The Nation Newspaper

Tag: MARKET

  • Capital market firms fret over post-recapitalisation audit

    Some capital market firms have started preliminary internal audit, re-evaluation of assets and documentations ahead of the Securities and Exchange Commission’s (SEC’s) comprehensive post-recapitalisation audit of the market.

    On October 2, SEC released a provisional list of 972 firms that have been cleared to operate in the  capital market after if drew the curtain on a two-year recapitalisation exercise. The list included 437 capital market operators that were cleared to have met the new minimum capital requirements by the September 30, this year’s deadline, nine other operators that were in the process of merging into four companies, six self regulatory organisations and a long list of 525 capital market consultants and experts.

    The Nation had reported that SEC was planning to launch comprehensive investigative audits of capital market firms as part of post-recapitalisation process with a view to ascertaining the veracity of assets of the firms.

    SEC had indicated that the October 2, this year list was a provisional list and that the final list of registered and certified capital market operators would be made public after the verification exercise.

    A source had said  the Commission plans to conduct stress and impairment tests on the assets filed  by the firms and to further confirm the authenticity of their claims.

    The source said top on the list of accounting firms being considered by the Commission were KPMG and Akintola Williams Deloitte adding that the Commission decided on the investigative audits to avoid the repeat of bubble assets that undermined the previous recapitalisation exercise, especially in the banking and insurance sectors.

    Industry sources yesterday said several firms were undertaking preliminary review of their assets valuation with a view to ensuring that the overall calculation tallies with the requirements for their respective functions.

    Many firms that had used equity portfolios and other related assets were said to be sourcing for additional assets to shore up and bridge possible gap that might have been created due to depreciation in the valuation of the assets. The equity market has declined by an average of more than 4.4 per cent since the September 30 deadline for the recapitalisation.

    A top management executive at a broker-dealer firm said the company was making efforts to ensure that it has what the executive described as a buffer zone to make up for any possible demand for additional capital due to accounting difference that may arise from the audit.

    The source noted that while the firm had filed appropriate and factual information, it cannot be ruled out that auditors may have differing view and there may be need to harmonise such positions either way.

    million, representing an increase of 400 per cent. Minimum capital base for dealer increased by 233 per cent from N30 million to N100 million.

    Also, issuing houses, which facilitate new issues in the primary market, will now be required to have minimum capital base of N200 million as against the current capital base of N150 million. The capital requirement for underwriter also doubled from N100 million to N200 million. Trustees, rating agencies and portfolio and fund managers had their minimum capital base increased by 650 per cent each from N40 million, N20 million and N20 million to N300 million, N150 million and N150 million respectively. A  Registrar will now have a minimum capital base of N150 million as against the current requirement of N50 million. While the minimum capital base for corporate investment adviser remained unchanged at N5 million, individual investment advisers will have to increase their capital base by 300 per cent from N500,000 to N2 million.

  • Silicon Valley IPO market boom winding down

    Last year, many tech IPOs enjoyed soaring valuations in their Wall Street debut, raining cash on the companies and their investors and boosting concerns about another Silicon Valley bubble.

    Now, the party is winding down, according to data analysed by Reuters: Five of the 12 U.S.-based tech companies that went public this year, or 42 percent, priced their shares at a valuation below or nearly the same as their private market value, compared to 24 percent of the 29 that went public in 2014.

    “People are no longer out of their minds with valuations and expectations,” said Adam Marcus, managing partner at OpenView Venture Partners in Boston.

    A recent example is Pure Storage (PSTG.N), whose IPO earlier this month gave the data storage company a $3.1 billion market cap that almost matched its valuation in the private market.

    The shift in the investing climate comes as payments company Square filed this week for its own IPO later this year, becoming one of the most prominent of the so-called “unicorns,” or private companies valued at more than $1 billion, to try to go public.

    Even when valuations increase, they are growing by a smaller amount, according to the data, which was provided by Ipreo, a market intelligence company, and Pitchbook, a venture capital, private equity and M&A data provider, and analysed by Reuters. Some companies saw increases of three-, four- and even five-fold.

    So far this year, that gain is 32 percent. The data excludes eight companies that went public in 2014 because there was insufficient information to calculate their pre-IPO valuations.

    The shrinking difference affects every corner of the pre-IPO market, compelling some companies to delay or withdraw their public-offering plans, bankers and industry analysts said.

    According to interviews with bankers, venture capitalists and late-stage investors, this shift in the venture investing climate is just getting underway and likely to accelerate.

    It is also an about-face from the last few years, when hot tech companies found no shortage of investors for their private financing and experienced massive valuations, and then demanded an even higher market cap in an IPO.

    But now the public market is less willing to play along, venture capitalists said.

     

    To be sure, some delays in going public can be attributed to the surge in funding from late stage investors, allowing tech startups to stay private longer.

