Analysts Weigh Pros, Cons of Dual Listing as London Stock Exchange Woos Nigerian Firms
At a time companies are complaining that long term funding for corresponding long-term investment is drying up in the nation’s capital market, a window of opportunity emerges in the London Stock Exchange, which analysts describe as a sign of improved fundamentals of Nigerian stocks, reports Festus Akanbi
The increased persuasion by the London Stock Exchange (LSE) for Nigerian corporates to be listed on its floor may have ignited activities in the Nigerian capital market. Boards of a number of quoted companies were said to have begun an assessment of the offer, which analysts described as an indication of growing investors’ appetite for African markets.
Analysts said the renewed interest in some Nigerian companies by the London Stock Exchange, which came at a period of growing apathy of local investors for Nigerian stocks, would provide ample opportunity for Nigerian firms to access international funding given the rising appetite of global investors for Nigerian stocks.
According to a company chief executive, the LSE is only responding to investors’ request, as global investors cautiously seek increased exposure to fast growing mass markets like Nigeria.
Rush for Nigerian Stocks
Last week, the Financial Times of London reported that as the Nigerian Stock Exchange scrambles to regain the grounds it lost after the equity bubble burst of 2008 sparking a spectacular $50billion crash, Nigerian groups are also being tempted by London’s broad investor base and liquidity.
According to the report, the London Stock Exchange (LSE) is actively looking to add Nigerian companies to its roster and is in discussions with its Nigerian counterpart to simplify the dual listings process, allowing immediate trading and settling of securities in both markets. The report quoted The LSE’s Head of Business Development for the Middle East and Africa, Ibukun Adebayo, as saying, “The level of interest in the country from global investment houses operating out of London has grown significantly, particularly in the last couple of years”.
Interesting, the quest to improve its solidity and market capitalisation has led the Nigerian Stock Exchange to begin a process of encouraging some key firms to list on the local bourse. Some of the companies targeted operate in the telecoms and oil and gas sectors of the Nigerian economy.
There had been renewed interest in recent times to lure more Nigerian companies, particularly in the banking, oil and gas and solid minerals sector, to list on the LSE. In November 2005, Oando was listed on the Johannesburg Stock Exchange (JSE) in South Africa, thus becoming the first African company to have cross-border dual listing on two stock exchanges having had prior listing on the Nigerian stock exchange.
And more recently, the company announced that it had completed the reverse takeover of Oando Energy Resources Incorporated (OER), formerly known as Exile Resources Incorporated with the listing of the company’s shares on Toronto Stock Exchange.
In 2008, Diamond Bank Plc made history as the first West African bank to be listed on the Professional Securities Market of the London Stock Exchange. This subsequently was followed with the listing of Guaranty Trust Bank and Afren Plc. The shares of Ecobank Transnational Inc., the parent company of Ecobank Nigeria Plc, are traded on three West African stock exchanges namely the Ghana Stock Exchange (GSE), the Nigeria Stock Exchange (NSE) and the BRVM stock exchange in Abidjan, Ivory Coast.
Allure of London Investment outlook
The Financial Times report said there were five companies either incorporated or operating in Nigeria now quoted on London markets, worth a total of $3.5billion. It was gathered that last September, Eland Oil & Gas became the largest company to float on the LSE’s smaller market (AIM), raising $188million after it partnered local oil firm Starcrest to buy a stake in a Nigerian oil block.
Zenith Bank Plc also said recently that it planned a secondary listing in London, which will be facilitated by JP Morgan pending shareholders’ approval on Wednesday. It follows other top-tier financial institutions GTBank and Diamond Bank.
President Dangote Group Aliko Dangote is aiming at floating a 20 per cent stake of his $11billion cement business next year on London Stock Exchange – the first listing of one of his companies outside Nigeria.
Companies from across Africa have growing representation on London markets. A total of 98 African businesses are listed on the LSE – the majority on AIM. With a total market capitalisation of $70billion, the London Exchange is the biggest market for African companies outside of Johannesburg. UK-based investors have tended to have a bigger appetite for emerging market assets than their South African counterparts, analysts point out, and African companies have raised more than $5.7billion since 2008.
Industry Operators Excited
Capital market operators who commented on the development were unanimous in their optimism over the rising appetite of investors in the Diaspora on Nigerian companies.
Speaking with THISDAY, the Managing Director Partnership Investment Plc, Mr. Victor Ogiemwonyi, said “the luring of Nigerian companies to list on the London Stock Exchange is positive for Nigerian companies. First, it gives them the opportunity of being exposed to international investors who ordinarily will not have the opportunity to invest in Nigeria.
“The exposure of Nigerian companies means that analysts’ coverage will also expand. Analysts that will normally not cover Nigeria will now take interest as those international institutional investors take interest.
“This is also a confirmation that the growth story of Nigeria can no longer be ignored. International investors are looking to invest in places they can be assured of growth and returns in the next few years, especially as growth in the western world will face challenges for the next few years.”
