Director-General of SEC, Ms. Arunma Oteh
By Eromosele Abiodun
There are indications that the gradual recovery of the Nigerian equities market will slow down and trading activities reduced as the merger and acquisitions effort by dealing member firms gather pace.
THISDAY’s checks revealed that stockbroking firms are in merger talks but acquisitions plans were being derailed by lack of liquidity in the market.
The Nigerian Stock Exchange (NSE) had last year suspended 65 stockbroking firms because of their inability to meet the minimum capital base of N70 million required by the Securities and Exchange Commission (SEC).
While 61 of the suspended dealing member firms were suspended for inadequate shareholders fund in their 2009 audited accounts, five others were sanctioned for inadequate shareholders fund in their 2010 audited accounts.
THISDAY checks also revealed that some of the firms were said to be currently operating with negative capital, a situation described as dangerous for the market and the financial system.
However, stockbrokers who spoke to THISDAY noted that mergers and acquisition was one of the ways forward as the effort will enhance the global competitiveness of the industry.
A stockbroker and Executive Director, ESS Investments and Trust Limited, Mr. Idowu Ogedengbe, said mergers would result in the emergence of stronger players in terms of capital adequacy and capacity to absorb risks.
He said: “Market liquidity is expected to rise as banks will be more inclined to open credit lines or grant overdraft facilities to the more and better capitalised players. The task of supervising about 300 stockbrokerage houses by both the NSE and SEC will be reduced as the industry consolidates.
“This will obviously promote a more transparent and well managed industry. While Nigeria's 250 stockbrokerage firms trade only 320 securities listed on the NSE, Malaysia has 35 registered firms and South Africa has 60.”
Last year, Director-General of SEC, Ms. Arunma Oteh, restated the need to drastically prune down the number of stockbrokerage firms as part of efforts to ensure that they become more professional and better capitalised.
Oteh stressed that the ultimate aim was to ensure sanity in the nation's stock market and in line with her avowed zero tolerance stance for market infraction of any kind.
In the medium term expenditure presented by the minister of finance recently, one thing that jumped at me was the assumption of $75 per barrel in the oil benchmark. I am not so sure how this is going to play because of the volatility in the international oil market. America is coming to the market, Brazil is coming to the market and these are traditional customers of Nigeria and my expectation is that the price of oil might drop as we go on with these entrants into the market.
Even the assumption of daily production of about 2.5 million barrel per day, the basis on which this budget is formed, one thinks it is a bit ambitious. I would have preferred to have a lower figure of may be 2 million or 2.3 million barrels per day. Perhaps, the reason for the optimism is the fairly stable and improved production activities in the Niger Delta which is good.
But I think we need to be on the side of caution, especially because of what is happening globally. You cannot plan in isolation of what is happening globally.