The Nation Newspaper

Tag: CAPITAL MARKET

  • Capital market reforms on trial

    Capital market reforms on trial

    The Nigerian capital market is arguably at the centre of a whirlwind as investigations continue into the tripartite crisis involving Oando Plc, suspended Director-General of the Securities and Exchange Commission (SEC) Munir Gwarzo and Finance Minister Mrs. Kemi Adeosun. TAOFEEK SALAKO reports that with all the parties pushing to dwarf the substantial issues, there is the need for the government to seek independent review of the facts and figures

    It has been quite busy for the Nigerian capital market in the past few days. Equities continued their rally to hit a new high of N16 trillion at the weekend. The Administrative Panel of Inquiry (API) constituted by Finance Minister Mrs. Kemi Adeosun to investigate the suspended Director-General of the Securities and Exchange Commission (SEC), Mr. Mounir Gwarzo, submitted its report. The House of Representatives Committee on Capital Market also waded into the Oando-Gwarzo-Adeosun crisis with a public hearing that snowballed into fireworks between Gwarzo and Mrs. Adeosun.

    Oando reached a “solution” under a truce brokered by the Emir of Kano, Muhammad Sanusi II, with one of the petitioners – Alhaji Dahiru Mangal, who is a major shareholder.

    The oil company has since appointed a non-executive director and an executive director, who are believed to be related to the Mangal truce. But, beyond the personalities involved, the underlying allegations that triggered the crisis are at the core of the capital market integrity and investors protection, especially minority investors. These, many argued, must not be dwarfed by underhand arrangements and inconclusive investigations.

    Festus Keyamo (SAN), in a January 24 letter, noted that Nigerians deserved to know the truth in the allegations and counter-allegations that have characterised investigations into the activities of the SEC director-general and Oando Plc.

    The establishment of the veracity of all the claims, Keyamo noted, is necessary so as not to send a wrong perception that the anti-corruption crusade has been bedevilled by politics and ethnicity.

     

    Public hearing

    At the public hearing by the House of Representatives Committee on Capital Market & Institutions, led by Tajudeen Yusuf, it was allegations and counter-allegations by Gwarzo and Mrs. Adeosun. Gwarzo insisted that his suspension was due to his insistence on the forensic audit of Oando.

    Gwarzo, who appeared at the hearing with a counsel, James Igwe, a Senior Advocate of Nigeria (SAN), faulted his suspension on the point of law and Public Service Rule (PSR) that the minister lacked the constitutional power to suspend him.

    He pointed out that the issues of payment of severance package of N104 million to himself as well as awarding SEC contracts to companies in which he has interests as alleged by the minister for his suspension, were untrue.

    According to Gwarzo, his suspension was triggered by his resolve to conduct a forensic audit of Oando despite several attempts by the minister to stop him from going on with the investigation.

    He also wondered why the minister interfered in the case of Oando and Oasis Insurance while citing about five other investigations carried out by SEC in the last two years which the minister never interfered in.

    Gwarzo said: “I strongly believe that anybody or group of persons that do not want a forensic audit to be undertaken on Oando Plc does not believe in the anti-corruption war of Mr. President.

    “The forensic audit is yet to take place almost two months after my suspension and more than four weeks after Mrs. Kemi Adeosun told the nation that the exercise will commence.

    “There is no court order, as at today, restraining SEC from undertaking the exercise. Oando has filed an appeal at the Court of Appeal and the matter is yet to be heard not to talk of issuing any order and SEC only obeys court orders and not filling of papers as was the case in Gombe Bond, BGL and Partnership, and the board of the Nigerian Capital Market Development Fund has since approved the engagement of the investigators and also approved the sum of N160 million for the exercise.

    “Therefore, SEC has no right to vary the decision of the Board and no reason not to continue with the forensic audit.”

    On the allegation of payment of severance package to himself, Gwarzo said the payment was in accordance with the rules governing such matter.

    He noted that though he was a Commissioner for two years before being appointed by the President, subject to the approval of Senate, he still went through the process of a new appointment and as such, he was entitled to two years of severance package.

    He said all heads of government agencies like the Central Bank of Nigeria (CBN), including commissioners, are entitled to such packages, adding that all the commissioners as well as the Head of Legal & Enforcement of the Commission, agreed that the payment be made to him except the acting Head of Legal Department at the time who disagreed.

    On his interest in certain private companies and award of contract to one of them, Gwarzo said he duly resigned his membership of the companies but found out that the resignation letters were not filed.

    But to Mrs. Adeosun, Gwarzo’s was only playing up emotion on the issue, stating that she could not have endorsed the investigation of Oando by SEC if she has other motives despite being informed after Oando has been suspended by Gwarzo

    According to her, there was the need to establish the payment of severance package to a serving officer of the Commission, in addition to ascertaining the allegation that Gwarzo was still running private companies as a public officer.

    The minister said: “But on the 27th of October 2017, we received a bundle of documents delivered to our whistle-blowing unit making allegations not only against Mr. Gwarzo but, also against two other officials of SEC. On that basis, I asked the head of the whistle-blowing unit to investigate. We did not immediately suspend Mr. Gwarzo because every allegation is just that – it is allegation. It must be subjected to some scrutiny.

    “The policy of the whistle-blowing unit is they have two levels of investigation – One is cursory, the other is detailed. Due to the seniority of Mr. Gwarzo in the market and the potential impact of the matter, I asked them to go straight to level two, which is, you either prove the case or we throw this out.

    “They came back with evidence that suggested that there was a very real need to issue a query to Mr. Gwarzo which is the procedure. Mr. Gwarzo was then queried. He responded. But unfortunately, his response contradicted the evidence that we had at hand.

    “For example Mr. Gwarzo claimed that he had resigned from the company, but the evidence we had from the Corporate Affairs Commission (CAC) showed him to still be a director and a shareholder. So, on that basis we felt there was a need to do more work.

    “I sent the team back again. This explains then the delay between his response and his eventual suspension. Because when you have two conflicting evidences…he attested that he had resigned in 2012, meanwhile, CAC was still showing him to be both a director and shareholder.

    “So, we needed to get other evidence…we then went into bank records and found that Mr. Mounir remains a signatory to that account and we acquired evidence of banking transactions where he signed as a Director

    “That then for me became conclusive evidence that the position he had maintained earlier was incorrect or at least unreliable. And on that basis, we had an internal meeting where we looked at all the evidence.

    “At the same time, we were receiving information from the staff of SEC that documents were being removed. We knew that we needed to do a thorough investigation, of course, that investigation could not be done with Mr. Mounir still at the helm of affairs at SEC, and that was when we took the decision to suspend him.”

     

    The API

    Mrs. Adeosun told the public hearing that the API had submitted its report to her. In what might be termed an ambush of the public hearing, the API report made the news the second day, with the full report ostensibly leaked to the press before a conclusive review by the Presidency.

    The API recommended the dismissal of Gwarzo from service. The panel, headed by the Permanent Secretary in the Federal Ministry of Finance, Mahmoud Isa-Dutse, also recommended that Gwarzo be referred to the Independent Corrupt Practices Commission for further investigation of the allegation of using his position to influence the award of contracts to Outbound Investments Limited.

    Besides, the panel directed Gwarzo to refund the N104.85 million paid to him as severance package on the completion of his term as executive commissioner of SEC.

    In the dramatic ping-pong style that had characterised the Oando-Gwarzo-Adeosun saga, Gwarzo had also carefully provided his responses to all the issues raised by the API in its report in his submission to the House of Representatives, with the exception of the “Golden Handshake” incentivised policy implemented by Gwarzo at SEC.

    A source close to Gwarzo described the inclusion of the “Golden Handshake” in the API report as tantamount to a blow below the belt as the embattled director-general was not at any time confronted with such allegation or given opportunity to defend himself.

    Some documents obtained by The Nation, indicated that the “Voluntary Retirement (Golden Handshake) Proposal” was approved by the SEC board at its 79th  meeting on March 2015. The policy sought to address the top-heavy nature of the agency’s workforce by providing incentives for early retirements.

    “The source argued that the “Golden Handshake” policy, its funding and procedures were in line with the extant laws guiding the operations of the Commission-the Investment and Securities Act (ISA).