    As their valuations grew in the private market, a big increase in the value of their shares in an IPO became harder to achieve.

    A valuation drop in an IPO doesn’t necessarily dim the long-term prospects of a company. Hortonworks’ (HDP.O) stock is up more than 34 percent from the IPO price, for instance, after its valuation took a 40 percent cut in its public offering last year.

    But lower valuations in the public market raise questions about the future of the nearly 150 companies that have filed confidential IPOs, according to estimates by some investors.

    There is not enough market demand, they say, to support so many deals. In a confidential IPO, reserved for companies with less than $1 billion in revenue, companies file a draft registration with the Securities and Exchange Commission that is for non-public review.

  • SEC expels stockbrokers over fraud, market manipulation

    The Nigerian Stock Exchange (NSE) has indicted two stockbroking firms and a stockbroker for fraudulent sales of investors’ shares and manipulation of share price at the stock market.

    A circular on the indictment obtained exclusively by The Nation indicated that the stockbrokers were allegedly involved in multi-million Naira shares fraud. The indicted stockbrokers included Fittco Securities Limited, Resort Securities and Trust Limited and Mr Agomuo Chidi Solomon, a trader at the NSE.

    According to the indictment sheet, Fittco Securities Limited’s dealing member license has been revoked and the firm expelled from the Exchange due to alleged unauthorised sales of clients’ shares. Fittco Securities was also directed to pay a fine of N32.37 million.

    Resort Securities & Trust Limited was suspended for one month and directed to pay a fine of N3. 74 million following indictment on alleged share price manipulation.  Agomuo Chidi Solomon, an authorized dealing clerk of the NSE and a broker with Resort Securities, had his dealing certificate withdrawn in relation to the alleged share price manipulation.

    The indictment warned capital market operators from dealing with the indicted stockbrokers, citing rules that blacklisted indicted officials from further operation or employment in the market.

    Article 144(c) of the Rules and Regulations Governing Dealing Members (Amendments and Additions – Part II) – Specific Actions Requiring Prior Consent of The Exchange states that a dealing member must obtain prior written consent of the Exchange to employ directors, authorized 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 Securities and Exchange Commission.

    Others that required clearance from the Exchange before employment included any person who was an officer or employee of a dealing member expelled from the Exchange , any person expelled as an authorized 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 Nation had recently reported exclusively that the Economic and Financial Crimes Commission (EFCC) was investigating 10 stockbroking firms and 12 individual stockbrokers and officials as part of a large-scale crackdown on shares fraud that has seen 31 stockbroking firms and several stockbrokers internally investigated and sanctioned by the NSE.

    Two official reports on shares fraud, also known as unauthorised sales of investors’ shares, obtained by The Nation had indicated that the NSE had invited the EFCC to further investigate and prosecute 12 stockbroking firms and 21 stockbrokers and officials, who were primarily indicted by the internal investigations of criminal financial fraud.

     

     

    The EFCC has already concluded investigations and charged two stockbroking firms and nine persons to court while the anti-fraud agency is currently investigating 10 stockbroking firms and 12 persons connected with the firms or individually cited for shares fraud.

    All the cases referred to the EFCC were initially investigated and indicted by the Disciplinary Committee of the Council of the Exchange, NSE’s adjudicatory body which deals with heinous market infractions and investors’ complaints.

    The reports indicated that the all the firms and officials were allegedly indicted by the disciplinary committee for unauthorised sale of investors’ shares while some others were also indicted for issuance of dud cheques, impersonation and illegal conversion of dividend warrants.

    An official of the NSE at the weekend confirmed the cases under investigation by the EFCC, noting that the two reports were up to date and accurately represented the state of affairs as at press time.

    The investigations and prosecutions by the EFCC highlighted the anti-fraud campaign at the stock market to checkmate hard-pressed stockbroking firms and unscrupulous officials, who fiddled with investors’ shares.

    A report on shares fraud over the past 42 months indicated that 31 firms were investigated for unauthorised sale of shares. The report by the NSE covered the period between January 2012 and June 15, 2015.

    The report showed that nearly half of the shares frauds have been completed and the indicted stockbroking firms made to restitute the investors, a general reference to order to buy back the shares or pay the investor the value of the shares and all his entitlements.

    According to the report, 15 stockbroking firms and four individuals have pending cases, although the NSE has taken preemptive measure of suspending the stockbroking firms and stockbrokers. The pending cases have been referred to the disciplinary committee of the council of the NSE.

     

     

     

    The NSE had launched an online whistleblowing portal through which investors and other stakeholders can tip off the Exchange on perceived or known infractions. The online portal, known as X-Whistle, allows members of the public to submit information without disclosing their identity while it also provides reference that allows the whistleblower to track NSE’s response and investigation on the tip off.

     

     

     

     

  • 140 capital market operators may lose licences

    No  fewer than 140 capital market operators may be delisted by the Securities and Exchange Commission (SEC) and the Nigerian Stock Exchange (NSE) as regulators draw curtain on the recapitalisation.

