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Tag: stock market

  • Stock market and SEC listing

    Stock market and SEC listing

    •Time to breathe life into the economy

    The Nigerian Stock Exchange (NSE) has seen many bearish months and days, but last week’s Monday, November 30, was particularly a low point.  According to Reuters, the NSE, the second biggest weighting after Kuwait on MSCI frontier market index, shed 0.84 percent on thin volumes to close at 27,385, a result last experienced in December 2012. Shares on the market lost 6.5 percent in October and another 6.1 percent in November, as many traders, particularly foreign investors stayed on the sideline, awaiting government’s fiscal policy.

    While the Security and Exchange Commission (SEC) is planning new listings to buoy the market, the Federal Government must urgently set its economic plans afoot, to starve a crash.

    Like the national economy, the stock market is faced with recession, and this is worsened by near economic inactivity, six months after the Buhari government came to power. But the Chief Executive Officer of the NSE, Oscar Onyema, has argued that the exchange is not the only one affected by the global economic challenges. He noted that of the 24 Exchanges in Africa, 20 are declining. Specifically, he argues that: “If you look at large, mid and small cap securities, mid cap securities have done well, they have returned six percent positive. Now the whole market is about 18 percent down and that is because of the weight of large cap securities”.

    On its part, SEC is seeking ways to encourage new listings on the stock exchange, particularly the small and medium enterprises which the NSE chief executive argues, are doing better than the big stocks. According to the Director-General of SEC, Mr Mounir Gwarzo, at the third quarter post-capital market committee media briefing in Lagos, “we are willing to relax some of the listing and disclosure requirements to encourage listing of SMEs”. The SEC boss also announced that his commission is collaborating with the Federal Government on tax incentives and exemptions for companies that want to seek listings.

    Furthermore, the SEC is seeking to get the telecommunication companies to list on the exchange. Indeed, there is no explanation why the telecommunication companies are not listed already. But as the saying goes, “better be late, than never”. As part of incentives, Gwarzo said, the SEC is working to reduce the transaction cost, to encourage more listing in 2016. Again, he announced plans to establish a new commodities market, in line with the Federal Government’s policy to boost the agriculture sector. Much as the SEC plans to buoy the future of NSE, the immediate challenges must be addressed, to stem the slide of our national economy.

    In this regard, many have argued that the foreign exchange regime of the government is affecting the stock market. While the government must find a way around the crisis, we doubt if a relapse to the old era of unrestrained trading in forex is in our national interest. Perhaps the solution is in buoying the purchasing power of the consumer. Of note, the consumer goods index fell down by 22.24 percent, in the stock market report, and that is a serious indicator that the purchasing power of Nigerians has greatly declined. Also, the index of the top 10 banks had shed 19.9 percent within the period under review.

    The sharp decline in the market value of the stocks has resulted in high rate of job losses across the economy. Investors, both local and foreign, must be worried that three weeks after the inauguration of the federal executive council, the government of President Muhammadu Buhari is yet to chart a clear economic plan, and the NSE is paying a huge price for this.

     

  • Counting losses, gains of the stock market

    Counting losses, gains of the stock market

    Investors in the Nigerian stock market are losing money. Listed companies need funds and the operators are under pressure to raise additional funds. Everything appears to be moving fast in an election year, mixed with currency devaluation and a decline in the main income line of crude oil. But, within the rough mix lies the gains of tomorrow. A survey of the underlying trends driving the market downward by Capital Market Editor Taofik Salako shows that the rough tide may bring huge gains

    Investors in the Nigerian stock market have lost more than one-tenth of their portfolios in the past eight months. The stock market had moved from the ups and downs of the first half to a more gruelling and sustained depreciation in the third quarter. The benchmark index for the Nigerian stock market – the All Share Index (ASI) of the Nigerian Stock Exchange (NSE) – closed in August at 29,684.84 points, compared to the opening index of 34,657.15 points for this year, representing an average decline of 4,972.31 points or 14.35 per cent.

    The ASI, a value-based common index that tracks prices of all quoted companies on the NSE, doubles as Nigeria’s sovereign equity index; the barometer to measure the performance of the Nigerian investment market within a time frame. The upward and downward movement of the ASI implies losses or gains in monetary value. As such, the ASI and aggregate market value of all quoted companies on the stock market move proportionately in the same direction. While new listing, delisting and supplementary listing could temporarily distort full directional view of the market capitalisation, the market over a period corrects such distortion to align capitalisation with the benchmark index.

