By Taofik Salako, Capital Market Editor

 

Total net asset of collective investment schemes and funds in Nigeria hit a record trillion naira mark to N1.09 trillion as investors appeared to show increasing preference for professionally managed funds in the midst of the fluctuations in the financial markets.

Latest reports on collective investment schemes obtained by The Nation showed a 62 per cent increase in total net asset value and 10.1 per cent increase in total number of registered managed schemes in the country.

Total net assets value increased by N419 billion to N1.09 trillion while the number of registered managed funds rose by 10 to 98 schemes.

The reports coordinated by Nigeria’s apex capital market authority, Securities and Exchange Commission (SEC), included total net asset value of ordinary mutual funds, exchange traded funds (ETFs) and Specialist Fund (SF), altogether known as mutual funds or collective investment schemes (CIS).

The reports showed significant growths in both ordinary mutual funds and specialist fund but ETFs declined, underlying the dominance of ETFs by equities’ indices. The growth in the investment funds market was driven mainly by fixed-return segment as investors showed less appetite in an election year characterised by uncertainties.

Mutual funds or CIS are joint investment vehicles through which investors can pool funds and invest in chosen basket of securities with a view to optimise returns and reduce risks.

A mutual fund is usually categorised by the class of assets that forms the primary focus of its investments. Thus, there are equity funds, money market funds, bond funds, real estate funds, ethical funds, index funds, and mixed funds among others.

NAV is determined by subtracting total liabilities of a fund from its total assets. The NAV can further be divided by the total number of units of the fund to determine the unit price.

At the last count, total liabilities amounted to some 0.32 per cent of NAV, putting the total assets less than four steps to the trillion naira mark.

Total number of investment schemes rose from 89 on January 4, 2019 to 98 on January 3, 2020, according to reports provided by SEC. The growth was mainly in the ordinary mutual funds which rose from 79 to 88 as ETFs and SF remained unchanged at nine and one respectively.

Total net assets value rose from N671.03 billion on January 4, 2019 to N1.09 trillion by January 3, 2020, representing an increase of 62.4 per cent or N419 billion.

Ordinary mutual funds rode on the back of fixed-income and money market funds to N1.042 trillion as against N644.56 billion in the comparable period. SF doubled from N20.63 billion to N42.19 billion. ETFs, however, declined from N5.84 billion to N5.31 billion.

A breakdown of the funds showed strong and growing preference for funds that invest generally in fixed-income securities, especially short-term securities. The value and percentage of money market funds rose significantly over the period, accounting for nearly three-quarters of the total funds.

Money market funds, which invest mainly in money market instruments such as treasury bills, also remained the largest group of mutual funds, indicating the prevalent flight to safety by investors as sustained price depreciation weighed on equities market.

The NAV of money market funds rose from N487.56 billion to N764.71 billion. Fixed income funds-which invest in fixed-income assets, followed as the second largest group rising from N57.65 billion to N144.15 billion.

Bonds funds- named because they invest solely on sovereign and other approved bonds, leapt to third position from N14.36 billion to N49.36 billion. Real estate funds- which invest in real estate assets rose marginally from N43.53 billion to N44.96 billion. Specialist fund, which has only a fund investing in infrastructure, increased from N20.63 billion to N42.19 billion.

Further breakdown showed that mixed funds-which allocate funds between equities and fixed-income assets, declined marginally from N24.33 billion to N24.30 billion. The performance of the mixed funds apparently reflected the slowdown in the equities market as NAV for equity funds dropped from N11.89 billion to N10.91 billion.

Ethical funds-which include funds that do not invest in alcohols, cigarette, firearms and sometimes, in the case of Islamic ethical funds, in interest-based businesses, also declined from N5.23 billion to N4.55 billion.

Ethical funds typically include relatively large allocations to equities. ETFs, which are dominated by equities indices, declined from N5.84 billion to N5.31 billion.

Stanbic IBTC Money Market Fund remains Nigeria’s largest fund with NAV of N339.21 billion. FBN Money Market Fund followed with NAV of N202.45 billion. Stanbic IBTC Dollar Fund, a fixed-income fund, placed third with NAV of N82.1 billion.