    While intense lobby for a further extension of the recapitalisation deadline continues, sources at SEC and NSE  said the capital market regulators would stick to the September 30 deadline.

    SEC’s compliance timetable had indicated that a list of the compliant operators would be published on  October 2. October 1 is a national holiday in commemoration of Nigeria’s Independence Day.

    The sources said nothing has changed in the position of the regulators, noting that SEC,  will draw the final mark on compliance by the close of business today.

    Under the rules, the NSE is required to replicate any regulatory action by SEC, especially revocation of licence and suspension of any operator.

    Preliminary review by SEC indicated that majority of operators have complied with the new minimum capital requirements for their functions. Average compliance level ranged from 70 per cent to 95 per cent across the functions. The final list would be made ready on Friday.

    The Nation’s investigation, however, indicated that no fewer than 140 capital market operators might be delisted for failure to meet the new minimum capital requirements. Most of these operators also fall within the inactive operators.  A new rule on the revocation of dealing licences and expulsion of inactive stockbroking firms came into effect in June this year empowers the NSE to revoke licences of dormant operators.

    A status review by the NSE indicated that some 101 licences might be withdrawn, including some 88 inactive capital market operators.

    SEC had in December 2013 announced major increases in minimum capital requirements for capital market functions under a new minimum capital structure that was initially scheduled to take off by January 1, this year. It, however, extended the deadline to September 30.

    Minimum capital base for broker and dealer was increased by 329 per cent from the existing N70 million to N300 million. Broker, which currently operates with capital base of N40 million, will now be required to have N200 million, representing an increase of 400 per cent. Minimum capital base for dealer increased by 233 per cent from N30 million to N100 million.

    Also, issuing houses, which facilitate new issues in the primary market, will now be required to have minimum capital base of N200 million as against the current capital base of N150 million.

    The capital requirement for underwriter also doubled from N100 million to N200 million. Trustees, rating agencies and portfolio and fund managers had their minimum capital base increased by 650 per cent each from N40 million, N20 million and N20 million to N300 million, N150 million and N150 million. A  Registrar will now have a minimum capital base of N150 million as against the current requirement of N50 million.

    While the minimum capital base for corporate investment adviser remained unchanged at N5 million, individual investment advisers will have to increase their capital base by 300 per cent from N500,000 to N2 million.

     

  • Whole Foods Market to axe 1,500 jobs

    Upscale food market operator Whole Foods Market Inc (WFM.O) said it would cut about 1,500 jobs, or about 1.6 percent of its workforce, over the next eight weeks.

    The cuts are aimed at reducing costs as the company invests in technology upgrades, Whole Foods said in a filing.

    The affected positions were mainly in stores, but “back of house” positions that were not customer facing, the company said in an email to Reuters.

    Whole Foods said it would offer employees options including transition pay, severance, or allow them to apply for other jobs.

    The job cuts come as the retailer is working to shed its “Whole Paycheck” nickname and its reputation for high prices. Whole Foods said in May that it would launch a new chain of smaller, more value-focused shops next year.

    The company, which dominates the natural and organic grocery category, faces increasing competition from specialty and mainstream retailers.

    The New York’s Department of Consumer Affairs said in June it was investigating Whole Foods after finding that the company charged too much for some prepackaged foods at nine of its New York City stores.

    The company’s shares were down 0.5 percent at $30.96 in low volumes in premarket trading on Monday.

     

     

  • Kwara community rebuilds burnt market with N500m

    Kwara community rebuilds burnt market with N500m

    Renowned for communal efforts, the people of Offa, Offa Local Government Area of Kwara State rebuilt the popular Owode Market in the ancient town after it was razed down by an early morning fire.

    It cost them N500m to rebuild the 302-shop facility, it was learnt.

    The inferno which was said to have started around 1:30am in May 2014 reportedly burnt down a larger part of the market.

    The fire was said to have been caused by a power surge from an electric pole. Traders had earlier reportedly complained about the damaged pole to the electricity officials to rectify the problem.

    The National Emergency Agency (NEMA) has also put smile in the faces of the over 648 victims of the incident.

    Though, the community’s indebtedness on the ongoing project is in the neighbourhood of N32 million, the community disclosed that it had expended about N500 million on reconstruction work.

    Secretary General of the Offa Descendants Union (ODU), Mrs. Wasilat A. Mcarthy who conducted NEMA team round the market recently said the state government had redeemed its pledge of N10 million.

    Mrs. Mcarthy said: “We feel highly elated and appreciative of NEMA for coming to give relief materials to the fire victims. We know that the federal government in his wisdom has put in this agency to bring succour and joy to disaster victims.

    We have about 648 people who were victims of the inferno and who will benefit from the NEMA largess. 302 shops were burnt. Some of them share shops, that is why we have 648 victims.