    Section 4 (1) (d) of the ISA 2007 empowers the board of SEC to consider and approve the annual budget of the Commission as may be presented to it by the management.

    Also, Sections 19 & 20 of the ISA empower the Commission to establish and maintain a fund, the proceeds of which it may apply to meets its financial obligations.

    In effect, the Commission is empowered to cater for all of its financial obligations from its funds. However, such amounts must be expended from a budget, which must be approved by the board of the Commission.

    The SEC, under Gwarzo’s watch, had made adjustments to certain vote heads within the 2015 budget to accommodate the cost implication of the “Golden Handshake” with the reasoning that votes in majority of the heads adjusted were either meant to be disbursed for the welfare of members of staff or fund certain allowances of its employee.

    The action of the Commission’s board in adjusting certain heads in the 2015 budget was derived from the provisions of Section 12 (b) of the Interpretation Act (Appendix IV), which provides that where an Act (ISA 2007) confers a power to make a subsidiary instrument-the budget, proclamation or notification, the power shall include power, exercisable in the like manner and subject to the like consent power, conditions (if any), to vary and revoke the instrument, proclamation or notification.

     

    Political solution to

    regulatory issue

    Oando appeared to achieve a major breakthrough in late last month with an announcement that it has reached a truce with Mangal one of the petitioners that triggered the SEC investigation. The company affirmed Mangal’s substantial shareholding and offered him the privilege to appoint a director into its board. The truce was brokered by the Emir Sanusi under a peace accord concluded on January 7, 2018.

    In a regulatory filing just submitted to the Nigerian Stock Exchange (NSE), Oando stated that in accordance with the Companies and Allied Matters Act, Cap. C20 LFN 2004 (CAMA), an individual or entity with direct or beneficial share ownership of more than 10 per cent constitutes a substantial shareholder in the company.

    “The company has been officially notified by Alhaji Mangal that he is a substantial shareholder in the company. In addition to confirming his status as a substantial shareholder, all the issues raised by Mangal in his petition to the SEC have been successfully addressed and clarified by the company,” the oil and gas company stated.

    Oando noted that it has always encouraged oversight over its affairs by all shareholders adding that it has encouraged Mangal to exercise such rights to enable him gain a better understanding of the company’s business development plans, initiatives and operations.

    In the regulatory filing by its Chief Compliance Officer & Company Secretary Ayotola Jagun, Oando said: “In addition, subject to the provisions of the SEC Code, Companies and Allied Matters Act (‘CAMA’) and Oando’s Board Appointment Process, Oando’s Board of Directors will consider the appointment of representation for Alhaji Mangal to the Board. The representation will take the form of Directorship from qualified individuals nominated by Alhaji Mangal.”

    The Emir said he intervened to support indigenous entrepreneurship, especially participation in the domestic oil and gas sector.

    The Emir said: “I have watched Wale Tinubu from his days in Ocean and Oil and I am extremely proud of his growth and the company he has built. Oando is proudly a Nigerian company whose impact has been positively felt by every Nigerian.

    “The company is evidence of the progress we have made from an IOC-led sector to one that is thriving with a mix of indigenous and international players. I call on Alhaji Mangal and Wale Tinubu to see themselves as partners focused on achieving one goal; attainable only if they have confidence and trust in one another.”

    Brushing aside the brewing crisis, Mangal said that he has received clarifications from Oando’s management team and he has withdrawn his petition to the SEC.

    He said: “I invested in Oando because I could see its potential. It is therefore with excitement that I concur to this peace accord, signifying the renewal of our relationship; one that gives me more insight into the company’s operations and aspirations and involves more dialogue.

    “I am confident in the company’s leadership team and trust that with the right support it will continue to grow from strength to strength, returning real value to all its shareholders including my good self.’’

     

    Minority investors’ rights

    With the withdrawal of Mangal’s petition, the SEC now has only one subsisting petition, by Ansbury Incorporated, which had also raised serious allegations of insider dealings, corporate governance abuses and financial mismanagement against Oando.

    Minority shareholders have criticised the settlement between Mangal and Oando and the Emir’s role without the resolution of the substantial issues that pertain to capital market integrity and investors protection.

    The President, Trusted Shareholders Association, Alhaji Muktar Muktar, said the intervention by the Emir was a major volte face for the Emir who had, as the Governor of Central Bank of Nigeria (CBN), presided over the sacking and trial of several managements of banks, including the takeover of many publicly quoted banks.

    According to Muktar, while the petition was the whistle that led to the investigation, the findings of SEC Investigative Committee on Oando have taken the issue away from Mangal and Oando to the general interest of all shareholders and capital market protection.

    He said: “Why didn’t he allow for such settlement in the case of the bank director? If the Emir acted to protect indigenous people, what about the foreign investors involved in the capital market, shouldn’t they be protected?”

    Muktar called for the continuation of the investigation into the allegations raised by the petitions in order to reach a conclusive position in line with capital market regulations.

    Many other stakeholders shared Muktar’s position. Keyamo said: “Whilst Nigerians anxiously await the Report of all the investigations into the SEC, I also urge the relevant agencies to continue the transparent and thorough probe of the issues surrounding Oando Plc.

    “The Oando Plc probe should not be scuttled on account of the investigation of the suspended DG of SEC because the Oando probe and the SEC investigation are mutually exclusive despite the attempts to link them together.”

     

    Findings on Oando

    Market operators, who sought anonymity for fear of being victimised, said the insider-related transactions and dealings contained in the SEC technical committee report on Oando need to be fully resolved in order to protect the market integrity. Key extracts of the voluminous report-more than 100 pages, had claimed that Oando directors took advantage of insider information to sell shares once they discovered that the oil and gas company was in huge loss.

    The report drew information from a concluded report by the Nigerian Stock Exchange (NSE), which had conducted an investigation into trading in the shares of Oando between January and October 2015.

    The NSE indicted Oando for failure to disclose material information, major changes, and significant occurrence including the fact that by January 31, 2015, when Oando’s senior management learnt it was going to take significant impairments, even when the size of those impairments remained certain, Oando should have disclosed this fact to the market and that by April 1, 2015, when the likely size of the impairment was known to Oando, it should have disclosed this fact to the market.

    Curiously, the NSE, which prides itself as champion of corporate governance, did not disclose the investigation and the fact that it has placed Oando on its regulatory watch-list to the market.

    The report also found that between 2012 and 2016, several related party transactions running into several billions of naira were carried out by companies owned or related to top management and directors of Oando.

    As noted by stakeholders, there is a need for a high-level independent review of all the reports and investigations by the Federal Government to be done by unbiased experts to ascertain the truth and falsehoods.

    Such a committee of experts under the auspices of the Presidency should exclude interested parties and be well-endowed to carry out conclusive resolution of the Oando-Gwarzo-Adeosun crisis. This crisis can be a standpoint for the reform of the capital market.

     

  • Stock Exchange expels 90 stockbrokers from capital market

    Stock Exchange expels 90 stockbrokers from capital market

    Authorities at the Nigerian Stock Exchange (NSE) has revoked the operating licence and expelled Midland Capital Markets Limited from the capital market, bringing to 90 the number of stockbrokers so far expelled from the market this year.

    A regulatory document obtained by The Nation indicated that the decision to revoke the operating licence and expel Midland Capital Markets Limited was taken by the National Council of the Exchange, the highest administrative organ of the NSE.

    Midland Capital Markets Limited has also been deregistered as a capital market operator by the Securities & Exchange Commission (SEC). While the regulatory document was silent on the reason for the revocation and expulsion of the stockbroking firm, capital market regulators traditionally apply the highest punishment of expulsion and revocation of licence to serious offences that could undermine investors’ confidence including fraud and inability to meet major operating requirements for the function.

    With the expulsion, the stockbroking firm will not be able to trade in the Nigerian stock market and other international markets that Nigeria has Memorandum of Understanding (MoU) with. Nigerian capital market authorities have standing bilateral agreements with several other jurisdictions including Morocco, Angola, China, Ghana, Kenya, Malaysia, Mauritius, South Africa, Tanzania and Uganda.

    With the expulsion, investors who have their investment accounts with the expelled stockbrokers will be required to move their accounts to other functional stockbroking firms.