ARM Money Market Fund ranked fourth with NAV of N80.68 billion while AXA Mansard Money Market Funds occupied the fifth position with NAV of N35.77 billion.

Investors in Nigerian equities had lost about N1.71 trillion in 2019 as a combination of political risk, weak macroeconomic performance and tense global outlook drove the stock market to second consecutive negative performance.

Nigerian equities closed 2019 with negative average full-year return of -14.60 per cent, equivalent to net capital depreciation of N1.71 trillion for the year. It had recorded negative average full-year return of -17.81 per cent in 2018.

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The All Share Index (ASI)- the common value-based index that tracks all share prices at the Nigerian Stock Exchange (NSE) closed 2019 at 26,842.07 points as against its opening index of  31,430.50 points for 2019, which was also the closing index for 2018. It had opened 2018 at 38,243.19 points.

The negative average full-year return of -14.60 per cent in 2019 implied that investors in the Nigerian equities market lost nothing less than 14.6 per cent of their portfolios during the year. However, with higher losses in several sectors, actual losses by most investors may be higher than average benchmark.

The 2019 pricing performance marks the fifth negative closing in six consecutive years for Nigerian quoted shares. After a world-leading positive return of 42.3 per cent in 2017, Nigerian equities had reversed to negative in 2018 with average full-year return of -17.81 per cent.

Aggregate market value of all quoted equities at the NSE had declined by N1.889 trillion in 2018. The equities market had been on a losing streak since 2014. Investors lost N1.75 trillion in 2014 and followed this with another loss of N1.63 trillion in 2015.

Against the general expectation that political transition and new government will quicken a rebound, equities closed 2016 with a net capital loss of N604 billion.

NSE Chief Executive Officer, Mr Oscar Onyema said the performance of the fixed income market in 2019 showed a flight to safety by investors as quoted equities wriggled under fragile macroeconomic landscape denoted by uncertainties in fiscal and monetary policy direction.

He noted that the NSE launched a new trading platform for collective investment schemes in 2019 in order to enhance retail customer experience.

The new mutual fund trading platform facilitates electronic transactions with seamless connection among key parties in the transactions including the Exchange, Central Securities Clearing System (CSCS), stockbrokers and fund managers.

The NSE stated that the new platform aims to improve and enhance access of listed mutual funds to investors.  “The overarching goal is to enhance visibility for the listed funds and promote financial inclusion, while stimulating retail investor participation in our market,” the NSE stated.

By Taofik Salako, Capital Market Editor

 

New rules on the minimum number of shares that a quoted company must make available to retail minority shareholders will enhance liquidity and efficient price discovery.

Chief Executive Officer, Nigerian Stock Exchange (NSE), Mr Oscar Onyema  said the Exchange decided to revise its rules on minimum number of shares, otherwise known as free float, in order to enhance liquidity. It began implementation of the new free float rules on January 2, this year.

He pointed out that the Exchange had undertaken revision of many of its rules and processes with a view to ensuring that it remains a stable, fair, efficient, globally competitive and attractive marketplace.

He outlined that revised rules on pricing methodology, free float and listing process were in line with the Exchange’s strategic focus on efficient and fair market.

He noted that the Exchange has continued to implement measures to improve investors’ participation and experience in the Nigerian capital market citing the launch the of the NSE X-Mobile, which was aimed at boosting online interaction, investor relations data pack, which was aimed at enhancing companies’ stakeholders’ engagement; mutual fund trading and distribution platform and the X-Academy e-learning programme, which was aimed at making quality learning accessible and affordable to all.

The new rules on free float require quoted companies to indicate their shareholding structure and compliance level with the minimum number of shares or capitalisation being held by minority retail shareholders in their half-year reports.

Under the previous rules, companies were only required to indicate shareholding structure in full-year report and were not under obligation to categorically indicate compliance with free float.

Free float, otherwise known as public float, refers to the number of shares of a quoted company held by ordinary shareholders other than those directly or indirectly held by its parent, subsidiary or associate companies or any subsidiaries or associates of its parent company; its directors who are holding office as directors of the entity and their close family members and any single individual or institutional shareholder holding a statutorily significant stake, which is 5.0 per cent and above in Nigeria.

