including credit, private equity and sustainable infrastructure. BlueOrchard currently has invested more than $4 billion across 70 emerging and frontier markets. BlueOrchard aims at fostering inclusive and sustainable growth while providing attractive returns to its investors.

Chairman, Royal Exchange Plc, Mr. Kenny Odogwu said REGIC has entered into strategic alliances with various stakeholders in the agricultural sector in order to drive insurance within the sector.

According to him, the group believes that agriculture and retail insurance are the future of insurance and as such, the group will continue to develop products and services to ensure that it remains relevant within that segment.

“REGIC is determined to take advantage of growth initiatives available in the industry, while leveraging on technology to expand its revenue base and stronger bottom-line,” Odogwu said.

Senior Vice President, Private Equity, BlueOrchard Finance Limited, Ernesto Costa said the history, team and commitment of REGIC to agriculture insurance make it a great addition to the firm’s portfolio.

Costa said REGIC was uniquely positioned to capture the opportunity presented by 30 million under-insured small scale farmers in Nigeria.

“We are thrilled to partner with and support REGIC with capital, technical assistance and our international network in the agriculture insurance space, with the objective to increase the resilience of small scale famers to climate change,” Costa said.

The investment will further strengthen REGIC’s capital base. It should be recalled that Naicom had recently introduced increased new minimum capital base for various insurance functions with a recapitalisation deadline of 13 months. Naicom raised the minimum paid-up share capital of a Life insurance company from N2 billion to N8 billion; Non-Life insurance from N3 billion to N10 billion and Composite insurance from N5 billion to N18 billion. Re-insurance companies were directed to raise their capital base from N10 billion to N20 billion.

 

 

Nigeria’s apex capital market regulator, Securities and Exchange Commission (SEC) has cancelled a court-ordered meeting that approved the acquisition of minority shares by the majority core investor in Continental Reinsurance (ConRe) Plc. The Commission ordered the company to reconvene another court-ordered meeting for consideration of the proposed acquisition.

The board of Continental Reinsurance had announced that it had received an offer from CRe African Investments Limited (CRe Investments), a major investor in the Nigerian company, to acquire all the outstanding and issued shares of Continental Reinsurance.

At the court-ordered meeting held on December 20, 2018, the company secretariat had filed that shareholders approved the takeover bid launched by CRe Investments, which will turn Continental Reinsurance into a wholly-owned subsidiary and lead to delisting of its shares on the Nigerian Stock Exchange (NSE).

Aligning with the protests over irregularities by some shareholders, SEC cancelled the December 20, 2018 court-ordered meeting and directed the company to reconvene another meeting.

A source in the know said the cancellation was related to the conduct of the meeting and not the subject of the acquisition noting that SEC had earlier granted the scheme for the transaction its preliminary approval of “No Objection”.

The NSE, which had fully suspended trading in the shares of Continental Reinsurance on Monday, December 31, 2018, yesterday lifted suspension on the shares citing the cancellation of the court-ordered meeting upon which the application for suspension of trading was based.

Read also: Stock market transactions dip by 41% to N937.8b

The NSE had placed full suspension on the shares of Continental Reinsurance at the instance of the stockbroker to the reinsurance company; Chapel Hill Denham Securities Limited, which had sought to proceed with the final phase of the acquisition process.

Full suspension of trading is usually necessary to determine the shareholders that will qualify to receive the scheme consideration following consideration and approval of the scheme of arrangement or similar framework for resolution of a transaction.

According to the Exchange, trading resumed on the shares of Continental Reinsurance with effect from Thursday, July 18, 2019.

The Exchange stated that the suspension was lifted to allow shareholders trade on their shares pending the reconvening of the meeting and announcement of a new effective date by the company.

The board of Continental Reinsurance had stated that it supported the acquisition because CRe Investments wanted to initiate a much-needed restructuring exercise for Continental Reinsurance, with a view to consolidating its operations and repositioning it for enhanced competitiveness in the global insurance market.

The acquisition was planned to be executed through a Scheme of Arrangement under Section 539 of the Companies & Allied Matters Act Cap C20 Laws of the Federation of Nigeria 2004 and other applicable rules and regulations.

CRe Investments had offered N2.04 per share for the 10,372,744,314 ordinary shares of 50 kobo each or one ordinary shares of $1 each in the capital of CRe Investments for every 176 ordinary share of 50 kobo each held in Continental Reinsurance.

