Goddy Egene writes that despite recording a boom in new listings in the first quarter, the stock market declined by 5.1 per cent
After the stock market recorded three straight declines in 2014, 2015, 2016, expectations were high that it will recover this year. The Chief Executive Officer of the Nigerian Stock Exchange (NSE), Mr. Oscar Onyema, had raised hopes of a possible bullish capital market in 2017.
“There will be a revival of supplementary listings, return of the new issuance market, and potentially one IPO since the equity market is a forward indicator of the economy. We are cautiously optimistic, as consensus estimates suggest a moderate recovery for Nigeria in 2017, provided that policy makers implement the right combination of policy measures,” Onyema had said.
According to Onyema, in the immediate future, the NSE will focus on achieving its goal of becoming a more agile and demutualised exchange and will fast track efforts towards developing innovative products such as exchange traded derivatives to provide investors with tools to better weather economic realities in 2017.
“We intend to strengthen our thought leadership efforts with policymakers to drive policies that will free up the system and promote the ease of doing business in Nigeria. We believe that incentive schemes for sectors of the economy that can support a pivot to export led economy will be beneficial and systematic removal of impediments to doing business and therefore reduction of leakages will attract private sector investments,” Onyema said.
Also, analysts at Meristem Securities Limited projected that the Nigerian stock market will close 2017 positively, saying it will gain 3.49 per cent.
They explained that the market is expected to remain largely weak in the first half of 2017 on the back of subsisting macroeconomic uncertainties before modest recovery towards the tail end of the year.
“However, we note that market recovery is partly hinged on stability in the FX market and moderation in exchange rate gap between the interbank and parallel markets. Based on our mix of methodologies, we arrived at a 2017 index level of 27,812, 50, indicating a +3.49 per cent potential market return by December 31, 2017,” they said.
However, the market began on negative note as the NSE All-Share Index fell by 5.1 per cent to close at 26,874.62 to close lower at 25,516.34 in the first quarter (Q1) that ended last Friday, the market capitalisation shed N426 billion to close the Q1 at N8.829 trillion, from N9.255 trillion.
The decline recorded in the Q1 was not unexpected as the market’s performance reflected the headwinds that still persist in the economy.
Factors for Poor Performance
The market performance has been affected by factors such as investors’ drift to fixed income securities, exit of foreign investors due to foreign exchange (forex) challenges and poor corporate results engendered by difficult operating environment.
Since 2011 foreign transactions have consistently outperformed domestic transactions. However, domestic transactions slightly outperformed foreign transactions in 2016, accounting for 55 per cent of the total transaction volume in 2016.
At the end of February 2017, domestic investors dominated transactions, staking N39.57 billion while foreign investors invested N34.54 billion. However, the N39.57 billion invested by domestic investors in February is 22.8 per cent lower than the N51.31 billion they invested in January. Similarly, the N34.54 billion invested by foreign investors is 21.4 per cent lower than the N44.01 billion they invested in January.
Analysts at Afrinvest had attributed the low level of foreign portfolio investments, to currency controls which led to the protracted crunch in the Nigerian FX market throughout 2016.
“Thus, the persistent confidence deficit amongst foreign investors in returning to the Nigerian market due to currency, liquidity and reinvestment risks will remain a drag on capital inflows, performance of corporates and capital market performance,” they said.
N10billion Share Scandal
While many foreign investors continue to stay away from the market due to foreign exchange challenges, the confidence of the domestic investors was punctured by a major share scam involving a leading stockbroker, Mr. Victor Ogiemwonyi, who is the Managing Director of Partnership Securities Limited (PSL).
The scandal estimated at N10 billion, relates to misappropriation and diversion of funds realised from sale of clients’ shares involving PSL and other companies in the Partnership family-Partnership Investment Company Plc; Life Care Partners Limited and SBDC Microfinance Bank Limited.