    “We lost close to N2 billion as a committee was put in place. Some of the victims even left money in their shops.

    “My advice is that we should take proactive action to forestall future occurrence of that. We should insure our goods.

    “The reconstruction of the market so far is strictly on community efforts. All sons and daughters of Offa even those that are not resident in Offa have been contributing money.  We always wake up to the cry of ourselves.

    We have a listening government. Governor Abdulfatah Ahmed came immediately the fire occurred, he saw it and he was touched.”

    Speaking, Zonal Coordinator NEMA, Minna Operation Office, Mr. Slaku L. Bijimi said that the agency is worried by incessant fire out break across the country.

    NEMA boss added that “it is advising that we take preventive measures so that we curb disasters. We do not like to come to assist people because of disasters because we do not take pleasure in the loss of lives, property of the people. No amount of material or money you give can bring back life. We want people to be safe than to be devastated by disasters.”

    Mr. Bijimi said: “A few months ago we came for an assessment here and we saw that a good part of the market was burnt and we promised to come back.

    “We are impressed by the fact that work is almost completed and we are hoping that the small assistance we brought…will go a long way in speeding up the remaining work and the market will be commissioned.

    “For the market we have cement, roofing sheets, nails, and for the affected victims, we have food and non-food items…What we came with is worth millions of naira.”

  • Recapitalising the market operators

    Recapitalising the market operators

    In 2005, the Central Bank of Nigeria (CBN) launched a massive recapitalisation programme for the Nigerian banking industry. The attendant consolidation saw the reduction in the number of banks in Nigeria from a crowd of 89 weak, poorly governed and inadequately capitalized banks to 25 relatively stronger, larger and more visible banks. Banks then had to face a 1,150 per cent increase in their capital base, from N2 billion to a minimum of N25 billion.

    Following the successful banking sector recapitalisation exercise, other segments in the Nigerian financial system such as insurance, pension fund administration and mortgage sectors went through regulation-induced recapitalisation. Other segments had also gone through similar recapitalisation. Composite insurance companies had to increase their minimum capital base from N350 million to N5 billion, an increase of over 1,300 per cent. Similarly, primary mortgage institutions were equally required to increase their minimum capital base by 2,400 per cent from N100 million to N2.5 billion. Pension funds on the other hand also went through recapitalization from N150 million to a minimum capital base of N1 billion, almost six times the initial capital. The only remaining part of the financial system that had not gone through a regulated recapitalization phase as at 2013 was the capital market.

     

    New minimum capital requirements

     So, after extensive consultation with stakeholders and studying various reports on the underlying causes of infractions and market abuses, SEC had in December 2013 announced increases in minimum capital requirements for capital market functions under a new minimum capital structure that was initially scheduled to take off by January 1, this year. It, however, extended the deadline to September 30.

    Minimum capital base for broker and dealer was increased by 329 per cent from the existing N70 million to N300 million. Broker, which currently operates with capital base of N40 million, will now be required to have N200 million, representing an increase of 400 per cent. Minimum capital base for dealer increased by 233 per cent from N30 million to N100 million. Also, issuing houses, which facilitate new issues in the primary market, will now be required to have minimum capital base of N200 million as against the current capital base of N150 million. The capital requirement for underwriter also doubled from N100 million to N200 million. Trustees, rating agencies and portfolio and fund managers had their minimum capital base increased by 650 per cent each from N40 million, N20 million and N20 million to N300 million, N150 million and N150 million respectively. A  Registrar will now have a minimum capital base of N150 million as against the current requirement of N50 million. While the minimum capital base for corporate investment adviser remained unchanged at N5 million, individual investment advisers will have to increase their capital base by 300 per cent from N500,000 to N2 million. Compared with the previous recapitalisation exercises in the other segments of the financial services industry, the largest single increase required in the capital market exercise is for Trustees from N40 million to N300 million, an increase of 650 per cent.

     

    The need for capital market recapitalisation

     It is important to reflect on the factors and conditions that necessitated an increase in the minimum capital requirement for all capital market functions. Following the devastating and unprecedented market corrections of 2008, in which the market lost 70 per cent of its value and investor confidence was decimated, the board of SEC under the chairmanship of Senator Udo Udoma set up a 15-man Committee to review the causes of the crisis. The Committee submitted its report in February 2009 which identified “weak market institutions and corporate governance” as the major cause of the crisis. The Committee, led by Mr. Adedotun Sulaiman, recommended “strengthening of institutions participating in the capital market” among other recommendations.

    Long before the SEC announced the new minimum capital threshold for market operators, there had been a seeming consensus amongst observers that the existing requirements were unbelievably low. For example all it took for a broker to continue operating in the capital market was a mere N40 million of capital base, an amount that remained static for about 20 years in spite of the depreciation of the Naira and the increasing risks  brokers were exposing themselves to in the years leading to the market crash of 2008. It was no wonder, therefore, that there was what some have called a proliferation of weak, poorly governed market operators.