    The aggregate market value of all quoted equities on the NSE closed in August at N10.208 trillion, indicating a loss of N1.27 billion on this year’s market opening value of N11.478 trillion. The negative average year-to-date performance further underlined the anxieties of investors, who had lost N1.75 trillion in another negative year in 2014.

    Nigerian equities ranked among the worst-performing stocks globally in 2014 with an average full-year decline of 16.14 per cent. Aggregate market value of all quoted equities closed in 2014 at N11.477 trillion as against its opening value of N13.226 trillion for the year, indicating a loss of N1.75 trillion during the year. The ASI had closed 2013 at 41,329.19 points while aggregate market value of all quoted closed in the same year at N13.226 trillion.

    Everything put altogether, they simply imply that the investors in the Nigerian stock market have lost N3.02 trillion or 28.17 per cent over the past 20 months.

    The slide knows no sector and to a large extent, no stock. There are few contrarian stocks. Cross-sectoral analysis underlined the market-wide nature of the downtrend. All tracked group indices at the stock market opened on September 7 in the red. From banking to insurance, oil and gas to fast moving consumer goods, to industrial goods, ethical to general stocks, blue chips to penny stocks and from the premium board to the main board and the emerging market, the market is coasting together in one direction. The ASI opened this week with average-year-to-date return of -14.85 per cent. The NSE 30 index, which tracks the highly influential 30 most capitalised companies at the stock market, opened with above average return of -15.18 per cent.

    Investors in consumer goods’ companies appeared to be worst hit with the NSE Consumer Goods Index (CGI) carrying year-to-date return of -19.04 per cent. The NSE Premium Index, which tracks three newly grouped companies, including Dangote Cement, First Bank of Nigeria (FBN) Holdings and Zenith Bank, opened with -13.93 per cent, slightly above the main board return of -13.68 per cent.

    In the financial services sector, the NSE Banking Index indicated a return of -11.87 per cent, almost a step above -10.97 per cent in the populous, but less significant insurance sub-sector. The NSE oil & gas Index has a double-digit negative return of -11.37 per cent, underlining losses in the upstream and downstream segments of the oil industry.

    The industrial goods sub-sector has shown the greater resistance with a modest negative return of -1.23 per cent. The illiquid Alternative Securities Market (ASeM) showed a return of -0.45 per cent. For ethical investors, the NSE Lotus Islamic Index- which tracks specially screened stocks for Shari’ah-compliant investments, provided the possible estimate of loss with average return of -11.08 per cent while the NSE Pension Index, which tracks 40 companies, adjudged to meet the stricter rules for pension investments, indicated average decline of 8.47 per cent.

    With inflation rate at 9.2 per cent, the benchmark interest rate at 13 per cent and currency depreciation of more than 20 per cent, the adjusted losses by investors may be in double of the simple benchmark return. Executive Vice Chairman, Capital Assets Limited, Mr. Ariyo Olusekun, said foreign exchange was a major underlying factor for the downward trend at the stock market.

    According to him, the steep depreciation in the naira and the uncertainty around the foreign exchange management has been combined factor in the dynamics shaping the market direction.

    Citing an instance, he said that investor who invested in  the stock market with $1 million in 2014 when the exchange rate was N160 to the dollar and gained 25 per cent would still be in a loss at the current exchange rate of about N220 per dollar.

    The seven-month report on foreign portfolio investment (FPI) for the period ended July 31, indicated that foreign investors accounted for 54.21 per cent of total transaction value during the period but the larger proportion of foreign portfolio transactions were outflows rather than inflows.

    The preponderance of sale transactions by foreign investors left Nigeria with a deficit FPI position of N28.38 billion. The total FPI outflow stood at N362.42 billion over the seven-month period, representing 52.04 per cent of the total foreign portfolio transactions of N696.46 billion.

    The total foreign inflow totaled N334.04 billion, 47.96 per cent of total foreign flow and domestic investors accounted for N588.36 billion, 45.79 per cent of the market’s total transaction of N1.28 trillion during the seven-month period.

    Coordinated by the Nigerian Stock Exchange (NSE), the FPI report used two key indicators-inflows and outflow, to gauge foreign investors’ mood and participation in the stock market as a barometer for the economy.

    The FPI outflow includes sales transactions or liquidation of equity portfolio investments through the stock market while inflow includes purchase transactions on the NSE.

    The NSE report is generally regarded as a credible gauge of FPI in the country as it coordinates data from nearly all active and major investment bankers, stockbrokers, custodians and other capital market operators.