    Also, directors, executives, top management and other employees of Midland Capital Markets Limited will not be able to secure any employment in the capital market without prior clearance and written consent of the Exchange.

    “Dealing members are advised not to engage in any activity with the above mentioned firm. Also, all authorised clerks and employees of dealing member firms are strongly advised against allowing themselves to be used in carrying out activities that are capable of affecting the integrity of the market,” NSE stated.

    The Exchange stressed the need for dealing firms to always comply with extant rules and regulations.

    Under Rule 6.12 of the Rulebook of the Exchange, 2015, members of the Exchange are disallowed from employing any of directors, authorised clerks or other persons including principal officers such as the chief executive officer, chief finance officer, chief compliance officer and chief risk officer, who have been indicted by the Exchange or the Commission without prior regulatory approval.

    Also, the rule disallows other stockbroking firms from employing any person who was an officer or employee of a stockbroking firm or dealing member expelled from the Exchange; any person expelled, as an authorised clerk or its equivalent, from any other exchange; any person refused admission as a member of the Chartered Institute of Stockbrokers or any person expelled from its membership; any person expelled as a member of any professional association or institute and any person who is insolvent or has been convicted of theft, fraud, forgery, or any other crime involving dishonesty.

    The Rulebook of the Exchange 2015 provides that: where the Exchange revokes a dealing member’s licence, the Exchange shall immediately commence the process of expelling such dealing member.

    Besides, the rules empower the NSE to suspend any authorised clerk or revoke the registration of any authorised clerk who has breached any rules or regulations of the Exchange or is found to be complicit in any breach of such rules or regulations.

    Also, suspension of any stockbroking firm by SEC will lead to immediate suspension by the NSE while revocation of any broker’s registration will lead to expulsion of the firm by the NSE.

    “Without  prejudice  to  all  the  remedies  open  to  the  dealing  member, where  a  dealing member is suspended by the Commission, as soon as the Exchange is notified, it shall immediately  commence  the   process   of  suspension or  expulsion of   the   dealing member.

    “Where a Dealing Member’s registration is revoked by the Commission, as soon as the Exchange  is  notified,  it  shall  immediately  commence  the  process  of  expulsion  of  the dealing member,” the rules stated.

    The NSE had recently revoked the operating licence and imposed a fine of N582.37 million on a stockbroking firm-Bytofel Securities and Investment Limited, for allegedly engaging in fraudulent activities in the stock market.

    Bytofel Securities was expelled for engaging in “unauthorised sales of clients’ shares and misappropriation of clients’ funds”.

    The Nation had earlier reported the expulsion of 67 stockbrokers from the master list of dealers at the stock market. A regulatory report had indicated that the expulsion was the final phase of the delisting of the stockbroking firms, after their dealing licences had been revoked by the exchange.

    A source at the exchange said the expulsion followed recommendation of the disciplinary committee of the council of the exchange and the final approval of the National Council of the Exchange.

    That round of expulsion in May 2017 brought the number of stockbroking firms that had then been expelled from Exchange to 88 stockbroking firms. The Nation had earlier in April 2017 reported the expulsion of 21 stockbroking firms for various infractions ranging from poor capitalisation to unauthorised sales of investors’ shares.

    The group of 67 expelled stockbrokers included ATIF Securities Limited, Abacus Securities Limited, ABC Securities Limited, Akitorch Securities Limited, All Wealth Securities Limited, Apex Securities Limited, Asset Plus Securities Limited, Associated Securities Limited, Avon Finance and Securities Limited, Beachgroove Securities & Investments Limited, Broadedge Securities Limited, Bullion Securities Limited, Cardinal Securities Limited, City Investment Management Limited, Comment Finance & Securities Limited, Corporate Trust Limited, Crown Merchant Securities Limited, Dalgo Investment & Trust Limited, Devcom Securities Limited, Devserv Finance & Securities Limited, EBN Securities Limited, Equity securities Limited, Farida Investment and Finance Limited, Gilts and Hedge Finance Limited, Global Investment & Sec Limited, Goldworth Securities Limited, Haggai Investment & Trust Limited, Halsec Finance Limited, HP Securities Limited, Investicon Nigeria Limited, Investment Resources Limited, Island Securities Limited and Jenkins Investments Limited.

    Others included Kapital Securities Limited, Lozinger Securities Limited, M&M Securities Limited, M. J Securities & Investment Limited, Majestic Securities Limited, Matrix Capital Management Limited, MBA Securities Limited, MBCOM Securities Limited, Merchant Securities Limited, Metropolitan Trust Nigeria Limited, MMB Securities & Trust Limited, MMG Securities Limited, Nationwide Securities Limited, New Horizons Finance and Investment Limited, Nigbel Securities Limited, Omega Securities Limited, Omnisource International Limited, OpenGate Finance Company Limited, Pacific Securities Limited, Pamal Finance Limited, Peak Securities Limited, Prime Securities Limited, Prudent Stockbrokers Limited, Royal Securities Limited, Source Finance and Trust Company Limited, Supreme Finance & Investment Co. Limited, Synergy and Assets Trust Limited, Thomas Kinsley Securities Limited, Tradestamp Securities Limited, Trust Securities Limited, Unit Trust Securities Limited, Universal Securities Limited, Viva Securities Limited and Wintrust Limited.

    Capital market authorities had earlier in the year expelled 21 stockbroking firms including Allbond Investment Limited, Consolidated Investment Limited, Dakal Services Limited, Emi Capital Resources Limited, First Equity Securities Ltd, Ideal Securities Limited, Maninvest Asset Management Plc, Metropolitan Trust Nigeria Limited, Omas Investment & Trust Company Limited, Pennisula Asset Management & Investment Company Limited, Prudential Securities Limited, Securities Trading & Investments Limited, Transglobe Investment & Finance Company Limited, Tropics Securities Limited, Wizetrade Capital & Asset Management Limited, WT Securities Limited, Zuma Securities Limited, Bosson Capital Assets Limited, KFF Worldwide Solutions Limited, Silver & Gold Securities Limited and First Alstate Securities Limited.

  • SEC and capital market regulations

    Laws – and regulations deriving from them – achieve their purposes if they are applied and enforced in equal measures to all in the society.  The real test of any law and every regulation, therefore, is enforceability, which is reflected in extent of compliance.

    Every country has laws and rules that govern every facet of its life. These are usually embodied in a constitution that guides its policies and govern the behaviour of the populace. One of the most important facets of modern society, which the government pays attention to, is the economy. All the moral misdemeanour of President Bill Clinton, for example were overlooked because he was implementing the right economic policies in place and was swiftly re-elected. We all can remember the famous campaign slogan of the 1990s “It’s the economy, stupid,” which was directed at his Republican opponent in his bid for re-election.

    Countries, Nigeria inclusive, establish statutory bodies, from time to time, to regulate behaviours of individuals and corporate bodies within the boundaries of their economic activities or transactions.

    In Nigeria, we have very formidable regulatory institutions that regulate our economy. They include the Central Bank of Nigeria (CBN), Nigeria Deposit Insurance Corporation (NDIC), Securities and Exchange Commission (SEC), Asset Management Corporation of Nigeria (AMCON) and Nigeria Port Authority (NPA), to mention a few. All these bodies are doing their utmost best to regulate, develop and stabilize our economy. In their efforts to regulate our economy, these institutions often court the ire of some people or corporations deluded by the feelings of being “too big to be touched” and all hell is often let loose when their interests are affected.

    Thus, it is commonplace that, in the course of carrying out their functions, regulatory agencies come in contact with all manner of people — some understanding others not. However, whatever the case may be, regulators have the stipulated rules to guide them and compliance with the rules is all that matters. People, whether in their individual capacities or as representing corporate entities, have the tendency to whip up sentiments to elicit sympathy when they find themselves in conflict with the rules. No one should be beguiled by these selfish natural tendencies of the humankind.

    More often than not, these sentiments are nothing but exaggerated and self-indulgent defences for clear failings on the part of the defaulting party. Such sentimental people often claim the chutzpah to drag regulatory bodies to courts of competent jurisdictions or even the “public court” playing on the gullible nature of the ordinary persons. Their chief weapon of choice is assassination of the characters of the heads of such regulatory institutions in the media. If the regulatory bodies are not lucky, an opposition politician may pick the news and cash in on the media hype to hit back at the entire government in power.