However, at the December 20, 2018 meeting, the scheme consideration was revised upwards from N2.04 to N2.10 per share, with the new price representing 51.08 per cent premium on the share price of Continental Reinsurance as at the close of trading on October 5, 2018 which was the last business day prior to the date on which the proposal was received from CRe African Investments Limited.

Continental Reinsurance was incorporated in 1985 and started business as a private reinsurance company in Nigeria. In January 1987, it began to operate as a general reinsurer and then became a composite reinsurer in January 1990, offering both treaty and facultative life and non-life reinsurance, with a well-diversified business mix and customer base.

As part of its goal to become a recognized leading reinsurance company in Africa, it converted to a public limited liability company in 2000. After it recapitalized to the tune of N10 billion in 2007, it listed its shares on the NSE in May 2007.

With five client service centres in Nigeria, Cameroon, Cote d’Ivoire, Kenya and Tunisia with Nigeria as headquarters, it has grown a diversified portfolio across 43 countries.

Nigeria holds the largest gas reserves in Africa and it is home to Africa’s largest population and most exuberant market. Capital Market Editor, Taofik Salako, reports that the involvement of Seplat in the development of one of Nigeria’s largest Greenfield gas and condensate projects opens up well-rounded opportunities for national economic growth and inclusive participation by foreign and domestic investors

Nigeria holds 37 per cent of total proved gas reserves in Africa, the largest by any country within the continent. With current estimated population of above 200 million and projected population of 450 million over the next three decades, Nigeria is Africa’s largest market. While government has focused considerably on power in recent years, there exists huge deficit in power demand and supply. High demand for gas by power companies and other companies as well as increasing domestic use of gas by the general populace provide almost an unrivalled perfect opportunity for the gas business in Nigeria. Nigerian businesses are estimated to spend some $30 billion annually on diesel generators to supplement inadequate national grid supply. Federal Government’s gas development framework seeks to harness the domestic gas advantage for national economic growth. Government seeks to use gas as an enabler to achieve many national goals including energy sufficiency, industrial growth, sustainable environmental development, employment and improved social and living standards. To incentivize investors, government places seven per cent royalty on gas revenues as opposed to 20 per cent on oil production. Gas companies will not pay any petroleum profit tax and are only required to pay the general companies income tax of 30 per cent. There is also a three-year tax holiday, which is renewable for another two years.

It was in this context that the Federal Government, represented by the Nigerian National Petroleum Corporation (NNPC) and Nigeria’s leading independent exploration and production company, Seplat Petroleum Development Company Plc, signed on to the development of the Assa North /Ohaji South (ANOH) gas and condensate field project. Seplat, first upstream company to be quoted on both the Nigerian Stock Exchange (NSE) and London Stock Exchange (LSE), brings multiple stakeholders to the project including domestic and foreign investors, Nigerian local content policy and national security among others.

 

Gas for development

The $700 million ANOH gas and condensate field project is expected to contribute significantly in addressing Nigeria’s deficit in thermal power delivery. The project straddles Seplat’s OML 53 and Shell Joint Venture’s OML 21. Seplat is the operator and has 40 per cent working interest in OML 53. The ANOH gas processing project is managed by Anoh Gas Processing Company (AGPC), an incorporated joint venture (IJV) between Seplat and the Nigerian Gas Company (NGC). AGPC shall develop a 300 Mscfd midstream plant on OML 53 to process future wet gas production from the upstream unit.

With final investment decision on the project taken by Seplat, the project has attracted several domestic and foreign financiers including leading banks such as United Bank for Africa (UBA), Zenith Bank, Stanbic IBTC, Fidelity Bank, FCMB Group, First Bank of Nigeria, Access Bank, Union Bank of NIgeria and Nova Merchant Bank. International lenders already on board the project included SCB, RMB, Standard Bank, BHGE and Nedbank. At its capital market day at the NSE, Seplat, which is quoted on the premium board of the NSE, widened the investment opportunity to Nigerian investors with a comprehensive presentation on the company’s existing gas business, market outlook and anticipated ANOH growth trajectory.