Ogiemwonyi was alleged to have misappropriated funds of PSL’s clients valued over N10 billion. However, the client, who first raised the alarm is Mr. Arnold Ekpe, a former Chief Executive Officer of Ecobank Transnational Incorporated (ETI). According to Ekpe, the PSL boss sold his ETI shares valued at N1.2 billion without remitting the proceeds into his account. Ogiemwonyi was also alleged to have misappropriate $80,000 belong to Ekpe.
Ogiemwonyi, in a letter dated October 17, 2016 and titled “Admission of Outstanding Indebtedness of N1,237,245,095 and $80,000 to Mr. Arnold Ekpe,” acknowledged that Ekpe gave him a mandate to sell the shares and accept owing the him N1.237 billion.
“We confirm that outstanding proceeds from the sale have been mis-appropriated by us and we undertake to meet the obligation of N1,237,245,095 and $80,000,” he said.
New Listings
However, while the environment remains challenging, 2017 started well in terms of new listings on the NSE in Q1. The NSE has recorded growth in value of listed securities to the tune of N369.25 billion in the quarter alone, indicating renewed investors’ confidence in the nation’s capital market.
Specifically, Medview Airline and Jaiz Bank were listed by introduction, and have added N14.65billion and N36.83billion respectively to the market capitalisation of the NSE. Also, Stanbic IBTC Asset Management Limited listed 5,970,000 units of SIAML Pension ETF 40 while Forte Oil listed N9 billion series 1:5 year 17.5 per cent fixed rate unsecured bonds due 2021 under a N50 billion bond issuance programme. There was also the listing by Introduction of 14,485,500 units of Greenwich Plus Money Market Fund at N100 each valued at N1,448,550,000 issued by Greenwich Asset Management Limited also contributed to this stellar performance.
The historic listing was the $1 billion Federal Government of Nigeria Eurobond listed on the Nigerian bourse. The 15-year Sovereign Eurobond issued at a coupon of 7.875 per cent per annum, is the first foreign currency denominated security to be listed and traded in the Nigerian capital market.
Commenting on the listing, the Director General, Debt Management Office (DMO), Dr. Abraham Nwankwo said that the listing of domestic Sovereign Eurobond reinforces FGN’s commitment to deepen and grow the Nigerian capital market. Developing the domestic market can help bridge the infrastructure deficit constraining economic growth.
The Executive Director, Market Operations and Technology, NSE, Mr. Ade Bajomo commented: “The listing of the dollar denominated bond on the Exchange will boost price discovery and liquidity in the local market as well as help attract reliable long term foreign currency denominated funds into the financial market. It will also set the foundation for raising and listing more foreign denominated securities in Nigeria which will open up additional capital raising options for issuers and portfolio diversification opportunities to investors.”
Efforts to Deepen Market
As part of efforts to deepen the stock market and boost financial inclusion, the Debt Management Office in March floated the Federal Government of Nigeria (FGN) Savings Bond for retail investors Exchange (NSE). The first issue of the sovereign savings bond, which will be a monthly issuance, opened on Monday, March 13, 2017 and closed on Friday, March 17, 2017. At the first issue, a total of N2.068billion was allotted via 2,575 successful subscriptions and the bond has been be listed on the NSE. The DMO accredited 87 stockbroking firms of the NSE to market and distribute the savings bond.
Before then, the federal government y held its inaugural Green Bonds Conference themed :“Green Bonds: Investing in Nigeria’s Sustainable Development” to dialogue on adding to the nation’s funding options to catalyse the rebound of the economy and offer the vast majority of Nigerians a new alternative.
Speaking at the conference, Vice President Prof. Yemi Osinbajo said the bond would support the federal government’s shift to non-oil base assets for project financing for economic growth and development. According to him, the proceeds of the bond would be used for environmental projects such as renewable energy micro-utilities in three communities estimated at N10 billion and would provide an average of 33KW of power through solar technology.
He noted that the environment finance was very important for environmental projects, noting that the Green bond would address climate change and environmental projects to ensure sustainable development.