    Therefore, to avoid falling victims of deliberate distortion of facts, the public need to find out what are the possible reasons behind the sudden media hype about the activities of such regulatory bodies or the sudden interest in the character of their heads. More often than not, a careful investigation will lead to people having questions to answer in their interaction with such regulatory bodies are behind the negative campaigns.

    The discerning public should always be guided by the meritorious work of our regulatory institutions and judge them on that basis.

    Let us use the example of the Securities and Exchange Commission. How far has it gone in delivering on its key mandates of protecting the investor and development of the capital market? At what cost has its accomplishments been to its image?

    In 2015, the current Director General (DG) of the SEC Mounir H. Gwarzo, assumed the position at helm of affairs. He made a solemn promise to implement the Capital Market Master Plan.  Capital market stakeholders put the plan together in 2013. On assumption of office, the DG had his eyes on rejuvenating the retail end of the capital market which suffered heavy losses following the capital market crash of 2008.

    As of December 2014, Nigeria’s market capitalization stood at N16 trillion. The new DG believed that, if fully mobilized, the market capitalization of the largest economy in sub-Saharan Africa ought to be far greater than that. Today Nigeria has recorded some progress because by the second quarter of 2016, the total capitalization stood at N17.28trillion.

    One of the innovative ways of encouraging growth in the retail end of the capital market is fast tracking the dematerialization of shares (moving away from physical share certificate regime), which can be achieved through electronic transfer under the e-dividend platform. I once argued that dematerialization is an incentive to encourage retail investors come back to the capital market en masse.

    It is a known fact that the market is one predominantly dominated by equities and government bonds. This means that market capitalization and activities are concentrated in a few economic sectors (indeed, two sectors — consumer and industrial goods — make up about 75% of the equities market) and stocks (the five largest companies by market capitalization make up 56% of the equities market).

    To address this skewed situation, the DG set up a market-wide committee to engage potential companies for listing. The committee has done extensive work liaising with regulatory agencies, interest groups and companies on the imperative for listing. In addition, about three companies have been identified that will be listed this year.

    On the question of what regulations, oversight and enforcement mechanisms need strengthening, as part of the master plan, the SEC held a conference in conjunction with the National Assembly on the legal challenges facing the capital market. Immediately afterwards, it set up three law review committees to look at all the major laws, including the Investments and Securities Act (ISA), the Companies and Allied Matters Act (CAMA), Investment and Trustees Act, Warehouse Receipt Bill, etc.

    The committees have largely completed their work. Their recommendations will form the capital market’s consensus positions on the review of those laws. These recommendations promise to be a major landmark in the nation’s financial services architecture, and it will enhance the capacity of SEC to navigate through the requirements of the NASS. Significantly, the report of the committees has the buy-in of all stakeholders in the market.

    All these are pointers to the commendable efforts of SEC to develop our capital market and to take it to enviable heights.  To achieve these, the SEC must continue to put regulations first, shunning all sentiments in ensuring total compliance with the regulations by all operators in the Nigeria’s capital market.

    Globally, the norm amongst regulatory agencies is, when compliance is the matter, all sentiments are shoved aside. This should not be any different with our own apex capital market regulator, SEC.

  • Zero tolerance: Capital market infractions drop by 87.6%

    The zero tolerance stance of the Securities and Exchange Commission (SEC) appeared to be impacting positively on the capital market as level of infractions has dropped by about 88 per cent over the past 18 months.

    Director General, Securities and Exchange Commission (SEC), Mr Mounir Gwarzo, said the number of reported cases of infractions in the capital market has reduced from 291 in first quarter 2016 to 36 in the third quarter of 2017.

    He added that the number of enforcement cases has also dropped from 49 to 30 within the same period. He spoke at the 21st annual conference of the Chartered Institute of Stockbrokers (CIS) yesterday in Lagos.

    He noted that the Commission has strengthened its rule making process and more rules are considered on a timely basis with the underlying justifications which will aid the market’s understanding of the thought process behind coming up with the rules.

    He said the decline in the level of infractions evidenced the success of recently introduced initiatives, which are believed to have help capital market stakeholders respond adequately to the dynamic changes in the financial market.

    Gwarzo said the Commission is committed to continue developing the Nigerian capital market in line with the 10-year master plan.

    He pointed out that the E-Dividend initiative is very central to the reforms at the capital market, which explained why the Commission has embarked on a massive media campaign to sensitize the public on the December 31, 2017 deadline on free e-dividend registration exercise and regularization of multiple accounts by investors.

    He urged capital market participants to constantly adapt to new and rapidly changing economic, regulatory and business environments in order to performing their expected roles in economic development of the nation.

  • Capital market… ’capital’ penalty

    Capital market… ’capital’ penalty

    Last week’s indictment and expulsion of Managing Director of Partnership Investment Company Plc and Partnership Securities Limited, Mr Victor Ogiemwonyi, has opened up the capital market to public scrutiny, writes Capital Market Editor Taofik Salako.

    Suave, knowledgeable and amiable, Victor Ogiemwonyi was unmistakably one of the leading lights of the capital market. His knowledge about the capital market is vast and he rises almost spontaneously to defend the market interest.

    A fellow and former council member of the Chartered Institute of Stockbrokers (CIS), former council member of the Nigerian Stock Exchange (NSE), former president of the Association of Issuing Houses of Nigeria (AIHN), member of the Capital Market Masterplan Implementation Committee and member of the board of the NASD Plc among others, Ogiemwonyi was one of the leaders of the market during his time. His company-Partnership Investment Company Plc was one of the few stockbroking-originated investment companies that were listed on the NASD Plc-the alternative over-the-counter (OTC) securities exchange for listing of public limited liability companies that are not listed on the NSE. All these came crashing last week with the announcement of his indictment by the Administrative Proceedings Committee (APC) – the adjudicatory arm of the Securities and Exchange Commission (SEC).

     

    Long-awaited rulings

     

    After more than a year of wide-ranging investigation, SEC last week indicted Ogiemwonyi, banning him from engaging in capital market activities and from holding directorship position in any public company in Nigeria. SEC also withdrew the operating licenses of his companies. The commission also suspended the chairman of the companies, Mr. Henry Omoragbon, from engaging in capital market activities in Nigeria for five years.

    Ogiemwonyi and his companies allegedly engaged in unauthorised sale of clients’ shares, failure and refusal to resolve clients’ complaints, performance of a capital market function without registration, non-compliance with the Code of Corporate Governance of the commission, filing of false and misleading information and non-compliance with the commission’s rules relating to assets-mix ratio.

    They were also accused of non-compliance with the commission’s rules on disclosure of transactions valued at N50 million and above executed in a single day, soliciting deposits from the public and other violations of the Investments and Securities Act, 2007, SEC Rules and Regulations, the Code of Conduct for Capital Market Operators and their Employees and Code of Corporate Governance for Public Companies.

    Ogiemwonyi was also ordered to pay a penalty of N100, 000 for breach of Rule 1(iii) of the Code of Conduct for Capital Market Operators and their Employees as contained in the SEC Rules and Regulations made pursuant to the Investments and Securities Act 2007. Omoragbon was also ordered to pay a penalty of N100, 000 for breach of Rule 1(iii) of the Code of Conduct for Capital Market Operators and their Employees as contained in the SEC Rules and Regulations made pursuant to the Investments and Securities Act 2007.

    Some Directors of the company, Mr. Ojetunde Taiwo, Mrs. Ogiemwonyi Olufunke, Mr. Ogiamien Frank, Mr. Adeusi Aladejola Alexander and Mrs Arese Ugwu, were also suspended for five years from engaging in capital market activities. They were also banned from holding directorship positions in any public company in Nigeria for the period of five years and were ordered to pay a penalty of N100, 000 each for breach of Rule 1(iii) of the Code of Conduct for Capital Market Operators and their Employees as contained in the SEC Rules and Regulations made pursuant to the Investments and Securities Act 2007.

    Also, Mr. Eseha Augustine Enejeta, a manager in the company, was suspended for a period of one year from engaging in capital market activities. He was also ordered to pay a penalty of N100, 000 for breach of Rule 1(iii) of the Code of Conduct for Capital Market Operators and their Employees as contained in the SEC Rules and Regulations made pursuant to the Investments and Securities Act 2007.