Chief Executive Officer, Seplat Petroleum Development Company (Seplat) Plc, Mr. Austin Avuru said the $700 million ANOH gas project would deliver its first gas by first quarter, 2021. He said the project would enable the company to produce 800 million scuff of gas per day, which will ultimately account for 40 per cent domestic gas production in Nigeria. He noted that gas business opens up a new vista of growth for Seplat, pointing out that domestic supply obligation (DSO) price has increased to commercial levels while non- DSO prices are determined on a willing buyer-willing seller basis.

According to him, the current capacity deficit in thermal power generation provides immediate headroom to place additional gas volumes, backed by existing significant installed but non-operating generation capacity.

He noted that the market prices remain strong while long term outlook for gas in Nigeria and the regional market remains positive, assuring that Seplat’s access to gas infrastructure positions it to be the lending long-term gas supplier of choice for Nigeria.

He pointed out that the conventional diesel off-grid power generation is expected to be displaced gradually, presenting Seplat’s gas business with a significant opportunity.

Avuru had noted that the company’s core assets in the West, OMLs 4, 38 and 41, the extension of the license to 2038 means that the company can confidently plan and invest long into the future to realise the full potential of those blocks.

He outlined that as the company continues to enhance production and revenue diversification with new wells scheduled at OML 53 in the East, the ANOH gas and condensate development will form the next phase of transformational growth for the company’s gas business.

 

Strong foundation

Seplat already has a thriving gas business. It achieved another record year in 2018 with gross production of 323 MMscfd and gas revenue rising from $124 million in 2017 to $156 million in 2018. It had in mid-year 2015 successfully completed and commissioned its Oben gas plant phase I expansion, which saw the company’s overall gross processing capacity double to 300 MMscfd. The Oben gas plant phase II expansion was also completed in 2017, raising gross processing capacity to minimum level of 525 MMscfd. The gas business’s earnings before interest, tax, depreciation and amortization (EBITDA) jumped by 62.4 per cent from $85 million in 2017 to $138 million in 2018, with the gas business making considerable contribution to overall dividend paid by the group for the 2018 business year. Oben is already well-positioned with access to both the Abuja and Lagos axis, covering the country’s main demand centres.  ANOH will connect large scale gas reserves in the Eastern Delta into Nigeria’s main demand centres through Oben hub. With its experience, Seplat will derive considerable repeatability gains and optimal configuration in the new project.

Managing Director, Anoh Gas Processing Company (AGPC), Mrs Yetunde Taiwo, explained that AGPC schedules synchronize with Seplat upstream development plan.

She noted that the timing of the upstream development, which is the source to the plant, has been very much planned as a unit and it has been factored  in such that the well are going to be ready by the time the ANOH plant will be ready.

“ANOH is unitized 50:50 across the two blocks. Shell is the operator of the upstream unit. AGPC shall deliver a 300 MMscfd midstream plant on OML 53 to process future wet gas production from the upstream unit,” Taiwo said. The OML 21 JV will separately develop its midstream plant.

She added that the Seplat model of partnership and proactive engagement with host communities and other stakeholders will also impact positively on the new project, ensuring minimum downtime on installations and facilities.

According to her, the company has continued to work with all stakeholders to ensure effective company-community relations governance structure while there is ongoing needs assessment to ensure future corporate social responsibility projects further reflect community aspirations.

Chief Finance Officer, Seplat Petroleum Development Company (Seplat) Plc, Mr. Roger Brown, pointed out that Seplat and NGC will contribute $210 million each to AGPC while equity and debt are to be scaled in line with final project cost whilst maintaining a target debt: equity ratio of 60:40.

He said the company was mindful to correlate its funding model and business model citing the company’s proactive pay back of its equity debt in the early years as a good example

According to him, besides Nigerian banks and international financiers, export credit agencies such as SACE and CPD are considering the ANOH opportunity while the company is also in discussion with Africa Finance Corporation (AFC) and International Finance Corporation (IFC).

Brown explained that the company has many built-in strategies to optimise its funding plan including amortization of debt facility over a period of between five to seven years and inclusion of deferred debt payment into several supply contracts. AGPC will scale up on its viability and will not have any recourse to Seplat and NGC beyond the initial $420 million equity contribution.

He said AGPC could generate total revenue of $500 million per annum by its first gas and subsequently build up to $556 million per annum over the mid-term and stabilise at $490 million per annum over the long-term. EBITDA by first gas is estimated at $207 million per annum and subsequently to $225 million and $194 million over the mid and long term respectively.