In his calculation, the first instance for the expected listing would be dual listing of some companies already on the Nigerian Stock Exchange, explaining that the listing standards of the London Stock Exchange is in many ways comparable to the ones on the NSE.
“Once all our companies comply with International Financial Reporting Standards (IFRS) from 2013, we will see the dual listing trend increase quickly,” Ogiemwonyi said.
Managing Director Camry Securities Limited Alhaji Atiku Kafaru who also made his position known told THISDAY that dual listing is an acceptable standard in the global economic community, noting, however, that there are some rules and regulations peculiar to each country. “So any company seeking to list in other jurisdictions must conform with the rules and regulations in those countries,” he stressed.
According to him, “What this development is pointing at is the fact the fundamentals of our stocks are extremely high. It is obvious that it is the liquidity that is affecting our market and this also goes to explain why foreign investors are playing dominant role in our market. This is because some of these companies are not attracting local investors.”
On the implication of the rising appetite of international investors and the lobby to list on the London Stock Exchange, Kafaru said he believed it is a way of exposing the stocks to other investors in the Diaspora. This, according to him, will confer on our stocks big respect and recognition.
“It also shows that our companies will be exposed to more due diligence and good corporate governance. Ours will be a global stock because we have to conform to laid down rules and of course, our companies have to comport themselves”.
However, an analyst with Vetiva Capital Management Limited, Abiola Rasaq, recently explained that these classes of investors are still cautious of market liquidity, currency, company disclosure and trading risks in Nigeria and other frontier markets.”
Speaking further, Rasaq noted, “I must say that multinational companies with good exposure to impact markets like Nigeria are being priced at premium on the LSE and other global exchanges, as investors see this strategy as an indirect way of investing in these growing markets. Whilst the LSE listing will improve the corporate governance and disclosure of Nigerian companies, given the stringent listing requirements, and will further avail them access to global capital, it may be negative for activity level on the NSE, especially when you put the current participation of foreign investors on the NSE (some 80 percent of daily activity) into perspective.
“I cautiously note that these foreign investors will have preference for the LSE if they can trade same stocks on the exchange, thus reducing their participation on the NSE, especially as the transaction cost is lower on the LSE, just as the trading processes are ahead of the NSE,” he added.
However, this position was faulted by a chief executive officer of a Lagos-based stockbroking firm, who pleaded not to be named.
He noted that this quest for more Nigerian companies listing on the LSE does not have any negative effect on the Nigeria stock market. Comparing the LSE trading platform with that of NSE, the chief executive officer said, “In terms of new trading platform which the NSE is acquiring, it is not related to London Stock Exchange. London Stock Exchange is more related to South Africa than ours in terms of trading platform”.
He believed that rather than entertain fears over the prospects of dual listings, Nigerian firms should see the LSE offer as a blessing. This, according to him, is because the price discovery of the stock in question is enhanced, especially if the company is listed both on the NSE and LSE. This is because the stock prices on both exchanges may likely converge over time, reflecting correction to asymmetric information flow on the company between the two exchanges. The more companies on the NSE get quoted on a foreign exchange like LSE, the more price discovery is enhanced. This may be premised on the fact that the investors’ base is larger and that they may require a lot more information disclosure.
He stressed that Nigerian companies stand to have easy access to capital which can help them raise finance for further development. This capital they can access both at the time of admission and through further capital raisings. According to statistics, African-focused companies listed on the LSE have raised over £4.18bn (about N1.065tr) in new and further issues across Alternative Investment Market and the Main Market since 2008. This clearly shows the availability of liquidity, which the Nigerian companies can tap into and transfer to the local market.
To encourage Nigerian companies to avail themselves of the possibilities in the London market, Manager, Primary Markets (India, Middle East and Africa), London Stock Exchange (LSE), Richard Webster-Smith, was in Lagos a few months back and had a series of meetings with top representatives of Nigerian companies, particularly from the banking, oil & gas and solid minerals sectors. Webster-Smith had noted that the LSE currently hosts a lot of Africa-focused companies including three Nigerian related companies such as Guaranty Trust Bank Plc, Diamond Bank Plc, and Afren.
In separate meetings held with the management of the companies, Webster-Smith pointed out that a listing on the LSE would be complementary to a home market listing and can help raise the profile of and enhance liquidity in the local market. He explained that over 4.18 billion pounds (about N1.065 trillion) in new and further issues across Alternative Investment Market (AIM) and the Main Market were raised since 2008 by Africa-focused companies listed on the LSE.
Some of the benefits of a listing on the LSE, according to him, are enormous. They include the followings:
“A listing on the London Stock Exchange enables companies to achieve the highest profile in the world’s most international market; raise capital from the most diverse global investor base; attract investors from all regions of the world; be listed in the most favourable global time zone; gain a listing alongside a global peer group; access liquid trading platforms; choose from a range of markets to meet all funding needs; be supported by advisors and regulators with deep expertise in international markets, and unlock a range of alternative financing sources.”