    Nigeria had recorded a net foreign portfolio deficit of N154.14 billion in 2014, overriding a modest positive net flow of N20.48 billion recorded in 2013. The 12-month FPI report for 2014 had shown that foreign portfolio outflow was N846.53 billion as against inflow of N692.39 billion in 2014.

    In 2013, total foreign inflow stood at N531.26 billion compared with outflow of N510.78 billion.

  • China to stabilise stock market

    China’s market regulator said it would continue to stabilise the stock market for “a number of years.”

    It said the role of the state-backed China Securities Finance Corp to stabilise the market would not change.

    However, it added that it would allow market forces to play a bigger role in setting stock prices.

    The comments come after wild swings on the stock market earlier this month, which saw the main index slump 8.5% in one day.

    “With market fluctuations gradually shifting to normal, from wild and abnormal, we should let the market exercise its function of self-adjustment,” the China Securities Regulatory Commission told a news conference in Beijing.

    On Friday, mainline shares edged higher as the country’s central bank raised the trading range of the yuan.

    The benchmark Shanghai Composite closed up 0.3% at 3,965.33 points, although Hong Kong’s Hang Seng dipped 0.1% to 23,991.03.

    The central bank set the yuan rate at 6.3975 to the dollar, compared with Thursday’s close of 6.3982.

    The rate is set daily and allows a 4% fluctuation. Over the past week, the bank had guided the yuan to a record low, sparking fears of a currency war to help lagging Chinese exports.

    Japanese shares traded lower, with the Nikkei 225 index closing 0.4% lower at 20,519.45 points.

    Investors are anticipating Monday’s release of Japan’s economic growth for the past three months.

    In Australia, the S&P/ASX 200 also fell by 0.5%, finishing at 5,360.90 points, as investors took a cue from Wall Street’s flat close and the continuing uncertainty over the yuan.

    The Chinese currency is important to Australia, as China is the main export market for the country’s natural resources.

    In South Korea, the Kospi index remained closed on Friday, ahead of a national holiday on Saturday.

    German Finance Minister Wolfgang Schaeuble (left) has criticised Greek delays in the past

  • Shanghai stock market suffers largest plunge in 8 years

    The Shanghai Composite Index on Monday plunged almost 8.5 per cent in its greatest fall since 2007 in spite of recent government efforts to support the market.

    The main index closed 8.48 per cent down at 3,725.56, 6 per cent up from its recent July 8 low, but still 28 per cent down from its June 12 high.

    An economics professor at the Beijing Institute of Technology, Hu Xingdou, said a lingering lack of confidence in the economy and the stock market was behind the fall.

    “The stock market has too many bubbles and too much false information. The leverage rate is too high with no efficient regulations to solve such problems,’’ Hu said.

    The Shenzhen Component Index fell 7.59 per cent to close at 12,493.05 points.

    Also the Hong Kong Hang Seng Index declined 3.28 per cent to trade at 24,305.23.

    China seemed to have successfully stabilised tumbling share prices in early July when its central bank injected 35 billion Yuan, approximately 5.7 billion dollars into the money market.

    During that period major shareholders were forbidden from selling shares.

    China’s second quarter GDP growth at 7.0 per cent growth and other major June indicators came in better than most analysts expected, although doubts lingered about the accuracy of Chinese economic data.

     

  • Nigeria, others to curb stock market challenges

    Nigeria, others to curb stock market challenges

    Sixteen African Stock Exchanges, including Nigeria, are closed to ending share price manipulation, forgery of certificates, boardroom squabbles and other issues posing threats to the practise of corporate governance on the continent.

    The President, African Stock Exchange Association (ASEA),Oscar Enyeama, made this known at the sideline of the Bi-Annual Meeting of African Corporate Governance Network (ACGN) in Lagos. ACGN’s membership is drawn from sixteen African countries, namely Kenya, Malawi, Tanzania, Zambia, Morocco, Nigeria and Uganda. Others are Egypt, Ethiopia and South Africa.

    Speaking during a Memorandum of Understanding (MoU) between the African Stock Exchanges Association and the African Corporate Governance Network at the event, Enyeama said this partnership would help in addressing challenges ranging from corporate governance in those countries.

    He said through the MoU, stock exchanges would be able to identify and proffer solutions to critical corporate governance issues, adding that the market regulators and operators would benefit greatly.

    He explained that corporate governance is key to improvement in fundamentals of quoted and non-quoted companies, trading of equities and growth in earnings accrued to investors.

    He said when corporate governance practises improves, the better for directors of companies, investors and other stakeholders in the value of chain.