Issuance of the first N20 billion sovereign green bond, which would commence in April 2017, according to Osinbajo, would be used to fund projects to reduce carbon emissions and develop renewable energy in the country, while adding that it would tap into local and international investors.
Speaking in the same vein, the then Minister of Environment, Mrs. Amina Mohammed the Green Bond process was an attempt by the environment sector to contribute to the current efforts to diversify the economy, create jobs, improve security, provide a framework for sustainable development and deliver on the Paris Agreement.
She therefore, called on the domestic capital markets to rally round the issuances.
“Our domestic market need to rally around our own domestic issuances. The recently issued Euro Bonds are a testament to us that the Nigerian Market is still viable. So, let’s translate that to domestic issuances. Greening our economy and financial systems will in the long run support our sustainability efforts and improve the economy as it will open new avenues for new types of jobs, innovation and skill,” Mohammed said.
According to her, the ministry has provided the framework and guidelines, produced as part of the establishing processes essential to ensure that projects funded by green bonds have climate credentials.
On his part, the Executive Director, Capital Markets, Haruna Jalo noted that the NSE was committed to environmental sustainability and climate adaption, just as it would facilitate issuers access to ‘deep pool of Green Capital.’ He said that the Nigerian bourse supported the listing and trading of products that fosters innovation and sustainable investing.
He added that subscribing to the Green Bond, investors would have the benefits of a balanced risk-adjusted financial return with environmental benefits, satisfied ESG requirements and green investment mandates as well as improved risk assessment in an otherwise opaque fixed income market through use of proceeds reporting, among other benefits.
On the benefits to Issuers, Jalo noted that the green bond would improve diversification of bond issuers investors base, potentially reducing exposure to bond demand fluctuations, enhance Issuers credibility of sustainable strategy, lower bond volatility in secondary market as a result of more ‘buy and hold’ investors for green bond.
Bright Future Outlook
The future looks brighter for the market in terms of more listings on the NSE. It is no longer a rumor that Africa’s biggest mobile phone operator, MTN is moving closer to listing on the NSE, a move that could help enhance liquidity in the market. If the telco makes good its intention to list, it will further boost investors’ confidence in the market.
According to market stakeholders, listing of MTN on the NSE will increase the market capitalisation by about 22 per cent. Recently, Onyema called on the NIPCO Plc to list its shares on the Nigerian bourse.
The an indigenous downstream oil and gas company last Friday concluded the acquisition of 60 per cent shares of ExxonMobil in Mobil Oil Nigeria Plc.
Onyema explained that listing NIPCO on the Nigerian bourse will enhance its competitive advantage and deepen its access to long-term capital.
He said: “Listing NIPCO on the NSE would give more credibility to the company and attract more shareholders to the company, thus enhancing its ability to raise large capital,” he said.
He explained that NIPCO as a critical stakeholder needs all the support with various initiatives and opportunities available through the capital market to enable it excel in the sector. The NSE will support the company with various opportunities to fund their long term objectives.
Also the much awaited demutualisation process of the NSE process received a major bolster last week following the approval given by the dealing members of the exchange.
The stockbrokers gave the approval at the annual general meeting (EGM), authorising the authorised the council and management of the exchange to proceed with the process leading up to the demutualisation of the exchange.
They also approved the engagement of financial advisers, legal advisers, tax advisers and any other adviser that may be required for the demutualisation of the exchange.
The dealing members equally authorised the council and management “ to do all such things and exercise all such powers as may be necessary or incidental to achieving the objective specified in I above, subject to applicable laws and regulations and obtaining the approvals of Members and the relevant regulatory authorities.”
Speaking after the EGM, the President of the NSE Council, Mr. Aig-Imoukhuede said: ”The approval of the NSE demutualisation plan marks the achievement of an important milestone towards completion of the exercise. The demutualisation of the exchange will bring the Nigerian capital market on a par with other international jurisdictions, result in enhanced governance, transparency and visibility whilst attracting strategic partners, investors and good quality issuers. These are historic times indeed.”
