•As experts express worry over diminishing stock portfolio
Capital market operators have been advised to consider mergers and acquisitions in order to meet the new minimum capital requirement for market operators and to be globally competitive.
The Chief Executive Officer, Nigerian Stock Exchange, Mr. Oscar Onyema, gave the advice in Lagos recently at a seminar organised by the Association of Issuing Houses of Nigerian and the Association of Stockbroking Housing of Nigeria.
Onyema, in his keynote address on ‘Benefits of a consolidated stockbroking industry,’ explained that most dealing member firms currently had a business model that was not sustainable, which prevented them from being as competitive globally.
“A high number of very small members renders the broker business model economically non-viable for most players,” he said, adding that the situation was responsible for “several issues regarding professionalisation of the market.”
An example of the problems caused by the development, according to him, is that the market is unattractive for global players’ market entry due to lack of potential partner.
Others are limited investor reach due to long tail of small fringe players without adequate investor coverage; underdeveloped broker capabilities/capacities due to lack of scale; high costs of surveillance due to granular structure of the market with multiple small instances of fraudulent behaviour that needs to be prosecuted and low economic viability due to lack of scale effects and low pricing power.
On the where the Exchange’s goal, Onyema said, “We want to be fully demutualised, for-profit, listed with a global and local shareholder base. We want strong partnerships and co-operation with leading global exchange operators, operationally efficient, competitive, with robust infrastructure and systems. We also want to see frequent product innovation including new asset classes and data services.”
In terms of issuers, he said the goal was to be the first choice for access to growth capital for Nigerian companies, the exchange of choice for African oil, gas and power sectors and a brand name stock market where issuers list on to enhance their international reputation and ratings.
He added, “We want to have a competitive broker market with large players providing value added services (e.g. analysis, coverage, road shows) as the NSE’s distribution channel locally and internationally, cross membership agreements with other exchanges allowing trade on NSE.”
The NSE CEO said the Exchange expected to have a diversified investor base with local and international institutional and retail investors.
He also said the Exchange wanted to see local PFAs “approaching cap allocation in corporate equities and bond markets”, investments from leading international fund managers, strong presence on international indices and high-frequency trading supported with full breadth of trading technology.
Although the Chairman, AIHN, Mr. Victor Ogiemwonyi, admitted that a fragmented industry would harm the market, he said the remedy was beyond increasing the capital requirement.
Ogiemwonyi said, “Nobody benefits from a fragmented industry, but just raising capital alone is not enough in this market. We must find a way of stimulating growth in the industry. We cannot have a market without operators.
“Too few operators will cripple the market. The decisions we take must reflect the reality of the environment we are. M&A is one of the options as operators begin to look at ways of meeting the minimum capital base.”
The President, ASHON, Mr. Emeka Madubuike, confirmed that operators were indeed considering mergers and acquisitions.
“We are looking at M&A option because we have to meet the expectations of the Securities and Exchange Commission in what I call a regulatory-induced capital requirement. We should also be open in looking at the risks of M&A,” he said.
Madubuike, however, stressed that “the level of capital we operate today is not too low when we talk about being competitive in the global arena.”