 

Stock to watch

Analysts believe Seplat is a stock to watch for capital gain and dividend growth. Analysts at Afrinvest Securities Limited said Seplat has potential to deliver high returns. In a review of Nigerian upstream oil and gas industry, Afrinvest outlined positive outlook for Seplat noting that the company’s growth history and industry outlook make it a desirable stock for investors.

“We are positive about the company’s prospects going forward. Over our forecast period, we expect Seplat’s revenues and overall profitability to be impacted by three major factors over our forecast period; stable oil production and an improvement in uptime to an average of 80.0 per cent, the success of the company’s diversification in its export route and stability in oil prices above US$50.0/barrel and persistent improvement in gas production,” Afrinvest stated.

A review of Seplat 2018 results indicated positive performance across most financial indices. Key extracts of the audited report and accounts for the year ended December 31, 2018 showed that Seplat posted N228 billion turnover in 2018, 65 per cent growth on N137 billion recorded in the 2017. Profit before differed tax stood at N73 billion, indicating 480 per cent increase on N13 billion recorded in 2017. Gross profit had grown by 84 per cent to N120 billion in 2018 from N65 billion reported in 2017. Operating profit stood at N95 billion, representing a growth of 177 per cent on N34 billion recorded in 2017. However, with taxes of N35.75 billion paid in 2018 as against tax gain of N67.66 billion in 2017, profit after tax dropped to N44.87 billion in 2018 compared with N81.11 billion in 2017. Earnings per share thus dropped from N143.96 in 2017 to N79.04 in 2018. Seplat paid a final dividend of $0.05 per share to all its shareholders. Seplat was adjudged 2018 overall winner of PEARL Awards organised by the well-acclaimed PEARL Awards Nigeria. PEARL Awards recognise and reward quoted companies for outstanding operational and stock performance based on verifiable facts and figures rather than elements of subjectivity.

Nigerian equities reopened yesterday on the negative side as continuing sell pressure shaved off N110 billion in investors’ worth.

Benchmark indices at the Nigerian Stock Exchange (NSE) showed a market-wide sell pressure with average price decline closing the trading session at 0.79 per cent.

The continuing depreciation in share prices further worsened the negative average year-to-date return at the Nigerian stock market to -9.83 per cent.

Aggregate market value of all quoted equities dropped from its opening value of N13.922 trillion to close yesterday at N13.812 trillion. The All Share Index (ASI)- the main index that tracks all share prices, declined from its opening index of 28,566.79 points to close at 28,340.98 points.

With more than two decliners for every advancer, most sectoral indices also closed in the red. The NSE Banking Index recorded the highest loss of 1.56 per cent. The NSE Industrial Goods Index dropped by 1.03 per cent. The NSE Oil and Gas Index declined by 0.74 per cent while the NSE Insurance Index slipped by 0.33 per cent. On the upside, the NSE Consumer Goods Index appreciated by 0.16 per cent.

Read also: Telcos drag equities to N265b loss

There were 21 losers to 10 gainers. Total Nigeria led the losers with a drop of N10 to close at N130. Dangote Cement followed with a loss of N3 to close at N170. Guaranty Trust Bank lost 90 kobo to close at N29. MTN Communications Nigeria declined by 65 kobo to close at N129. Dangote Sugar Refinery and Eterna declined by 25 kobo each to close at N10.35 and N3.40 respectively. Zenith Bank lost 20 kobo to close at N18.80 while FBN Holdings and Lafarge Africa dropped by 15 kobo each to close at N5.85 and N13.50 respectively.

On the positive side, Nestle Nigeria led the gainers with a gain of N3 to close at N1,228. Nigerian Breweries followed with a gain of 50 kobo to close at N58.50. Conoil added 40 kobo to close at N20.40. Vitafoam Nigeria rose by 16 kobo to close at N3.70 while Dangote Flour Mills cchalked up 10 kobo to close at N17.50 per share.

Total turnover stood at 175.17 million shares valued at N2.14 billion in 3,111 deals. Wapic Insurance was the most active stock with a turnover of 42.03 million shares valued at N16.81 million. United Bank for Africa followed with a turnover of 24.24 million shares worth N141.95 million while Guaranty Trust Bank placed third with 16.04 million shares valued at N478.82 million.

Most analysts remained cautious about the outlook for the stock market in the immediate to short term.