    The commission also ordered Partnership Securities to restore to Mr Cletus Mbaji Uchendu 48,200 shares of Forte Oil Plc, which were allegedly sold without the client’s authority. The order for restoration also included all accrued benefits to the client such as bonuses and dividends from May 23, 1997 to date.

     

    Road to infamy

     

    The composition of the APC was sequel to several complaints filed by investors against Ogiemwonyi and his companies. Some 300 investors alleged that they were swindled of more than N4.8 billion in investment schemes promoted by Partnership Securities Limited (PSL). Representatives of the investors alleged that they were approached by Ogiemwonyi to surrender their shares to him for management under his Partnership Securities Deposit Account (PSDA) with a promise to provide a guaranteed return periodically. Shares worth more than N4.8 billion were misappropriated through this scheme.

    SEC and NSE in the last quarter of 2016 conducted joint investigations into the activities of PSL. Preliminary investigations by the capital market regulators said the authorities had established a case of illegal activities against Partnership Securities as the operation of the scheme and guaranteed returns ran contrary to the mandate of the securities firm. Guaranteed investment scheme is prohibited by the Rules of the Exchange, and violation under this rule may fall under engaging in illegal activities and transactions. Such violations carry wide-ranging fines and sanctions under the rules of the market, including monetary sanction, revocation of dealership license and cancellation of stockbroking license.

    One of the highpoints of the cases involved the former chief executive of Ecobank Transnational Incorporated (ETI) Plc, Mr Arnold Ekpe, an ally and client of Ogiemwonyi. Ekpe mandated his stockbroking firm, Partnership Securities Limited, to sell his 96.08 million ordinary shares of ETI. Ogiemwonyi allegedly sold the shares but only remitted N300 million of the total proceeds of N1.54 billion to Ekpe. Ekpe, in a complaint lodged at the Exchange dated October 16, 2016, alleged that PSL misappropriated N1.237 billion being part of the proceeds of sale of Ekpe’s 96.08 million shares of Ecobank Transnational Incorporated Plc and dividends of $80,000. Ekpe also alleged that although he completed a form indicating that the proceeds of the share sales should be paid into his bank account under the Direct Cash Settlement system, PSL elected to pay the proceeds into its own account and misappropriated the funds.

    The Exchange on October 18, last year suspended PSL from trading on all its floors nationwide. The Exchange also on October 19, last year informed SEC of the complaint and requested for a joint examination of PSL and its associated companies. SEC as early as first quarter of 2016 started conducting silent investigation on PSL. SEC already saw a clear-cut case against Ogiemwonyi. In a February 2016 letter, SEC noted that available documents indicted PSL and that the broker-dealer was liable and would be held responsible for the defalcation of illegal conversion of sales’ proceeds.

    The Ekpe case against Ogiemwonyi appeared iron cast and he allegedly admitted culpability. “Further to our mandate to sell your 96,077,872 shares of Ecobank Transnational Incorporated at the fixed price of N16 per share, we confirm that the shares were sold by us for a total of N1.537 billion out of which N300, 000,000 has been paid to you. We confirm that outstanding proceeds from the sale have been misappropriated by us and we undertake to meet the obligation of N1.237 billion and $80, 000,”   Ogiemwonyi stated in one of the documents tendered.

    SEC took advantage of the existing agreements between the capital market regulators and the Economic and Financial Crimes Commission (EFCC) to lodge a direct complaint with the anti-corruption agency. EFCC conducted preliminary investigation and arraigned Ogiemwonyi before the High Court of Lagos for sundry offences, including stealing and dishonest conversion of proceeds of share sale. Ogiemwonyi was ordered remanded in Ikoyi prisons.

    The Ekpe case appeared to blow the lid off the can of iniquities at Ogiemwonyi’s companies. Other investors appeared with allegations of fraud and mismanagement. Some of the other victims included Mr.  Godwin  Anono,   Chairman, Standard  Shareholders Association of Nigeria, who claimed N160  million worth of shares,  Mr. Alabi Olusola  with over N12.540 million worth of shares and Mr. Solesi Samuel with over N40 million worth of shares among others.

    Olusola said Ogiemwonyi called him to deposit his shares, which had not been traded over the years, in the custody of his stockbroking firm to manage those shares and generate 10 per cent returns, which would be paid to Alabi twice a year.

    “When I look at the proposal, it was reasonable and the man involved is a prominent council member of the NSE. I trusted him.  I did not enter the deal with an unregistered operator and it was not that he offered me a fantastic return, but a reasonable return.  The deal was such that I can back out at any time I wish. When in 2014 the returns were not forth coming, Ogiemwonyi started giving one excuse or the other; that the returns are being reinvested; it was then I realised that he was playing foul, hence  I demanded for my shares which could not be returned to me,” Alabi said.

    After excruciating investigation, the Head of Enforcement Department at SEC lodged complaint at the APC, which invited all respondents to submit their claims. In the matter, the respondents included Partnership Investment Company, 1st respondent; Partnership Securities Limited, 2nd respondent; Mr. Henry Omoragbon, 3rd respondent; Mr. Victor Ogiemwonyi, 4th respondent; Mr. Allan Omorogba, 5th respondent; Mr. Ojetunde Taiwo, 6th respondent; Mrs. Ogiemwonyi Olufunke, 7th respondent; Mr. Ogiamien Frank, 8th respondent; Mr. Adeusi Aladejola Alexander, 9th respondent; Mr. Eseha Augustine Enejeta, 10th respondent; Mr. Odihi-Ogiemien Frank, 11th respondent; Dr. Bello Aliyu Gusau, 12th respondent; Mr. Olafisika Akinkugbe, 13th respondent; Mrs Arese Ugwu, 14th respondent; Mrs. Yinka Omoragbe, 15th respondent; Mr. Justus Olu Paul, 16th respondent; Mr. Clem Baiye, 17th respondent and Mr. S.C. Irune, 18th respondent. The APC concluded that “by their actions and or omissions the 1st, 2nd, 3rd, 4th, 6th, 7th, 8th, 9th, 10th, 11th, and 14th respondents engaged in acts capable of adversely affecting the investing public’s image of, and confidence in the capital market”.

     

    No sacred cow

     

    The latest indictments reechoed the tough stance of capital market regulators on fraudulent practices, especially unauthorised sale of client’s shares and misappropriation of client’s funds. SEC and the NSE as well as the CIS have been combative when it comes to infringement on market integrity. With some N13 trillion equities listed on the NSE and the almost limitless capacity of the primary market to raise funds, the market thrives on integrity and all stakeholders are usually unanimous on this. So, when the hammer falls, there is usually no comradeship and sacred cow. In another high-profile case, SEC had earlier this year banned ebullient investment banker, Mr. Albert Okumagba and Mr. Chibundu Edozie and their companies, BGL Assets Management Limited and BGL Securities Limited from ever participating in the capital market. Okumagba and Edozie were also banned for life from holding office in any public company in Nigeria. Okumagba was also a force to reckon with in the capital market, having served at the top echelon of the organs including as president of the CIS.

    Okumagba’s case was however quite different, because it involved no unauthorised sale or diversion of client’s funds but rested on equally dangerous terrain of asset management. Even though a client or an investor can willingly sign on to an investment management agreement, the onus rests on the capital market operator to ensure that the investment agreement is in line with capital market rules and the operator’s registered function. That was the Achilles heel of BGL-one of Nigeria’s most robust investment banking firms.

    SEC had received 32 complaints between 2012 and 2015 against the BGL companies over certain conducts in relation to operations of their Guaranteed Consolidated Notes (GCN) and Guaranteed Premium Notes (GPN).

    SEC had, through the EFCC, pursued and secured conviction of a stockbroker and former managing director of First Alstate Securities Limited, Mr Tajudeen Folaji, who was sentenced to seven years imprisonment by the Lagos State High Court over fraudulent sale of his client’s shares. The Lagos State High Court presided over by Justice Kudirat Jose found Folaji guilty of unauthorised sale of shares and stealing for fraudulently converting 31,886,200 shares of IPWA Plc  valued at N331.3 million belonging to an investor on April 3, 2008. The court also has imposed a N20 million fine on First Alstate Securities Limited where he was the managing director and dealing clerk. Besides, the court directed the EFCC to trace and liquidate properties belonging to the convict to restitute the investor.