    Before the announcement by SEC in 2013, there were 281 registered market operators in Nigeria out of which 250 were considered active. The SEC had pointed out that only 20 per cent of the 250 active operators accounted for over 80 per cent of transaction volumes in the market. Also, 80 per cent of the infractions in the market were being perpetrated by about 200 registered operators while 20 per cent of the infractions by the remaining 50 operators.  This means that strong players are actually needed to sanitise the capital market for global competitiveness.

    While SEC had full regulatory authority to work on a minimum threshold, announce it and mandate compliance, the apex regulator rather chose a more collaborative approach. It sets up a market-wide committee comprising the major trade groups in the industry including the Association of Stockbroking Houses of Nigeria (ASHON), the Chartered Institute of Stockbrokers (CIS) and the Association of Issuing Houses of Nigeria (AIHN) amongst others. SEC then conducted a detailed study and obtained buy-in from the market, through the committee, before deciding on the minimum requirements for each function. The idea was to ensure that the amount arrived at could cover the minimum information technology (IT) infrastructure a firm should maintain, a minimum operating standard, strong processes and governance as well as being commensurate with the level of risk exposure for each function. The outcome of the extensive consultation and exhaustive analysis was the new minimum requirements announced by SEC in 2013.

     

    Gains from previous recapitalisation exercises

     No one can seriously argue today that the banking recapitalisation was a bad idea. Since its conclusion, there has been a noticeable uptick in banking sector intermediation as credit to the real economy has increased multiple folds, the number of Nigerians with bank accounts has increased by millions, number of banks branches and ATMs more than tripled and Nigerian banks began to appear on the list of 1,000 largest banks in the world, which none did before the recapitalisation. The banking sector recapitalisation shows us that if Nigeria is really serious about improving capital market inter-mediation, then it needs stronger and more capitalised players in that market. If about 20 banks are doing far more than 89 then, certainly we would soon learn that when it comes to the number of operators in the market, less is perhaps better as long as the quality and strength of the institutions are prioritised.

    Besides, the quality of the institutions participating in the Nigerian capital market must always be benchmarked, if not against their counterparts in the developed markets, then at least against those in peer emerging countries. Countries like Malaysia, India and Brazil recognized much earlier than Nigeria, the need for stronger, better capitalised capital market operators who are able to offer qualitative financial intermediation. For example, in Malaysia an investment bank which is registered to perform the five core functions of broker/dealer, fund management, issuing house, underwriting and market making is required to have over $120 million in minimum capital. In contrast, the amount required for all these combined functions in Nigeria prior to the recapitalisation was less than $3 million.

     

    Towards stronger capital market operators

     Notably, all parts of the financial system, including the banks, rely on the capital markets either as institutional investors or for treasury management. It would therefore be unseemly for the capital market to appear as the weak-link in the financial sector which further points to the necessity of the ongoing recapitalisation exercise. Recapitalisation is a clear example of best practice, it was long overdue in Nigeria and anyone calling for further extensions may be regarded as unserious about meeting up with the demands of a well-functioning modern capital market. The calls for extension are reminiscent of the nay sayers, who kept calling on the CBN to reverse course during the banking sector recapitalisation. Today we can say that thankfully the CBN refused to cave-in.

    As the deadline approaches, the same individuals, who had argued and urged for an extension, are employing the same tactics, coming up with different excuses to back up their unreasonable demand for retrogression. There is basically one major excuse being employed by the struggling operators, the issue of the current market downturn.

    According to this reasoning, because the Nigerian stock market is currently experiencing a downward trend, SEC should extend the September 30 deadline since some brokers hold their capital in securities whose prices have declined. The Chartered Institute of Stockbrokers (CIS) had last week reiterated this position. But this may be clearly a weak argument on the face of it. Global financial markets are witnessing the worst volatility since the 2008 financial crisis. Most emerging markets have endured significant depreciation in value year-to-date and Nigeria is by no means peculiar. Assuming this logic of making the deadline dependent on market conditions, what guarantees could one reasonably give that markets would not experience another downturn at the eve of the new deadline? All operators know that the market in which they do business could go up or down, that should not affect the quality of their capital base, nor should it be the basis for shifting deadlines. Besides, the recent mandated recapitalisation of bureau de change (BDC) operators recently concluded by the CBN clearly refutes the argument for extension. The minimum capital requirement for BDCs was essentially increased seven fold from N10 million to N70 million-N35 million capital base and N35 million minimum cautionary deposit. Moreover, unlike capital market operators, the BDCs had only six weeks to comply.