The new rules, obtained by The Nation, indicate that companies shall also be required to undertake periodic self-assessment of their free float compliance and report any breach or shortfall to the Exchange. The new rules place the onus of investigation and compliance on the companies, in addition to existing surveillance by the capital market authorities.

According to the amended rules, every company shall independently review its free float every half-year or other reasonable time, and when there is a breach of its free float requirement, disclose this to the Exchange and immediately initiate the steps to remedy the default and comply with its free float requirement.

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The amendment mandates the Exchange to commence the process of delisting any company that fails to respond to specific notice on free float default within 10 business days of receiving the notification or any company that fails to produce and submit an acceptable compliance plan to the Exchange within three months of being notified of falling short of free float under the Exchange’s periodic “X-Compliance Report”.

The NSE is also expected to commence delisting process if the company’s compliance plan is not acceptable to the Exchange, and the company fails to produce and submit an acceptable alternative plan within 21 business days of the Exchange’s rejection of the initial plan.

The NSE can also trigger the delisting process if the defaulting company is unable to return to a state of full compliance within such period as indicated in the company’s compliance plan approved by the Exchange.

The amendment, in addition to existing percentage free float requirement, also provides the minimum number of minority retail shareholders and minimum capitalisation that can serve as alternative free float to percentage of shares.

Thus, companies listed on the premium board are required to have 20 per cent free float or more than N40 billion of their capitalisation in the hands of general investing public. Companies on the main board are required to have a minimum free float of 20 per cent of their market capitalisation, implying that 20 per cent of the companies’ shareholdings must be available for minority retail shareholders. However, companies on the Alternative Securities Market (ASeM) are required to have 15 per cent free float.

With the amendments, free float of companies on the premium and main boards must be held by not less than 300 shareholders while those on Alternative Securities Market (ASeM) must be held by not less than 51 shareholders. A new board, to be known as growth board, will have free float of between 10 to 15 per cent, which must be held by between 25 to 51 persons.

The amendments introduced capitalisation method, which previously applied only to premium board, for the other boards. Minimum value of free float for companies on the main board is N20 billion while ASeM and growth board have alternative value of N50 million.

The new rules however retain NSE’s prerogative to grant extension of time to any company to comply with the minimum free float requirements if the Exchange believes that the market can operate fairly and in an orderly manner with the company’s existing level of free float or the NSE has received an undertaking from a majority shareholder or many shareholders with at least five per cent shareholding to make available to the minority retail investing public a specific number of securities required to restore the company to the required free float level within such period as the Exchange may approve.

Stock markets maintain minimum public float to prevent undue concentration of securities in the hands of the core investors and related interests, a situation that can make the stock to be susceptible to price manipulation. Besides, it provides the general investing public with opportunity to reasonably partake in the wealth creation by private enterprises.

By Taofik Salako, Capital Market Editor

 

THE Nigerian Stock Exchange (NSE) has recovered about N1.44 billion worth of shares for investors under its investor protection mandate in 2019. The recoveries included restitutions of investors who were unjustly dispossessed of their shares.

NSE Chief Executive Officer, Nigerian Stock Exchange, Mr Oscar Onyema, said the Exchange facilitated the restitutions and recoveries of shares worth N1.436 billion in 2019.

He said the recoveries and restitutions were in line with the strategic focus of the NSE on investor protection, adding that the Exchange would continue to empower and protect investors through education, adequate surveillance and stringent enforcement of rules and regulations.

He assured that the NSE will maintain momentum in executing its medium term corporate strategy in its efforts to elevate the prominence of Africa’s global financial markets.

The NSE operates many channels for dispute adjudication and resolution including its complaint management framework, disciplinary committee, subsisting working relationship with law enforcement agencies, especially the Economic and Financial Crimes Commission (EFCC) and a stand-alone Investors’ Protection Fund (IPF).

The NSE had in December 2018 strengthened the governance of its Investors’ Protection Fund (IPF) with a new framework that outlines a broad-based board and competencies. It had in 2012 inaugurated its IPF, in line with the provisions of the Investment and Securities Act (ISA).