    The NSE has this year expelled not less than 88 stockbroking.  The expulsion also implies that the expelled firms will not be able to act as stockbroking agent in other countries that have Memorandum of Understanding (MoU) with Nigerian capital market authorities.  Nigerian capital market has standing bilateral agreements with several other jurisdictions including Morocco, Angola, China, Ghana, Kenya, Malaysia, Mauritius, South Africa, Tanzania and Uganda.

    President, Association of Issuing Houses of Nigeria (AIHN), Mr. Sonnie Ayere has called for a pragmatic approach to address the problem of illiquidity by reviewing the practice rules and scope of operations of stockbroking firms to make them more viable and profitable.

    Ayere, who is also Managing Director of Dunn Loren Merrifield Group, cited the example of Malaysia that reformed the stockbroking ecosystem with the introduction of universal brokers, which were allowed to access the interbank market to undertake borrowing or lending of funds.

    Many stockbroking firms and stockbrokers have been found to be carrying out transactions at the equities market without adequate funding of their accounts, thus exacerbating settlement risks at the market.

     

    A pact for investor’s protection

     

    While few untoward cases like Ogiemwonyi’s highlighted market risks, a cursory review undoubtedly shows that the Nigerian capital market has comprehensive internal and external frameworks to safeguard investors and market integrity. While subsisting MoUs with not less than 10 other countries grant Nigerian capital market regulator international leverage to checkmate domestic illegalities, SEC and NSE have subsisting cooperation agreement with the EFCC that enables the capital market regulators to pursue further enforcement of regulatory actions. While the ISA empowered SEC protect investors, it has limitations over criminal cases. The agreement with the EFCC covers the loopholes.

    Director General, Securities and Exchange Commission (SEC), Mr. Mounir Gwarzo, said key initiatives such as recapitalization of operators, direct cash settlement, e-dividend, national investors protection fund (NIPF), and code of corporate governance among others would help to strengthen investor’s protection and block loopholes.

    Chief Executive Officer, Nigerian Stock Exchange (NSE), Mr Oscar Onyema, said authorities at the Exchange have implemented far-reaching transformational programmes that have improved market access and provided products that are aligned to investors’ requirements. He added that the introduction of several transparency initiatives such as BrokerTrax, X-Compliance, X-Whistle, Compliance Status Indicator symbols, X-Issuer and X- Alert among others have brought significant sanity to the market place and provided for a fair and orderly market.

    Managing Director, Solid-Rock Securities and Investment Plc and President of the Association of Stockbroking Houses of Nigeria (ASHON), Mr. Patrick Ezeagu told The Nation that the involvement of some capital operators in illegal activities was an exception rather than the norm.

    “In any association or group, there is bound to be few bad eggs and the actions or activities of these few do not criminalise the entire members. We have, in conjunction with the regulators, put in place a robust compliant management framework to ensure the quick resolution of complaints in the market. We have zero tolerance to infractions and if you check very well, you will see that the rate of infraction is probably the lowest in the capital market. There are many structures put in place to safeguard investors and their investments,” Ezeagu said.

    President, Chartered Institute of Stockbrokers (CIS), Mr Oluwaseyi Abe said investor protection would always remain a topmost priority for the regulators and operators in the capital market. He said the CIS would continue to collaborate with the regulators to ensure that stockbrokers keep to the dictum: “My word is my bond”.

  • Fed Govt seeks capital market support for tech firms

    The Federal Government has called for a more concerted effort to use the capital market as a growth platform for technological companies and start-ups.

    Minister of Science and Technology, Dr. Ogbonnaya Onu, said the Nigerian Stock Exchange (NSE) should consider ways to encourage listing of more technological firms in order to help in the development of the Nigerian technological know-hows.

    Onu, who spoke at the commissioning of a N500 million data centre at the NSE yesterday in Lagos, said the government is working to redirect Nigerian economy from dependence on oil to a more diversified economy driven by innovations.

    He said the government has already launched many initiatives to position science and technology as the fulcrum of the national economic development including the development and use of domestic research to meet the emerging needs of Nigerian private and public sectors.

    He said the ongoing efforts to ensure utilization of local raw materials for manufacturing will save Nigeria about N3 trillion by 2021.

    He commended the NSE for its contributions to the development of the Nigerian economy noting that the Exchange has all it takes to compete with other global stock exchanges.

    Chief Executive Officer, Nigerian Stock Exchange (NSE), Mr. Oscar Onyema, said the N500 million data centre was designed to tier 111 standards, within the highest global standards adding that this has further enhanced NSE’s leading advantage over other African stock exchanges.

    According to him, the data centre was designed not only to support the activities of the NSE but also other firms that may want to host their data services at the Exchange.

    “We are very happy with the quality of the data centre,” Onyema said.

    He pointed out that the Exchange will primarily devote the data centre to the services of its broker-dealer community and then, it may extend the services to quoted companies and other stakeholders.

  • How Unilever’s proposed N58b rights issue will boost capital market

    How Unilever’s proposed N58b rights issue will boost capital market

    THE proposed N58billion rights issue by Unilever Nigeria Plc has generated a lot of excitement amongst market watchers, who have expressed optimism that the offering has the potential to further deepen the nation’s capital market.

    The company had on Thursday presented facts behind its plans to raise N58, 851,275,010.00 on the floor of the Nigerian Stock Exchange in Lagos.

    A total of 1,961,709,167 ordinary shares of 50 kobo each will be offered to existing shareholders on the basis of 14 new ordinary shares for every 27 ordinary shares held by shareholders whose names appeared on the Register of Members and transfer books of Unilever Nigeria Plc as at the close of business on Wednesday, June 28, 2017. The issue price is N30 per share.

    “Through this rights issue, we will be able to reinforce our financial flexibility to support our growth initiative, while giving shareholders an opportunity to consolidate their shareholding position. The rights issue is part of Unilever Nigeria’s long term strategic intent to strengthen the company’s capital base by deleveraging its balance sheet, support its working capital needs and position the company to exploit value creation opportunities,” said Yaw Nsarkoh Managing Director, Unilever Nigeria Plc.

    Echoing similar sentiments, the Chairman, Unilever Nigeria Plc, His Royal Majesty Nnaemeka Achebe, stated that the rights issue represents a milestone event in Unilever Nigeria’s history as it marks the company’s first follow-on equity offering since its listing in 1973.

    According to Achebe, “the rights issue reiterates our confidence in Unilever Nigeria’s robust future and commitment to building a more enduring business in Nigeria. We acknowledge with deep appreciation the unwavering support we have received from our stakeholders and shareholders even in trying times which has enabled us deliver positive results. We urge all shareholders to support the company’s objective by participating in the rights issue to ensure the company obtains the flexibility to attain its growth objectives.”

    Speaking at the event, the CEO, Nigerian Stock Exchange (NSE), Oscar Onyema said: “We are particularly pleased that Unilever Nigeria Plc., has chosen to use this platform to further inform the market of this ongoing transaction and other strategic and operational involvement in the company. As the market is driven by timely, relevant and accurate information, your interaction with the market through this forum is very welcome and we encourage you to continue with this trend.”

    The offer which opened on Monday July 31, 2017 will close on Friday September 08, 2017 while Stanbic IBTC Capital Limited serves as the issuing house.

    On reasons for the rights issue, Unilever explained that the net proceeds will help the company repay outstanding foreign currency denominated liabilities, purchase additional raw materials required for Unilever’s products and to meet other working capital requirements in order to build long term value for all stakeholders.

    It would be recalled that the shareholders of the company approved the rights issue at the 92nd Annual General Meeting held in May, 2017.

  • E-Dividend and the Capital Market

    E-Dividend and the Capital Market

    Nigeria’s Capital Market operations are changing, and nothing symbolises this better than the electronic dividend payment (e-dividend) initiated since last year. By end of June this year, the Security and Exchange Commission, SEC, has said that issuing of dividend warrants would stop.

    Before registration for e-dividend started, over N90 billion was said to be unclaimed dividends. This fund was either just lying there idle, or some smart people were taking advantage of it and using it for personal or corporate gains. But since the commencement, over N30 billion unclaimed dividend has been credited to investors’ bank accounts.