    He said: ‘’The signing of MoU signifies a major improvement in our desire as( African Stock Exchanges Association) to improve formulation and implementation of corporate governance policies in companies and further reduce problems facing stock markets on the continent. The fact that African Corporate Governance Network is made of directors from various countries in Africa means the job of tackling corporate governance problems has been made easier.”

  • Nigeria’s stock market has a bright future

    Nigeria’s stock market has a bright future

    A United States-based stockbroker, Mr Tayo Shebanjo, has said Nigerian stock market has a bright prospect and there are no immediate factors that could cause reoccurrence of the 2008-2009 depression.

    Shebanjo had traded on the Nigerian Stock Exchange (NSE) before migrating to the United States where he obtained certification and continued operation as a stockbroker. He spoke as a guest speaker at an interactive session organised by the Chartered Institute of Stockbrokers (CIS) and Capital Bancorp Plc.

    He said current outlook for the Nigerian stock market is bright, noting that there is no immediate potential ‘time bomb’ that could cause a major dislocation in the market.

    He however, urged capital market authorities and operators to exercise due process and caution in the creation and handling of derivatives.

    He emphasised the need for continuous professional education, pointing out that in the US, a broker has to start the certification process all over if he is out of the market for two years.

    He outlined that as part of the strong deterrent measures put in place to safeguard the US market, a broker and his supervisor as well as the stockbroking firm will be held liable if the broker gives wrong advice to his client.

    Drawing a parallel between the one-size fit all capital requirement in Nigeria and the practice in the US, Shebanjo said that in the US, minimum share capital is imposed on each firm in accordance with its operations and when a firm is appointed as market maker it has an obligation to mop up every available unit of the stock on offer.

    He outlined that a stockbroker must invest in knowledge, stay in touch with the market, ensure value proposition for clients, operate at the highest level of integrity and be personally organised in order to succeed in the competitive global market.

    Shebanjo has the distinction of being an active Stockbroker both in Nigeria and the USA. In Nigeria, he qualified in 1992 and traded for several years, rising to the position of chief executive of top-ranked firms like MBC Securities and Oasis Capital (now Primera Africa). Thereafter, he relocated to the United States of America where he earned further requisite qualifications and has so far had a very successful stockbroking career, working for big companies like JP Morgan Chase and his current firm, Nationwide Investment Services Corp.

    Commenting on the efforts of the CIS to ensure standard, one of the institute’s senior staff, Mr Chukwudi Nga said the CIS has been making serious efforts to attract young people into the securities and investment profession. He mentioned that the institute has introduced a Professional Diploma in Securities and Investment for secondary school leavers and the successful acquisition of this diploma qualifies the holder to write the final part of the institute’s professional examination.

    According to Nga, CIS, is a member of the Association of Certified International Investment Analysts (ACIIA), and CIS graduates are qualified to write the final examination of the globally recognised institute.

    Mr. Nga said the CIS has also introduced a recertification examination for the institute’s graduates who have not converted to Associate status three years after graduation.

  • Bullish stock market may spur IPOs, new issues

    Bullish stock market may spur IPOs, new issues

    The sustained increase in shares prices at the stock market may enliven the primary market and considerable increase in initial public offerings (IPO) and supplementary shares as means of raising funds from the general investing public.

    The Nigerian stock market turned positive last week with a modest average-year-to-date return of 3.09 per cent.

    The stock market had garnered N1.82 trillion in capital gains after the successful successful conduct of the presidential election and emergence of General Muhammadu Buhari (rtd) as president-elect.

    Aggregate market value of all quoted equities closed the four-day trading session last week at N12.135 trillion as against the week’s opening value of N10.319 trillion, representing an increase of N1.82 trillion. The benchmark index for the Nigerian stock market, the All Share Index (ASI), also jumped by almost six steps to close at 35,728.12 points as against its opening index of 30,562.93 points.

    Market pundits said the bullish run at the stock market might encourage companies to float new issues to raise funds, as the negative overhang at the stock market has been a militating factor against the primary market.

    According to analysts, rising share prices would overtime correct the undervaluation of shares of companies and encourage the companies to issue new shares based on their assessed fair values.

    They noted that some companies had shied away from issuing new shares due to investors’ apathy and undervaluation of their shares citing the recent downtrend where Oando and United Bank for Africa were forced to reduce the offer price of their ongoing supplementary equity issue.

    Transcorp Hotels, which floated its IPO, was undersubscribed with a subscription level of 52.3 per cent. Transcorp Hotels had floated an IPO of 800 million ordinary shares of 50 kobo each at N10 per share with intent to raise N8 billion, but it was only able to raise N4.2 billion from the October 2014 IPO.