Part XIV of the ISA requires the Exchange to establish and maintain an investors’ protection fund to compensate investors with genuine claims of pecuniary loss against dealing member firms resulting from insolvency, bankruptcy or negligence of a dealing member firm of a securities exchange or capital trade points; and defalcation committed by a dealing member firm or any of its directors, officers, employees or representatives in relation to securities, money or any property entrusted to, or received by the dealing member firm in its course of business as a capital market operator.

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A new governance and management framework approved by the Securities and Exchange Commission (SEC) on December 5, 2018 for the NSE IPF indicated that the fund will now be managed by a nine-member board, drawn from major stakeholders in the capital market.

According to the framework, the board shall consist of a maximum of nine members including a representative each from dealing member firms, NSE, Central Securities Clearing System Plc, SEC, Institute of Capital Market Registrars, one person representing institutional investors, one person with proven integrity and knowledgeable in the capital market matters, one person representing registered shareholders association and one person who shall be a legal practitioner knowledgeable in capital market matters.

Under the new rules, members of the board shall be appointed by the Exchange, subject to the approval of SEC, for an initial term of four years, renewable for a further term of four years only.

The board is the most important organ of the IPF. It is responsible for the management of the IPF and shall hold, manage and apply the fund in accordance with the provisions of the IPF rules and the ISA.

For the purpose of managing the fund, the board is empowered to engage such number of staff as it may deem necessary for the efficient performance of its functions, set up sub-committees to assist in the discharge of its functions, in particular for the purpose of determining the eligibility of an investor to receive compensation and the amount payable; and appoint a management sub-committee.

The board may also by resolution delegate to any sub-committee appointed by it all or any of its powers. Any power, authority or discretion so delegated by the board shall be exercised by members forming a majority of the sub-committee as if that power, authority or discretion had been conferred on a majority of the members of the sub- committee.

The board may at any time remove any member of a sub-committee appointed by it and may fill any vacancy in the sub-committee howsoever arising while a decision of the sub-committee of the board shall be of no effect until it is confirmed or ratified by the board.

By Taofik Salako, Capital Market Editor

 

The Federal Government might have extended the deadline for the national shutdown of open drugs markets by one year, given drug distributors and other stakeholders opportunity to tidy up arrangements for a seamless transition.

The Federal Government had earlier fixed December 31, 2019 for the shutdown of open drugs markets and transition to Coordinated Wholesale Centres (CWC) as continued in the new National Drug Distribution Guidelines (NDDG).

Indications emerged that the government might have extended the deadline to December 31, 2020 after operators of open drugs markets and other stakeholders engaged regulatory agencies on the plan and feasibility of a seamless transition.

Industry sources confirmed that government and industry stakeholders had reached agreement on the extension of the deadline in view of the ongoing efforts for compliance. The regulated CWCs system was designed as an alternative to the chaotic open drug markets as part of efforts to stamp out fake and substandard drugs in the country.

Under the new arrangement, the Pharmaceutical Council of Nigeria (PCN), the industry self regulatory organisation (SRO) and the National Agency for Food, Drugs Administration and Control (NAFDAC) are expected  to commence enforcement of the ban on open sale of drugs as from 2021.

In view of the capital intensive nature of the project, implementation of the NDDG policy has been extended twice to allow dealers in various states ample time to construct structures that meet global standards.

Rather than hastily pushing operators out of business, the Federal Government approved the construction of CWCs to relocate dealers in Lagos State, and other locations across the country.

Through these regulated centres, pharmaceutical companies will distribute their products and ensure that drugs are monitored down to retail consumers.

Chairman, Lagos Medicine Dealers Association (LSMDA, Island Zone), Sir. Felix Ugbojiaku said that PCN and other stakeholders realised that the projects are highly capital intensive and needed more time to be completed.

According to him, in Lagos State, work is being intensified by City Pharmaceuticals and Allied Partners Limited which is handling the project and the project will be completed on or before the new December 31, 2020 deadline.

A recent news report had also quoted NAFDAC Director, Investigation and Enforcement Directorate, Mr. Kingsley Ejiofor, as saying that the PCN was working with NAFDAC to ensure that structures that meet international standard are built by private pharmaceutical products dealers in designated locations in Lagos State, Onitsha in Anambra State, Aba in Abia State, and Sabon-Gari in Kano State.