    The overall aim now should be having stronger brokers that perform the critical role of linking investors to the capital markets. While there are few distractions and arguments for extension, recent report showed that most capital market operators have complied and several are in line to meet the deadline. According to reports submitted by SEC at the last Capital Market Committee (CMC) meeting held in late July,  51 per cent of broker-dealers have complied, 67 per cent of issuing houses have met the minimum, 40 per cent of rating agencies, 54 per cent of fund and portfolio managers,90 per cent of registrars and 60 per cent of trustees have all complied with the new minimum capital requirements.

    The advantages of recapitalisation are clear for anyone to see. With stronger, better capitalised institutions, investors would be safer because corporate governance will improve, infractions would be fewer, the market would be more efficient, liquidity would improve and financial intermediation would be enhanced.

    It bears noting that in all this, the SEC appears overly magnanimous offering to provide many forms of support to operators as they make efforts to comply with the requirements. SEC is allowing operators with multiple functions to step some of them down for lower requirements while encouraging consolidation amongst smaller players by offering to waive merger/acquisition fees.

    Similarly, SEC in conjunction with other stakeholders has organized town hall meetings with the operators including seminars that highlight benefits of stepping down some of their functions to reduce the compliance burden through reclassification. For broker-dealers who are so small and stand no chance of meeting up with the new requirements, the Commission has created windows to allow them to still remain participants in the market by registering them as jobbers. Jobbers are usually agents that act as intermediary between investors and a main broker-dealer. SEC has assured that this window will remain open to all operators who are unlikely to make the new requirements.

    At this point, any further extension of the deadline would significantly weaken the SEC’s posture and derail the whole exercise. The time is long overdue for Nigeria to get serious about building the kind of institutions capable of participating in an increasingly dynamic and sophisticated capital market.

     

     

  • It is not your father’s Reinsurance market anymore’

    The reinsurance sector has always been a leader in terms of evolution, but over the past few years the pace of change has unquestionably been more rapid. According to A.M. Best report, historically, changes within the sector had been cyclical in nature, but now many observers believe the current evolution to be structural. The market is operating in a “new reality” of abundant capacity from traditional and alternative sources, low interest rates and thinner reinsurance margins driven by intense competition against shrinking demand for reinsurance cover.

    At this year’s annual shareholders’ meeting, Chairman and CEO, Warren Buffett, Berkshire Hathaway said:  “It’s a business whose prospects have turned for the worse and there is not much we can do about it,” adding that the reinsurance industry in the next 10years “will not be as it had been in the last 30”.

    Historically, traditional reinsurance protection had been the primary source of capacity for cadents. That is clearly changing as primary companies are retaining more risk and are increasingly utilising alternative markets for their risk management needs.

     

     

    At the same time, the old playbook of private equity starting a traditional reinsurance company and then exiting via an IPO is becoming less attractive. Investors would rather put capital to work for a relatively short period of time (typically 1 to 3 years) as opposed to creating new companies that require longer-term capital commitments with a less certain exit strategy. Ease of entry and exit, among other things, is key to reinsurance risk functioning like a tradable asset class.

    Ultimately that seems to be the end game, conceivably for all reinsurance risks, to be able to wake up in the morning, wait for the market to open, and trade in or out of various pools of reinsurance risk – even if there was an event the night before.

     

  • ‘Secondary market for spectrum‘ll spur development’

    ‘Secondary market for spectrum‘ll spur development’

    In the telecoms and broadcast industries, spectrums are considered scarce and essential intangible commodities. For quality and ubiquitous services delivery, they are central. But some people are hoarding these commodities.  In this interview with LUCAS AJANAKU, Association of Telecoms Companies of Nigeria (ATCON) President Lanre Ajayi says the government should create a secondary market for buying and selling spectrums to fast-track service rollout and enhance growth. Besides, he urges telcos to inform their customers before deactivating their SIMs. Excerpts:

    Let’s begin with recent subscriber identity module (SIM) card deactivation order handed down to telcos by the Nigeria Communications Commission (NCC). Some people have blamed the telcos and NCC for bringing pains to over 10 million subscribers. Do you agree?

    I have not seen anybody that disagrees with the concept of SIM registration.  Even ordinary Nigerians seem to have accepted that it is important to register SIMs. They have realised the fact that for growth, national security, and for so many other reasons. I haven’t really seen anybody that has argued against SIM registration. And if that is the case, why would anybody continue to use a phone beyond the deadline set without registering the SIM. So, I think it should be known by everybody that at a point such phones that are not registered would be suspended. And to the best of my knowledge, what NCC directed operators to do was not to remove them from the network but to suspend them. Suspension simply means that if you go back and register, you will get your SIM activated. So I don’t see how that becomes a problem. Whoever has his phone suspended should walk to the nearest registration point, and get the SIM registered and the phone will be reactivated.

    But the telcos inundate customers with unsolicited SMS and calls. Don’t you think the customers should have been warned before the rude deactivation?