“For the rest of the week, we still expect the bearish run to continue. Nevertheless, we expect the release of half year corporate results and bargain hunting opportunities to drive activities in the market,” Afrinvest Securities stated.

Analysts at Cordros Securities also reiterated their cautious position on the market. “Our outlook for equities in the short to medium term remains conservative, amidst the absence of catalysts to drive positive market returns,” Cordros Securities stated.

 

A new book on the capital market will be presented to the public tomorrow.

The book titled: “Frontier Capital Markets and Investment Banking: Principles and Practice from Nigeria” was written by Mr Kehinde Durosinmi-Etti and Temitope Oshikoya.

The book discussed the role of capital markets and investment banking in Nigeria, the largest frontier market economy in the world by both population size and gross domestic product.

Offering a systematic framework combining conceptual principles with real practice, the book enables the reader to gain useful insight into how capital markets and investment banking work in the real world of a frontier market.

It provides a synopsis of the economic attractiveness, financial systems intermediation and capital markets, as well as the regulatory framework within a frontier market.

The book also explores capital raising through equity and underwriting and private equity, paying particular attention to putting capital to work on mergers and acquisitions, project and infrastructure finance and real estate finance.

Besides, the book analyses asset management, pension industry and securities trading in a frontier market. The authors use detailed case studies from Nigeria to illustrate the operations of investment banking in frontier markets.

Former Minister of Power, Works and Housing, Mr. Babatunde Fashola, SAN, will chair the launch while the book reviewers included Managing Director, Vetiva Capital, Mr. Chuka Eseka; Managing Partner, OlaniwunAjayi Legal Practitioners, Prof. Konyin Ajayi, SAN and Prof. Ndubuisi Nwokoma of the Department of Economics, University of Lagos.

Several captains from the banking, finance, real estate, stockbroking and insurance sectors as well as finance industries regulators are expected at the launch.

Airtel Africa Plc lost N148.44 billion in its first week of listing at the Nigerian Stock Exchange (NSE).

Airtel Africa’s share price dropped by 10.9 per cent to close weekend at N323.50 per share, N39.50 below its IPO price of N363 per share. With a loss of N39.50 per share, Airtel Africa’s market capitalisation depreciated by N148.44 billion.

The NSE last Tuesday listed 3.758 billion ordinary shares of Airtel Africa on its main board at N363 per share, the offer price for the telco’s initial public offering (IPO). It had two weeks ago listed on the London Stock Exchange (LSE), its primary listing exchange, at 80 pence.

Airtel Africa started trading last Tuesday with a seeming strong enthusiasm, rallying N136.4 billion gain in the five-minute auction period of the trading session. Airtel Africa had risen by the maximum daily allowable percentage change of 10 per cent to close Tuesday at N399.30 per share.

But as trading widened on the telco’s shares, Airtel Africa came under intense sell pressure dropping from N399.30 to close at weekend at N323.50 The telco had a weak start on its first trading day at LSE, dropping by as much as 16 per cent.

Market analysts attributed the reversal to selloff witnessed by Airtel Africa. Analysts said the wide distribution of Airtel Africa through the IPO makes the stock more susceptible to market dynamics, compared with the situation in the immediate week of the listing by introduction of its closest rival, MTN Nigeria Communications Plc.

MTN Nigeria was listed in May 2019 with a market capitalisation of N1.83 trillion, making it the second largest quoted company after Dangote Cement Plc. The listing of MTN Nigeria by way of introduction had triggered a massive rally that market capitalisation of Nigerian equities to a gain of N2.726 trillion in May 2019, one of the two positive months for the Nigerian stock market so far this year. Under listing by introduction, no new shares are allotted and the liquidity and price discovery of the stock depend on the willingness of existing shareholders to sell their shares.

Market analysts had expected wider distribution of Airtel Africa’s shares due to the IPO to moderate the pricing trend compared with MTN Nigeria’s pricing upsurge. MTN Nigeria had sustained a day-on-day maximum allowable gain for many days, setting off a major debate about the propriety of the pricing mechanism. However, the NSE affirmed that the pricing mechanism was in line with established market forces.

The Nation had reported that Nigerian retail investors had used special purpose vehicles (SPVs) to aggregate funds and buy into the Airtel Africa’s IPO. Airtel Africa’s IPO had been restricted to qualified institutional investors and high net worth investors (HNIs) in Nigeria.