    An elated Munir Gwarzo, Director General of SEC, told a press conference recently: “In this country, we have never had this kind of initiative that has reduced unclaimed dividends like we have today. Apart from the investor getting his dividends where ever he is, that investor will be able to get dividends that in the last five years he has not been able to get.”

    E-dividend is an electronic means of posting shareholders dividend directly into his or her bank account. So it doesn’t matter where an investor is located, his dividend goes straight into his bank account. At this year’s first post Capital Market Committee (CMC) news conference in Lagos, Gwarzo disclosed that a total of 2.2 million investors have registered for the e-dividend payment platform as at the end of April. That represents about 48 per cent of investors in the market.

    The electronic registration is expected to help investors receive from the banks unclaimed dividends from their investments in stock and equities in the capital market valued at over N90 billion. Companies listed on the stock exchange have been encouraged to help in sensitizing their shareholders on the need to embrace the new dividend platform within the deadline.

    The introduction of the e-dividend is designed, according to SEC, to curb the growth of unclaimed dividend in the capital market and allow investors collect dividends electronically. It also allows all accrued dividends to be credited to investors’ Bank Accounts.

    The e-dividend has the potential to further deepen the capital market and ensure security of returns on investments. It has the added benefits of ensuring that you never lose your dividends and that they get paid to you on time. The e-dividend form could be obtained and properly filled at bank branches or in the office of a registrar and stock broking firms, or could be downloaded and filled by individuals

    But as desirable as it is, beneficiaries of the old order are determined to frustrate it, or at worst delay the stoppage of dividend warrants to investors. While there has been a rush by investors to migrate to the new dividend platform, some banks are working against it success.  These are banks, according to some officials of SEC and the Central Bank of Nigeria, CBN, bent of frustrating the capital market regulator’s effort to ensure that the issue of unclaimed dividends was finally resolved and the monies paid to their rightful owners.

    The unscrupulous activities of some of these banks are the reason why SEC announced the extension of the free registration period to June. Registration was initially expected to close by end of March. Registration is free but some of the banks are said to be charging money for the registration so as to discourage customers seeking to migrate to the platform.  But it is gratifying to learn that the CBN had intervened in the matter, and had promised to sanction any erring bank.

    One other development that is set to change the capital market is the proposed launch of a N5 billion Nigerian Capital Market Development Fund (NCDMF) in the next few weeks. The fund is meant to promote infrastructural development of the capital market and help to curb some of the sharp practices perpetrated by market operators.

    SEC has said it would provide the N5 billion seed fund to demonstrate its commitment to the special fund. The NCMDF was conceived as a trust fund to enhance the development of the market and support efforts to achieve market stability.

    The NCMDF will also take custody of statute-barred and unclaimed dividends of 12 years and above so that the “free funds” could be put to the collective use of the market to enhance future returns to investors. The fund is expected to be by a board and an independent fund manager without interference from SEC. A proposal to this effect has been sent to all capital market stakeholders for consideration before a final decision is made.

    Under the laws, unclaimed dividends will remain available for collection by beneficiaries up till 12 years when they become statute-barred and are returned to the companies that paid them. But the new rule seeks to change the return of the unclaimed dividends to companies that issued the dividends.

    SEC is now proposing a change to the rule. Companies and registrars in custody of dividends which remain unclaimed by shareholders 12 years after the date of declaration or subsequently attain the 12 years threshold shall upon the coming into effect of this rule transfer such monies into the Nigerian Capital Market Development Fund (NCMDF).

    “All companies and registrars shall not later than 30 days after the end of every calendar year forward to the Commission a report of unclaimed dividends in their custody, which shall specify compliance with Sub Rule (1) of this Rule. Companies shall disclose details of compliance with this Rule in their annual reports,” SEC stated.

    Expectedly major retail shareholders’ groups have risen against the plan and described it as a ploy to divert private funds into the control of the regulator. Some of them want the 12-year limit removed to enable shareholders and their beneficiaries collect their dividends at any time.

    But it is obvious that those against the proposed rule are among beneficiaries of the old order who engage in sharp practices with unclaimed dividends. For this category of stakeholders, the proposed fund is bad business. Patriotic stakeholders see the proposed rule as healthy and necessary to protect and deepen the Nigerian Capital Market.

    • Johnson wrote in from

    The Whistler Newspapers; 

    www.thewhistler.ng

  • Capital market summit calls for economic policies’ review

    Financial pundits and business leaders yesterday called on the Federal Government to undertake a critical review of existing policies to realign both the fiscal and monetary policies to national aspiration for sustainable and inclusive growth.

    At the capital market summit organised by the Association of Stockbroking Houses of Nigeria (ASHON) yesterday in Lagos, economic and investment experts, leading financiers and business executives said there must be an alignment between government policies and national growth objectives.

    The summit under the theme: The Road to Nigeria’s Economic Recovery- The Capital Market Route, brainstormed on the Nigeria’s Economic Recovery and Growth Plan (ERGP) and the 2017 budget and concluded that the capital market remains the most viable linchpin for long-term sustainable economic growth.

    Former Governor of Anambra State, Mr. Peter Obi called for a review of the government’s privatisation programme to ensure that the programme realises its key objectives of saving and generating incomes to government and bringing efficiencies to public utilities.

    He described the current privatisation approach as “privatizing profit and sharing losses” as new owners of privatised assets continue to feed on public funds while holding on to the privatised assets without commensurate efficiencies.

    “We are the only country that privatises wrongly. I was in the United Kingdom when Margaret Thatcher decided to privatise British Airways and London Electricity among others. It was a deliberate policy that you have to get investors. In our own case, what we did was to privatise profit and share losses,” Obi said.

    According to him, to straighten the privatisation policy, government should enact a policy that sets limits and allows the privatised entities to be listed and raise funds from the capital market subsequently.

    He called for a discontinuation of government direct funding of privatised entities through financial interventions and institution of a framework that allows privatised entities to explore capital market to raise funds independently from the investing public.

    “Today you sell an asset to Mr. Obi, tomorrow he says the asset cannot work and government will intervene and give him more money. I am saying get these assets and sell them to the public. All the money you put into power assets, for instance, let them go to the capital market raise additional funds. When they are quoted in the capital market, their operations will become more open and efficient,” Obi said.

    The former Managing Director of Fidelity Bank said government should emplace capital market as cornerstone of its economic development programme noting that rather than resorting to borrowings, government should use the capital market for its infrastructural development.

    “Today we are borrowing from China to build airports. Go to South Africa, India, Turkey, they raise funds from the capital market to build infrastructure. These are institutions that are there deepening the market,” Obi said.

    He called for a deliberate incentive policy that encourages companies to access the Nigerian capital market and list their shares as part of efforts to build a sustainable economic development.

    According to him, in most jurisdictions, there are benefits and support for quotation on the stock market.

    The former Governor of Anambra State also called for immediate commencement of a national savings policy to build up savings that could serve as buffer in the period of economic downturn.

    “If there have been savings since we started exploring oil, we would have been in better position. But, forget about the past. It’s gone. So what can be done about tomorrow, we have to start saving now. If we have $100 billion savings today, most of the problems we have today will be solved. You can then tackle inflation and other issues,” Obi said.

    Director-General, Debt Management Office (DMO), Dr. Abraham Nwankwo, underscored the importance of creating and building capacity for wealth creation.

    He noted that the capital market remains a very critical institution to getting Nigeria out of economic recession and building long-term growth.

    Chief Executive Officer, Dunn Loren Merrifield Group, Mr. Sonnie Ayere, noted the need to align monetary policies with national economic agenda of the government pointing out that high interest rates are counterproductive to the development of the real economy.

    According to him, the strategy of increasing rates aggressively in a bid to address inflation concerns at this phase of Nigerian development cycle has become counterproductive to the domestic productive economy.

    “We therefore advocate for the removal of structural impediments and the implementation of an efficient policy shift towards the creation of an enabling productive environment – through a reduction in interest rates which would encourage industrialisation and subsequently create. Banks and Pension Funds will only begin to significantly fund the real sector when the only alternative investment outlets are low single digit rates. It is their search for yield that would bring much needed finance to the productive sectors,” Ayere said.