Ejiofor reiterated that CWC project was one of the policy measures to stamp out fake and substandard drugs while ensuring quality and safety of drugs in circulation as the products will be monitored from manufacturers to retail consumers.

Ugbojiaku pointed out that LSMDA has been working with government regulatory agencies including PCN, NAFDAC, and other stakeholders to ensure that the country transits to a new era where drugs will no longer be sold in the open market because the manufacturers and the importers will channel drugs to only the CWCs.

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“We are very committed to this project. Considering the centrality of good quality drugs the project implementation will bring about, we are quite optimistic that it will ensure the availability of good quality, safe efficacious and affordable drugs in the health care delivery system of the country,” Ugbojiaku said.

Reacting to a recent publication that portrayed Idumota Lagos as one of the largest unregulated open drug markets in the country, Ugbojiaku said that the Lagos Island zone is one of the most regulated zones in the country.

According to him, in the Lagos Island zone, there are multiple layers of regulation which make it difficult for fake drug peddlers to thrive.

In addition to regular unscheduled visits by NAFDAC, LSMDA has instituted a task force saddled with the responsibility to hunt down any fake drugs dealer that sneaks into the zone.

“Besides, Lagos State government has its own agency that also makes unscheduled monitoring visits to this business environs.

All these combine to ensure that the best of healthcare products and services are delivered through this business hub serving not only South West of Nigeria but also entire West African sub-region. In the last 10 years and more, fake and substandard drugs have never been and can never be found or sold in Idumota, Lagos Island axis of drugs distribution chain,” Ugbojiaku said.

 

By Taofik Salako, Capital Market Editor

 

After two and a half years of suspension, the Nigerian Stock Exchange (NSE) on Tuesday lifted suspension on trading in the shares of Omatek Ventures Plc as the troubled computer firm continues efforts to stabilise its operations and governance processes.

With the lifting of the suspension, trading resumed yesterday on the shares of Omatek Ventures.

Authorities at the NSE stated that the removal of the suspension was sequel to submission of relevant financial statements by Omatek Ventures.

The board of Omatek Ventures had at its November 2019 board meeting decided to decide on the date for the annual general meeting for the past four consecutive years from 2015 to 2018 at its next meeting in first quarter 2020. The plan to hold annual general meeting followed the completion and approval of financial statement.

Omatek ventures has struggled under huge debts and declining operations in recent years, leading to a takeover of the company by its creditor, the Bank of Industry (BoI). At the November 2019 meeting, the board also decided to make passionate offer to BoI to allow the company to keep its factory while forfeiting part of its property as settlement for the debt.

The NSE had on July 5, 2017 suspended trading on the shares of Omatek Ventures and 16 other companies following the failure of the companies to adhere to best corporate governance and extant post-listing requirements.

The suspended companies included African Alliance Insurance, Equity Assurance,  Fortis Microfinance Bank, Guinea Insurance, Premier Paints, Resort Savings & Loans, Sovereign Trust Insurance, African Paints (Nigeria), Aso Savings & Loans, Ekocorp, Evans Medical, Goldlink Insurance, Great Nigeria Insurance, Union Dicon Salt, Union Homes Savings & Loans and Universal Insurance Company.

The companies were suspended after they failed to file their accounts and operational reports as required by the listing rules at the Exchange.

With the suspension, investors were not able to trade on the shares of the companies, thus trapping their investments for some 30 months.

Post-listing rules at the NSE require quoted companies to submit their audited earnings reports, not later than 90 calendar days after the expiration of the period.

The rules also require quoted companies to submit interim report not later than 30 calendar days after the end of the relevant period.

Most quoted companies including all banks, major manufacturers, oil and gas companies, breweries and cement companies use the 12-month Gregorian calendar year as their business year.

Not less than 83 per cent of quoted companies use the 12-month Gregorian calendar year as their business year. The business year thus terminates on December 31.

While March 30 is usually the deadline for submission of annual report for companies with Gregorian calendar business year, the deadline for the quarterly report is a month after the quarter.