Read Also: Breaking: Airtel Africa postpones listing

Under the rules in Nigeria, a high net worth investor is defined as an individual with net worth of at least N300 million excluding automobiles, homes and furniture. This implied that only individuals and institutions with a minimum assessable investment of N300 million could have participated directly in the IPO.

To bypass the restriction, many investment houses created SPVs which were designed to aggregate subscriptions from retail investors. While the arrangements differed slightly, the investment firms used almost similar template for the SPVs, suggesting a sort of industry consensus on the approach to bypass the high net worth restriction.

Under the arrangements, the SPV aggregated demand from retail investors and used its net worth to subscribe to the shares on behalf of the retail investors. Once successful and its account credited with the IPO shares, the investment firm then crossed the shares into the CSCS accounts of the retail investors at the commencement of trading on the NSE.

Nigerian market has substantial retail investors. Latest data from the NSE indicated that domestic retail investors accounted for 42 per cent of total domestic transactions at the Nigerian equities market. The five-month report ended May 31, 2019 showed retail investors led the market in two months.

Airtel Africa, a leading provider of telecoms and mobile money services, is the holding company of Airtel Networks Limited (Airtel Nigeria) and 13 other subsidiaries in Africa – Airtel Congo S.A., Airtel Gabon S.A., Celtel Niger S.A., Airtel Congo RDC S.A. (DRC). Airtel Tanzania Plc, Airtel Networks Zambia Plc, Airtel Networks Kenya Limited, Airtel Tchad S.A., Airtel Madagascar S.A, Airtel Malawi Limited, Airtel Rwanda Limited, Airtel Uganda Limited and Airtel (Seychelles) Limited. Airtel Networks Limited, second largest telecommunication company in Nigeria, accounts for more than one-thirds of the group’s turnover.

NIGERIAN equities recorded their largest loss in more than a month on Thursday as losses by telecommunication companies dragged the benchmark index down by 1.86 per cent, equivalent to net capital depreciation of N265 billion.

The All Share Index (ASI)- the benchmark index declined by 543.70 points or 1.86 per cent to close at 29,256.60 points, its largest loss since May 27, 2019. Aggregate market value of all quoted equities dropped by N265 billion to close at N13.993 trillion. The month-to-date and year-to-date losses worsened to 4.18 per cent and 8.65 per cent respectively.

The negative market situation was driven by losses suffered large-cap stocks including MTN Nigeria Communications, Airtel Africa, Nestle Nigeria and Dangote Cement.

There were 10 gainers against 18 losers. Sovereign Trust Insurance recorded the highest price gain, in percentage terms, of 4.76 per cent, to close at 22 kobo, per share. Courteville Business Solution followed with a gain 4.55 per cent to close at 23 kobo, while Guaranty Trust Bank appreciated by 3.27 per cent to close at N30, per share.

Lafarge Africa went up by 1.11 per cent to close at N13.70, while Transnational Corporation of Nigeria (Transcorp) appreciated by 0.99 per cent to close at N1.02,  per share. On the other hand, AXA Mansard Insurance led the losers’ chart by 10 per cent, to close at N1.80, per share. Airtel Africa followed with a decline of 9.99 per cent to close at N323.50, while CCNN went down by 9.77 to close at N13.85, per share.

Consolidated Hallmark Insurance lost 9.09 per cent to close at 30 kobo, while Nestle Nigeria shed 4.833 per cent to close at N1,280, per share.

The total volume traded declined marginally by 0.18 per cent to 188.43 million shares, worth N3.17 billion, and traded in 3,105 deals. Transactions in the shares of FBN Holdings topped the activity chart with 50.12 million shares valued at N302.31 million. Zenith Bank followed with 21.13 million shares worth N404.32 million, while Access Bank traded 18.89 million shares valued at N125.52 million.

United Bank for Africa (UBA) traded 13.10 million shares valued at N77.47 million, while Guaranty Trust Bank  transacted 13 million shares worth N380.71 million.

Analysts at Afrinvest Securities said they expected the downward trend to continue in the near term. Analysts however noted the that the steep decline presents  opportunities to position in value stocks.

“Our outlook for equities in the short to medium term remains conservative, amidst the absence of any catalyst to drive positive market returns,” Cordros Securities stated.