    Managing Director, Finawell Capital Limited, Mr. Tunde Oyekunle, said companies would naturally move towards equity issues when they realise they could raise new funds at fair prices.

    He noted that several companies are facing financial constraints and high costs of fund and will look at options to reduce these costs, including the possibility of new equity issue.

    He said the stability of the economy and resolution of major challenges such as power and insecurity would positively impact the capital market and provide a long-term support for the recovery of the primary market.

    Head, Research and Investment Advisory, Sterling Capital Markets, Sewa Wusu, said the steep price gain may not be enough to stimulate robust public offering as investors will still wait to gauge the policy direction and economic management ability of the incoming government.

    He said that while the share price trend would enable several companies to reduce their undervaluation, government will still need to do more to enhance investors’ confidence.

    According to him, the medium to long term post-election performance depends largely on government policies, the quality of the economic management team and the general direction of governance.

    “What the market is reacting to now is the success and credibility of the election and the president-elect. But companies will still tarry a while to look at direction of government policies,” Wusu said.

    Many companies had shelved earlier immediate plans to raise new capital from the capital market due to the negative market position and significant undervaluation of the shares.

    However, reports by boards of directors of several companies had indicated that companies were constrained by their inability to source new equity capital due to the meltdown at the capital market while recourse to high-interest bank loans depressed probable returns to shareholders.

    Not fewer than eight companies had indicated interests in raising new equity funds. These included companies, such as Cement Company of Northern Nigeria (CCNN), May and Baker Nigeria, RT Briscoe, Presco Plc, Skye Bank Plc and Vitafoam Nigeria Plc. Two prospective new listings – Promasidor Nigeria Limited and Notore Chemical Industries Limited.

    Skye Bank plans to raise as much as N50 billion in a supplementary equity issue within the next six months.

    Group Managing Director, Skye Bank Plc, Mr. Timothy Oguntayo, said the bank plans to undertake the supplementary new equity issue between the second and third quarter, though it has not decided on the key details of the offer including the actual size and the offering public.

    According to him, the bank is studying proposals on the new issue submitted by various issuing houses.

    He said clearer picture of the new equity issue would come after the bank’s annual general meeting noting that the bank will make the announcement for the new issue at the appropriate time.

    Presco Plc, a palm oil plantation and processing company, plans to raise some N3 billion through a rights issue. The shareholders of the company had earlier approved the supplementary share issuance.

    Managing Director, Presco Plc, Mr. Uday Pilani, had confirmed the commencement of the rights issue noting that the board had decided to undertake the new equity raising to give the company financial flexibility and reorganise its capital structure.

    According to him, the net proceeds of the rights issue will be used to reduce the company’s debt and foreign exchange exposure.

     

     

  • NSE frets over illegal trading at stock market

    NSE frets over illegal trading at stock market

    The Nigerian Stock Exchange (NSE) has discovered unscrupulous trading on its trading engine due to activities of some stockbroking firms which are providing passwords and access to unauthorised persons to trade on the stock market’s trading engine.

    The discovery has triggered a red alert at the Exchange, which fears that such provision of access codes, passwords and trading facilities to unauthorised persons can compromise the integrity of the trading system and expose the Exchange, investors and market operators to undue risks.

    A source at the Exchange indicated that though there were no untoward incidents related to the unauthorised access, the Exchange was miffed by the flagrant disregard of its operating rules and procedures by some stockbroking firms.

    The source noted that preliminary investigation showed that the stockbroking firms appeared to be providing the passwords and access codes to other stockbrokers and unauthorised internal staff as a form of camaraderie and to bridge dearth of human capital.

    Rules and regulations at the NSE prohibit sharing of access codes, passwords and trading facilities. Article 81 of the rules and regulations of the NSE stipulates that access to the trading engine shall be by the use of trader identification code and the assigned password, making such issuance exclusive to the dealing member.

    “The Exchange will issue to every dealing member trading codes for access to the trading engine of the floor of the Exchange and no dealing member or user thereof shall share its log-in details and password with another dealing member or user,” stated Article 85 of the rules and regulations of the NSE.

    The source indicated that the NSE will wield the big stick and apply sanctions on the affected firms. Violation of the strict access rules carries many sanctions including suspension from trading and monetary fines.

    The source said that it was also discovered that some stockbroking firms were resorting to granting access to unauthorised persons-such as their staff, to trade for them because they could not employ qualified authorised trading clerks who have been trained to operate on the Financial Information Exchange (FIX) technology of the NSE.