    He pointed out that it is only by making domestic cost of funds economically viable and creating and sustaining a positive yield curve that Nigeria will be able to direct savings including those of pension funds and bank deposits into the productive sectors of the economy.

  • ‘Recession offers investment opportunities in capital market’

    ‘Recession offers investment opportunities in capital market’

    Mrs. Titi Ogungbesan, Managing Director/Chief Executive, Stanbic IBTC Stockbrokers Limited in this interview with Ibrahim Apekhade Yusuf speaks on the huge investment potential in the capital market despite the lingering economic recession among other issues. Excerpts:

    Do you think the lingering economic recession offers any fresh opportunities for investments in the capital market?

    There is no doubt that the downward trend in the equities market presents buying opportunities, in my view, as many of the listed stocks are believed to be under-priced compared with their intrinsic value. We at Stanbic IBTC believe it is the right time for investors to take position in the market, especially in quality names with attractive valuation supported by compelling outlook.

    We believe Nigeria’s current economic situation is just a ‘slowdown’ as the country passes through this transition phase to what we potentially call a reinvigorated growth phase. We believe ongoing economic reforms if properly managed will be the much needed catalyst to unlocking the country’s vast potential. We favour development of domestic manufacturing capacity as a sustainable fulcrum for Nigeria’s growth. There is an urgent need to develop other key manufacturing sectors of the economy to an export potential so as to be less dependent on oil for FX and deliver inclusive growth. While we acknowledge that the weak macro could keep valuations depressed for a prolonged period, it is difficult to time when the market will turnaround hence in the near term, we will advise investors to take positions in quality names as the opportunity arises.

    One of the issues that have remained hotly debated is the issue of diversification. What form should this take?

    More products are being developed by market operators and participants to further deepen the Nigerian capital market. Over the past few years, a few products such as ETFs have been introduced and constant engagements are going on to build a suite of exchange tradable products. We believe having a range of products will also attract new investible funds. Additionally, the sector split of the NSE is skewed to financials and manufacturing sector and not a true reflection of the Nigerian economy. The listing of more companies in sectors such as ICT, agriculture, power and oil and gas should increase diversification.

    The Debt Management Office a few years ago appointed Stanbic IBTC Stockbrokers Ltd as the stockbroker to FGN Bonds. What has been the response of the market thus far?

    Market response has been positive and retail investors’ participation has improved over time. We expect further future improvement in the level of participation. Stanbic IBTC Stockbrokers Limited in its role as Stockbroker to FGN bonds has organised seminars/workshop in partnership with the DMO and the NSE aimed at creating more awareness amongst investors on the opportunities in the fixed income market. There has been renewed passion for retail bond trading and we expect this to translate into more transactions on the floor of the NSE.

    In a related development, the appointment of Stanbic IBTC Stockbrokers Limited by the Nigerian Stock Exchange as one of a 10-member list of market makers further reinforces company’s ability to deliver on its mandates. To what extent has this assignment helped in stabilising the capital market?

    Our role as a market maker is to correct price imbalances whenever the need arises as well as provide liquidity in stocks which will ultimately help the capital market. We also think that the introduction of Securities Lending product will aid Market Makers in performing their role effectively.

    Last year’s conference as well as previous editions of the conference focused on sustainable economic growth and development. This year’s conference would be the 8th edition, would you say that your objectives for organizing the annual conference are being met?

    Absolutely! Foreign inflows whether as FDIs or FPIs are critical sources of capital that ignites growth in any country. However, these flows would not be available if investor confidence in the country is lacking and that has always been one of our goals for the conference every year; to expose foreign and domestic investors to the numerous opportunities that abound in the country. Although the prevailing macro-economic situation in Nigeria has affected investors’ confidence in the market, we will continue to show opportunities that make Nigeria a critical economy in the frontier market. We have been doing that over the years and we will continue to do so. Therefore we are proud to affirm that the objectives of the conference are being met.

    The Nigerian environment is generally regarded as difficult for doing business due to challenges such as poor electricity supply, non-existent or collapsed infrastructure, insecurity, among others. These factors undoubtedly impede the competiveness of the Nigerian economy. What compelling argument will you offer to make anybody invest in Nigeria’s economy?

    Nigeria being the biggest economy in Africa GDP terms offers a compelling reason for investors to consider investing in the market and the economy as a whole. With the new government in place we expect to see some positive changes though it might be gradual and we expect long term funds to look at the potential returns on a risk-reward basis which we believe will justify investing in Nigeria. Currently, there are investment opportunities in infrastructure, agriculture, manufacturing and real estate.

    Given the current situation, what specific areas of the economy will you be advising investors to tap into?

    We think asset classes exposed to Nigeria’s infrastructure and agriculture sectors offers good investment potential. Nigeria’s high infrastructural deficit and the underutilised capacity in agriculture is a supportive catalyst that could underpin growth in the medium term. We believe that with the 28% of the N7.29 trillion 2017 budget that is billed for capital projects which infrastructure forms a major part of, the state of infrastructure should start improving moderately. Nevertheless, we acknowledge the poor level of execution of capital budgets in the past and the low capacity to execute. That is the reason why the engagement of the government with the private sector is welcome and encouraging and could result in a faster pace of closing the infrastructural gap. The development of infrastructure such as electricity, railway transport and more road networks should unlock opportunities in sectors such as agriculture and manufacturing. Given our population, the country is a ready market for a number of the finished goods so the export market should not be an immediate concern.

    The listing of major companies, particularly in the oil and gas, power and telecoms sectors, on the Nigerian Stock Exchange has remained a matter of intractable debate, with both sides offering strong arguments that appear to have stalemated the issue. What role can market operators like you play to break the deadlock and possibly encourage the targeted companies to quote on the local bourse? 

    The market can support the government’s financing efforts by raising capital for infrastructural projects through primary issues and public offerings. The major point here is capital whether for expansion or for diversification or even taking on new projects- that is what the Stock market provides. Companies that have a good business model and a good track record of profitability over the years, investors will want to be part of such businesses. The challenge we now have to take on as market operators is identifying those companies, engage them and intimate them of how the Nigerian stock market can both create more liquidity and value for their business. I must mention that although the operating environment is quite challenging at the moment for most businesses in those sectors. There has to be a really compelling story for the companies wishing to list on the exchange to get their desired level of liquidity.

    The capital market is expected to play a major role in helping government finance a huge budget deficit this year. Considering the general apathy in the market, particularly by foreign investors, how well can the market support government’s financing efforts?

    The federal government has always and will continue to tap into the fixed income market as a way of providing funds and finances to fund a budget deficit. We believe that the domestic pension funds and other investors have sufficient capacity to support government’s bond issues. Issuing project related bonds would also be an avenue to raise funds to plug the budget deficit in our view This will however have to be looked at from a contract sanctity perspective. On the equity side of the capital market space, one way to fund the government deficit is by getting some of the properly-run government agencies to list on the exchange. Take for example NNPC listing on The Exchange or perhaps the National Communications Commission (NCC). The power of sovereignty alone could be compelling enough for investors to invest and hence for the government to source the liquidity it requires.

    Stanbic IBTC is a dominant player in Nigeria’s capital market; how has stock market volatility and the weak performance of recent public offerings affected your overall performance in the last one year?

    Investor apathy towards Nigerian equities at the moment cannot be overemphasised and all due to a number of reasons; weak outlook of the Nigerian economy following the crash in crude oil prices, reduced FX liquidity, weaker company-specific fundamentals amongst others. The impact has been felt on the entire bourse with the Nigerian All share index declining by about 16.14%, 17.36% and 6.17% in 2014, 2015 and 2016 respectively. This is significant as investors are not keen on taking positions at the current price level because of the fear of further diminution. Although there is still liquidity in the system as a whole, we will continue to engage investors to look at sound investment.  We remain and would continue to work towards being the number one stockbroking firm in Nigeria.

    It is said that the future that comes to fruition does not just happen; it is accomplished by human effort. As a company what goals have you set for the firm in the next four years?

    Yes we have consistently been the market leader in the stockbroking space over the last couple of years. Just like the brand we represent, we aspire to continue to be the market leader. In addition, we look forward to partnering with the capital market regulators to introduce and champion progressive initiative relating to investment vehicle and education.