    I agree that there should have been some kind of warning, informing subscribers that they have one defect or the other and asking them what to do. I agree to that maybe that’s an area that could to be improved upon.

    This brings the issue of integrity to the data gathered. Security experts have described SIM registration as a charade because of obvious shortcomings. What is your reaction to this?

    The data collected may not be perfect but I think it’s the best for achieving security to a great extent but those can be improved upon over time. Certainly, there are many people who would want to play some games on the system but over time, they will be sorted out over time. It would not have been good if we did not start at all. But what is more important is for us to start first and we have started registering. Then, those areas that are deficient can be improved upon. That is my take on that.

    What about the huge money spent by the NCC and the telcos. Is it justified?

     My personal view when SIM registration issue came up was that it should have been left for the operators to handle. That was my own opinion in respect of that but in the wisdom of government decided that regulators should also participate and that has been done. So i think we should just leave that as it is.

    The National Broadband Plan set ambitious milestones and timeline for achieving them. With what is on ground, do you see these milestones been achieved?

    At this stage, we are very slow at achieving these milestones. But if we accelerate and expedient actions on certain this that we are meant to do, there is enough probability that we can achieve those milestones. The National Broadband Plan is very detailed, very thorough, and very specific about what has to be done so if those things that are meant to be done are done so why not? You can speed up action on implementation.

    What do you think government and the operators can do towards the realisation of those goals?

    Create the right enabling environment for the operators to expand their network. Create the right environment for the investors to put down necessary investment for these expansions. Somebody has to bring money on the table to build infrastructure. You need to encourage that person, that investor to bring that investment by creating the right environment. People call it policy inconsistencies, regulatory inconsistencies, appropriate fiscal policies, taxation and all the rest. So, if you create the right environment, people will come. The market is here, we all know it. That’s a pull to come, that’s an incentive on its own for people to come and invest but that s not enough. If the market is there and there are disincentives, there are obstacles or barriers, people will still hold back their investment in the industry.

    What role for the freed spectrums after digital migration?

    It is one of the factors that will enable us achieve penetration. Spectrum  is one of the reason will enable us to achieve it and that the only thing  if you listen to his presentation  this are basically two ways of  that will be providing access to people  the fibre active and the wireless . We need the ‘digital dividend’ spectrums so it will help but it certainly not a magic wand.

    However, it is not digital migration that will lead us there, digital migration will help us it is the fact that we need those spectrums that are being used for broadcast; it will help but that not the only critical success factor, it is about investment. You have to put money there so that operators can roll out networks and the investment will come when the environment is right. If people see that ok we put down investment and the environment is hostile and the policies are inconsistent, nobody will put down investment to expand the network very quickly. We need the right environment to be able to make that expansion and if the environment is not there based on the issues that have been identified, even today nobody will put down the appropriate investment.

    You advocated the creation of a spectrum market. When you create a spectrum market, don’t you think that would lead to people buying spectrums, keeping them and reselling them?

    What is wrong with that? Is it not better for someone who bought a spectrum and is not able to use for whatever reason to sell it to someone who is able to use it than for him to just keep the spectrum without being able to use it for whatever reason? Well you are denying him of his resources. He is losing money. The Nigerians that are meant to benefit from the usage of that spectrum; you are denying them of the services. So from both ends you are losing. The nation is losing, the investors are also losing. Is it not better that that man has an opportunity to sell that  spectrum, to make money and Nigerians are able to obtain services from the spectrum that is sold? So which one is better?  It simply makes sense that a secondary market is sensible because sometimes, you set up a plan that I want to roll out, and along the line there are unexpected distortions. For example, the money you expected to raise to do the roll out is not forth coming and you have paid for spectrum. So why will you hold on to the spectrum when it is not useful to you, it is not useful to Nigerians? Is it not better that you find someone to sell it to so that you will recoup your money or at least part of it and that spectrum is sold to someone who has the capacity to roll out? I think it is better for the country. I want someone to fault that my line of argument.

    But will this not result into speculators taking over the spectrum space?

    You see every good thing has its own down side. That’s a downside for it but it could be managed through regulatory framework. Put a regulation around it, once you recognise that there is a secondary market and there would be rules around the market. Once you set down the rules and enforce it, all those side effects would be managed.

    The NCC has set up a task force to address the issue of service quality. How do you see this?

    I would not know the reason why they will be setting up a tax force , but am sure they will be having a good reason for that .ordinarily , what we do is that would have been a job of a particular department.

    NCC do sanction operators, now they have set up a tax force. Do you think those sanctions are right?

    I don’t think sanction is the solution because there are so many challenges. So we need to remove those challenges if those challenges are removed, operators can now be sanctioned if they fail to meet the key performance indicators.  But as long as those challenges are there, we cannot we talking of sanctions. Let us do simple logical reasoning, the market is there and service and the operators are not able to provide the service. If they provide more services, they will make more money. Do you think they will not want to make the money? If they are handicapped they will not be able to do it, so let us remove these challenges and see if the operators will expand  the network or not

    Certain factors have been identified as bottlenecks to service quality. Are the telcos ever going to meet up with the KPIs jointly agreed to by the NCC and the telcos?