    Under the rules of the Exchange, dealing members are expected to have at least two authorised dealing clerks in their employment at all times. Authorised dealing clerks are licenced stockbrokers that have successfully passed the training and inducted as a trader by the NSE.

    However, some stockbroking firms have been discovered to be running without authorised dealing clerks, contrary to the rules of the stock market.

    The source pointed out that under the rules of the Exchange; all employees that are not authorised dealing clerks are strictly disallowed from accessing trading facilities while an authorised dealing clerk’s trading codes and access cannot be shared with another authorised dealing clerk or users.

    Under the rules of the Exchange, any dealing member or authorised dealing clerk that violates the restriction on the trading access will be suspended for two weeks and also made to pay a fine of N500,000.

    Besides, any authorised clerk or trainee authorised clerk that appears on the trading floor without an access control card or uses an access control card belonging to another authorised clerk or trainee authorised clerk to enter or exit the trading floor shall be liable to two-week suspension from the trading floor and denial of access to the trading platform in addition to a fine of N250,000.

    The rules also prohibit false representation and impersonation. According to the rules, where any authorised clerk or trainee authorised clerk falsely presents himself as another authorised clerk or trainee authorised clerk and enters or attempts to enter the trading floor while wearing the trading floor badge of the other authorised clerk or trainee authorised clerk or he uses or attempts to use their access control card to enter or exit the trading floor, such a violator shall be suspended from the trading floor and denied access to the trading platform for two weeks in addition to a fine of N250,000.

    The person who granted the violator access control card will also be liable to suspension from the trading floor and denial of access to the trading platform for two weeks as well as a fine of N500,000.

     

  • Dangote Cement mulls changes to retain leadership at stock market

    Dangote Cement mulls changes to retain leadership at stock market

    The Board of Directors of Dangote Cement (Dancem) Plc will at its meeting this weekend consider necessary internal and capital changes that will enable the cement firm to be included in the proposed top-ranked listing board at the Nigerian Stock Exchange (NSE).

    The new board, known as the premium board, is designed as a market for the most-capitalised stocks with the best corporate governance and liquidity. It is meant to showcase Nigeria’s best stocks to the global market.

    While Dancem’s capitalisation surpasses the minimum capitalisation required for the new board, it still has to contend with liquidity and governance requirements. For instance, Dancem’s free float of shares falls below the minimum requirement of 20 per cent of issued shares required for companies on the main board of the NSE.

    The board meeting, which will essentially deliberate on the audited report and accounts of the cement company and the dividend recommendation for the year ended December 31, 2014, is expected to consider report by internal committee working on the transition to the new premium board.

    The new premium board is designed exclusively for companies with minimum market capitalization of $1 billion and high corporate governance standards as measured by the NSE’s corporate governance rating system (CGRS).

    A preview of the criteria for the new board obtained by The Nation had indicated that companies to be listed on the new board must have market capitalisation of not less than $1 billion and must also score at least 70 per cent on the Exchange and the Convention for Business Integrity’s Corporate Governance Rating System (CGRS).

    Besides, the companies must have a minimum free float of 20 per cent or value of shares floated must be equal to or above $1 billion and the number of shares representing its issued share capital must be equal to or above 10 billion units.

    The companies are expected to meet stringent corporate governance, capitalisation and liquidity conditions.

    According to the draft rules for the new board currently under consideration, to remain on the premium board, an issuer’s continued eligibility shall be evaluated by the Exchange annually in line with all the outlined criteria or on the basis of additional requirements which may from time to time be prescribed by the Exchange, provided that each company shall comply with all other continuing listing obligations as specified under the listings rules of the Exchange.

    The council of the NSE may also in its discretion grant an extension of time for a company to comply with the relevant free float requirements set out in these rules; provided that the company submits a formal and substantiated request in that regard setting out the reasons why it could not meet the said requirements and how it proposes to satisfy the requirements within the time granted.

    Also, in the event of non-compliance with any applicable codes or regulations affecting their governance, companies shall be expected without prompting, to disclose in the Directors’ report of their annual report why they are in breach.

    With a market capitalization of N2.61 trillion for 17.04 billion ordinary shares of 50 kobo each at the opening of the market yesterday, Dancem leads the list of qualified stocks based on market capitalization. While initial review by The Nation had shown that some 20 companies will be able to make the new premium board on the basis of market capitalization, the downtrend at the stock market and devaluation of Naira have narrowed the eligible companies to about 13 stocks.