NSE tags and applies fines on companies that fail to meet earnings reports’ deadline. The Exchange had on January 1, 2017 launched a new sanction regime for delay in submission of companies’ results.

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Under the new sanction regime, companies may pay fines that range from N100, 000 to more than N100 million as penalties for delay in the submission of their corporate earnings reports.

Companies that also delayed their financial statements and accounts face threats of suspension and delisting in addition to the monetary fines.

Under the new rules, quoted companies will be required to file their unaudited quarterly accounts with the NSE not later than 30 calendar days after the relevant quarter, and publish it within five business days after the date of filing, in at least two national daily newspapers, and post it on the company’s website, with the web address disclosed in the newspaper publication.

Also, an electronic copy of the publication shall be filed with the Exchange on the same day as the newspaper publication. Where the company chooses to audit its quarterly accounts, it shall be required to file such accounts not later than 60 calendar days after the relevant quarter.

For annual audited accounts, the new rules require companies to file their audited annual report and accounts with the Exchange not later than 90 calendar days after the relevant year end, and published in at least two national daily newspapers not later than 21 calendar days before the date of the annual general meeting, and posted same on the company’s website with the web address disclosed in the newspaper publications.

Also, an electronic copy of the publication shall be filed with the Exchange on the same day as the publication.

Under the new rules, late submission under the first instance of 90 days could attract N9 million, the additional period of 90 days will attract N18 million while such delay beyond the first 180 days to the next 180 days could attract as much as N72 million, bringing fines payable by a defaulting company within a year to N99 million.

By Taofik Salako, Capital Market Editor

 

Vitafoam Nigeria Plc yesterday declared a 68 per cent increase in dividend payouts to shareholders after the leading foam manufacturing company grew its bottom-line by 296.3 per cent.

Shareholders will receive a dividend per share of 42 kobo or N525.35 million for the 2019 business year as against 25 kobo per share paid for the 2018 business year.

The dividend will be paid in March 2020 after approval by shareholders at the annual general meeting scheduled for March 4, 2020.

The new dividend represents a significant growth for shareholders given that the company had also distributed bonus shares of one share for five shares for the 2018 business year, which automatically increased shareholders’ holdings by 20 per cent. The 42 kobo per share will be paid on both the previous and bonus shares.

Key extracts of the audited report and accounts of Vitafoam Nigeria for the year ended September 30, 2019 showed that profit before tax rose by 339.5 per cent while net profit grew by 296.3 per cent.

With the dilution, basic earnings per share rose by 219.3 per cent. The company’s top-line had grown by 14.1 per cent, implying that bottom-line performance was driven by growing sales, improved financial management and enhanced operating efficiency.

Group turnover rose from N19.53 billion in 2018 to N22.28 billion in 2019. Profit before tax surged to N3.49 billion in 2019 from N793.85 million in 2018.

While tax expenses leapt from N191.92 million in 2018 to N1.03 billion in 2019, net profit jumped from N601.9 million in 2018 to N2.39 billion in 2019.

Earnings per share increased from 57 kobo to N1.82 per share. The dividend payout represents 23.1 per cent of the earnings per share, a considerable improvement on a payout ratio of 53.2 per cent in 2018.

Group Managing Director, Vitafoam Nigeria Plc, Mr Taiwo Adeniyi, has said consistent growths in key performance indicators in successive results provide basis for assurance that the company will be able to surpass its previous performance in the current business year.

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Adeniyi said the group’s Nigerian businesses are on a stronger footing while three of its seven subsidiaries have started to generate profit.

He said the company will continue to innovate and develop products that will keep it ahead of competition and enable it to grow its turnover while extracting better values for shareholders.

Chairman, Vitafoam Nigeria Plc, Dr Bamidele Makanjuola, said the growth in turnover and profitability reflected the robustness and fundamental strength of the group’s business.

According to him, the company had taken strategic decision and reengineered its business with special focus on products quality, innovation, market differentiation, customer service and consumer education.

“These efforts underscored our long-term priorities of growing revenue, controlling operating costs, and driving higher gross margins.

I am pleased to report that we made great strides in cost containment and sustained positive trends in gross margins,” Makanjuola said.