    The operators are still part of the industry. NCC certainly have to do more because the number of obstacles that have been identified ,numbers of challenges have been identified , is not that we expect the problem to disappear overnight but we expect accelerated actions in some of the issues that have been identified. And we all know the issue of difficulties in getting the right of way.

    ‘So, if you create the right environment, people will come. The market is here, we all know it. That’s a pull to come, that’s an incentive on its own for people to come and invest but that s not enough. If the market is there and there are disincentives, there are obstacles or barriers people will still hold back their investment’

    We need to address these issues holistically and set up action and also ensure that issues are resolved because there are other challenges and we need to start adjusting.

    Over the past 10 years, mobile subscriptions have gone up but these have not translated to coverage in several rural communities in spite of the money available at the disposal of the Universal Service Provision Fund (USPF). How can rural access be achieved?

    There are two basic things for achieving universal access. One of them is by the Fund you have just mentioned that will provide incentives to operators to move into both under-served and unserved rural areas. That is one way. Another way is by having service obligations to operators. In other words, when you are giving license, you say to them that if you must rollout in this urban area, it is obligatory for you to also rollout in the rural areas too. So it becomes an obligation. So it’s no more voluntary. But as it is now rollout is more or less voluntary. People concentrate in areas that are profitable and that is logical for any business man. But if your license makes it obligatory for you to also do some areas that are less viable, you will factor it together in your business plan, you will know that this where you are going to  loss and this is where you are going to profit. And you even it out. So we need to do a combination of both. That is my suggestion in this area.

    The world is moving from the internet of things to internet of everything.  How prepared are we for this considering that the country is far down in the network readiness ladder ranking?

    Let me be honest with you, I know of internet of things not internet of everything. That may be a new concept. I know we are doing internet of people now and that the new paradigm is the internet of things, in other words, machine will be able to communicate with machine (M2). And that is internet of things. Internet of everything, I guess is a company’s slogan. I don’t think it’s a generic concept, it’s like a company’s slogan. For the internet of things, the basic thing is to put the infrastructure in place and people will have knowledge of developed applications that would make those machines communicate. We are able to do it. It is not something that is that difficult. We are not breaking atoms here. It is just that difficult; just let the internet be available, let it be ubiquitous, let it the devices be intelligent. You know it means that the devices that would be manufactured would be intelligent enough such that it can communicate and for example, the tracker is a device connected to a machine such that if a car is jail-fenced; and maybe the car is not required to move beyond certain restriction, if it does and the GPS discovered that it has traveled beyond the specified space, the machine will notify another machine that will set up an alarm and maybe that machine can also send another information to the car to completely shut it down. They are communicating. That is the internet of things. That is just an example of internet of things. So, it is already happening, it is not futuristic. But ubiquitous use of it is what we have not seen but it’s already happening with us.

    As we look forward to the appointment of a new minister for Communication Technology, what will be your advice?

    We need someone who is able to move with time, who understands that technology is trendy and realises that quality environment is crucial; someone that also has to be dynamic. So we need someone that is forward looking; that can quickly understand issues and attend to those issues. Ws need experienced people who understand and have good understanding about the industry.

     

                       

     

     

     

  • Fed officials seek rate hikes despite market swings

    Two top Federal Reserve officials who have pressed for interest rate hikes said a spate of violent swings in financial markets won’t knock the United States’ economy off its feet.

    “The U.S. outlook still looks very good,” St. Louis Fed President James Bullard told Bloomberg in an interview from Jackson Hole, Wyoming, where central bankers from around the world are converging for a yearly meeting.

    Global stock market volatility has sowed doubts over when the Fed will raise interest rates, particularly since the chief of the New York Fed, who is a close advisor to Fed Chair Janet Yellen, on Wednesday said the case for a September hike now appeared less compelling.

    But Loretta Mester, president of the Federal Reserve Bank of Cleveland, said the volatility has not changed her view that the U.S. economy was ready for a modest increase in interest rates.

    “I want to take the time I have between now and the September meeting to evaluate all the economic information that’s come in, including recent volatility in markets and the reasons behind that,” Mester said in an interview with the Wall Street Journal. “But it hasn’t so far changed my basic outlook that the U.S. economy is solid and it could support an increase in interest rates.”

    Bullard, who last month said economic data had boosted the case for a September rate hike, noted that the Fed doesn’t like to change policy when markets are volatile, a Bloomberg reporter said, citing Bullard’s comments made off-camera following an interview.

    “The key question for the committee is how much would you want to change the outlook based on the volatility we’ve seen over the last 10 days,” Bullard said. “And I think the answer to that is going to be not very much.”