    However, the NSE recently granted Alhaji Aliko Dangote, the core investor in Dancem, a two-year extended timeline to reduce his majority shareholding in Dancem in order to deepen public participation in the shares of the cement company.

    The NSE had earlier given Dancem October 2014 to comply with listing regulations that require all quoted companies to have minimum free float of 20 per cent. The NSE, however, extended the deadline for Dancem to October 2016, following the failure of Dancem to meet the October 2014 deadline.

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

    Thus, free float’s shares do not include shares held directly or indirectly by any officer, director, controlling shareholder or other concentrated, affiliated or family holdings.

  • ‘Most Nigerians lack awareness about stock market’

    ‘Most Nigerians lack awareness about stock market’

    Mr. Afolabi Folayan is Managing Director/Chief Executive, Securities Africa Financial Limited, a company incorporated as PSL Limited in 2001 with special focus as an operator in the Nigerian capital market. In this interview with Ibrahim Apekhade Yusuf, he speaks on the challenges, prospects in the nation’s stock market. Excerpts:

    What are the challenges facing stockbroking firms in Nigeria?

    The main challenge facing stockbroking firms at the moment is that of volume of business. Trades in the market have been largely done by institutions (mainly foreign) while the domestic retail investors have not sufficiently returned to the market since the financial crisis of 2008/2009. There are a few stockbrokers working with these foreign institutions who collectively control the major volumes traded in the market.

    Foreign investors are also very sensitive and any information that reflects uncertainty in politics and government policies trigger a fast withdrawal from the market which results in high levels of volatility. Thus, the market still suffers from confidence issues within the domestic sector. We need increased level of domestic participation to improve the volume of trades and to contain the high volatility currently being experienced in the market.

    Other challenges include the issue of brokerage commission which continues to be squeezed as stockbrokers pursue limited clients for business as well as the increase in regulatory costs of doing business, which is like a double jeopardy. Of course, operational costs or what I will call high infrastructural deficit costs is a common challenge across board for anyone running a business in Nigeria as you try to maintain a good and conducive working environment and service a level of redundancy.

    How can these challenges be addressed?

    I would like to limit the main challenges that face the industry to three main areas: awareness, confidence and distribution. Other issues like increasing operational and regulatory costs are quite common to all regulated businesses. Awareness of the benefits of the capital market and traded securities is quite low in Nigeria, even amongst those you expect should know when you compare with more developed markets. If you measure the NSE market penetration, measured as a ratio of turnover to GDP, it is estimated at 1.67 per cent, which is dismal, compared to a country like Kenya which has 4.08 per cent market penetration.

    To solve the issue of awareness, the market needs to make a concerted effort by both operators and the regulators. The regulators, SEC & NSE, have tried to address this recently with increased educational efforts, collaboration with Nollywood and by reaching out to ordinary Nigerians, but I think these efforts can even be more strategic.

    We probably need to engage policymakers to make financial literacy, especially knowledge of the capital market, a compulsory part of the school curriculum right from the primary school level. This is a medium term strategy but should improve awareness.

    In terms of confidence, the domestic retail investors are yet to regain the boldness to come back to the market after the market crash of 2008/2009. There is also the perception that the market is not transparent and this has not been helped by the number of illiquid stocks on the bourse as some investors are still looking for ways to sell some of their holdings. To improve trust and confidence in the market, the NSE and SEC have put in place a market making mechanism to allow for improved liquidity but this has not properly taken off. All clogs in the way of proper market making such as the proper framework for short selling, securities lending and attractive reward system will need to be addressed. For institutions, a number of them, especially the Pension Fund Administrators (PFAs), have complained about the limited number of securities available for them to trade on. So efforts to bring in the telcos, power plants and attract IPOs using proper incentives will help improve confidence and participation amongst this group. Whilst the pension law allows PFAs to invest up to 25 per cent of their Assets Under Management (AUM) into quoted equities, the total exposure from that group has only been 16 per cent of their AUM, leaving them with a lot of headroom.

    For distribution, the acquisition cost of retail clients is high and KYC documents are largely unavailable which has to do with the national identity scheme. Usually, it is better when savings mobilisation is institutionalised through collective investment schemes, such as mutual funds. Unfortunately, the depth of funds under management is currently very low. The reformed pension scheme has been largely successful with N4.9trillion AUM raised within 10 years of establishing the scheme, which translates to about $25 billion or 5 per cent of GDP. This is very low when compared to the pension assets of South Africa of $236 billion or 67 per cent of GDP and Brazil at $284 billion which dwarfs Nigeria.

    So you can start to see how far we have to go. To move the Pensions AUM and mutual funds further, the industry has to be creative in attracting the informal and public sectors into collective schemes which will improve distribution. Each stockbroker reaching out to individual retail clients is very cumbersome and costly, especially when facing the KYC challenge.

    The use of technology through e-trading will help in a way as internet usage improves and cost of internet continues to drop, but the country needs to move into a centralised ID regime in such a way that once an investor already has a bank account and has done biometrics with a BVN number, he does not have to go through the process of doing his KYC all over again. This will, however, need the different regulators and policymakers to agree to one database pool.

    There are concerns that on-line trading is fast making stockbroking job an all-comers’ business.

    a. Do you agree?

    b. What are the implications to stockbroking business? 

    No, this is not so. Trade execution is only one aspect of the job of a stockbroker. The stockbroker is a well trained professional who can use his skills for investment advice and research. As Nigerians become more aware of the benefits of the stock market and the stakes become even bigger as the market deepens, the reliance on the investment skill of stockbrokers will be more relevant. Also, on-line trading can only be done though the trading platform of a stockbroking house, so even though execution of trade seems to have been contracted out, other duties to allow for a successful trade settlement will still be performed by professionals. The implication is that transparency will improve in the market as well as confidence. This will ultimately lead to increased trade volumes.

    The Nigerian Capital market is contending with illiquidity. What is the way forward?

    The way forward, I believe, is to compel the companies to provide timely and richer information on their businesses. So, a lot more disclosures should be provided to investors which will help in quicker decision making. I have addressed the other issues relating to market making, earlier in the interview.

    Are there positives that an investor can take out of the market?

    Yes, the equities market index (ASI) lost about 16 per cent last year and has lost about 15 per cent already this year which will make many investors wonder if they have not permanently lost value. The good news is that the fundamentals of the market are still very strong and positive. The regulators have also improved regulatory oversight which strengthens the integrity and orderliness of the market. The issues that have affected the market largely relate to perceived political risks and the losses in value appear to be an exaggeration of the risk.

    A well conducted election and tidy post election resolution of disputes will dissipate the tension and allow for a rally in the market. Thankfully, the price of crude oil is rising in the international market, which would help to reduce our budget deficit and stabilise the naira.

    Can you tell us a brief background of Securities Africa Financial Limited and its operational focus?

    Securities Africa Financial Limited was incorporated as PSL Limited in 2001 with special focus as an operator in the Nigerian Capital Market. Then it was a subsidiary of Prudent Bank Ltd. In 2009, the company changed its name to Skye Stockbrokers Limited to reflect the new name taken up after five banks merged to become Skye Bank Plc.

    Upon deciding to divest its interest in non-commercial banking businesses, Skye Bank gave up its shareholdings in the company and this brought Securities Africa Limited into the picture owning majority of the shares with other local investors taking up some shareholdings. The company has done well for itself in terms of brand recognition and product/service offerings. Our primary business focus as a company is stockbroking as the company is registered as a dealing member of the Nigerian Stock Exchange.

    We understand that Securities Africa Financial Limited has a parent company

    Yes. Our parent company is Securities Africa Limited, a global company which has offices in major financial centres in the world and a strong presence in South Africa. There are also other local shareholders.

    Your company is operating in the embattled Nigeria’s financial market. How have you been coping?

    Yes, the market has been very challenging. We have, however, leveraged on our past relationship with Skye Bank Plc, our relationship with Securities Africa Limited which gives us access to foreign flows, our strong knowledge of institutional investors’ trade and our large clientele base. One of our efforts at remaining relevant and to meet the needs of our clients and the yearnings of investors and prospects in the Nigerian Capital market is the introduction of our real trade product.

    Every organisation is aiming at the next level. What are your new business lines?

    At the moment, our securities trading business deal in equities only. We are, however, keenly considering the Fixed Income space as additional business opportunity for our clients.

    How would you assess your staff either from general or specific perspective?

    In Securities Africa Financial Limited, our asset is our crop of staff as we are blessed with competent and dedicated human capital. Their selfless service has helped greatly to move the company to this height.

    What are the company’s milestones in recent time?

    The recapitalisation of our company as mandated by Securities and Exchange Commission, as well as the recent addition to our products, i.e. “Real Trade” products are our recent milestones.

    How has the deployment of new technology enhanced your company’s performance?

    I dare say, greatly. We are using the latest version of our software; our data/server is hosted in the cloud, hence our operations are not limited to an office location and this gives us great advantage with regards to speed and reliability of transaction execution. Our uptime is nearly 100 per cent.