Ogunbanjo: Despite Covid-19, NSE Demutualisation Process on Course

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The President of the Council of the Nigerian Stock Exchange, Mr. Abimbola Ogunbanjo, in this interview says the process of demutualising the Exchange is moving ahead in line with the expected sequence of events despite the disruptions created by the coronavirus. He also speaks about measures introduced by the stock market to ensure seamless trading of shares since the outbreak of the virus in the country. Obinna Chima provides the excerpts:

Considering the devastating impact of the coronavirus on the global market, what is your outlook for the Nigerian stock market?

The outbreak of coronavirus has had a negative impact on the global financial market, with a substantial change in asset prices and a sharp increase in volatility. The Nigerian Stock Exchange (NSE) has demonstrated remarkable resilience amidst the COVID-19 pandemic by pursuing innovative solutions to meet the ever-evolving needs of our stakeholders. Since the activation of our Business Continuity Plan on 23 March, which saw us transition to remote trading and working, we have challenged ourselves to find new ways to seamlessly conduct our businesses. I am proud of the actions we have taken thus far in dealing with this crisis as we have successfully transitioned to a business as usual mode.

In terms of market activities, listed companies continue to opt for rights issues and private placements as the preferred means to raise equity capital and we expect this to continue in the short to medium term. Government will sustain its debt capital raising in a bid to finance fiscal and infrastructure deficits. As an exchange, we will continue to seek avenues to partner with index providers and domestic and foreign ETP issuers to offer further diversification to investors through this fast developing asset class. Looking ahead, we recognise that there are new opportunities on the horizon and we are building on our investments in business innovation to leverage these opportunities to the advantage of the Nigerian capital market.

When you think about the effects of the virus on the economy generally, how do you think that relates to the stock market?

The capital market remains a major barometer of the economy as such as, any macro-economic shock will be felt in the market. The NSE opened strong in 2020, becoming the best performing equities in the world by mid-January with gains of 10.4 per cent year-to-date (YTD) and recording one of its best January returns at 7.5 per cent. However, the momentum slowed as the Covid-19 pandemic spread across the world between February and March, leading to unprecedented panic in global financial markets due to economic uncertainty. Following higher levels of volatility and losses on returns retreating up to -20.6 per cent in March, investors started to take advantage of heavily discounted prices and slowly return to the market. As at today, the NSE All Share Index is outperforming comparable African Exchanges and stands at -6.8 per cent YTD.

Just few months ago we celebrated a major leap in the NSE demutualisation process, do you think the impact of the covid-19 will affect the process?

The NSE demutualisation process is moving ahead in line with the expected sequence of events, following the conclusion of its Extraordinary General Meeting and Court Ordered Meeting (COM) in March 2020. Understandably, in current circumstances, some of the legal and regulatory steps required have taken a little longer than originally expected, but we have received court sanction for the results of the EGM, in particular the Scheme of Arrangement and we are looking to secure the re-registration of the Exchange as well as the approval of the Securities and Exchange Commission (SEC) within the coming months.

So, when exactly do we expect the process to be concluded?

While we are looking forward to the successful reregistration of The Exchange and its shares, as well as final approval from the SEC, we are mindful of the current uncertainties across the nation. We can, however, assure our stakeholders that we are proactively following due process and we will share updates as they unfold.

Are there measures the NSE has put in place to cushion the impact of the pandemic on traders as well as incentivise investors?

The Exchange has upheld its commitment to maintain seamless operations during normal trading days and hours since the activation of its Business Continuity Plan in March. We have provided full remote trading functionality to all our Dealing Member Firms (DMF) through the FIX Protocol, XNET and Virtual Private Networks (VPN). The Exchange has also engaged with other critical stakeholders such as the Federal Ministry of Finance, Securities and Exchange Commission (SEC), etc., to fashion out various initiatives to ensure that quoted companies are able to continue their business. Some of these engagements resulted in: the recognition of capital markets as essential services; issuance of guidance on virtual Annual General Meetings (AGMs); and electronic signing of companies’ financials, to name a few. The Exchange also quickly moved to sustain market events leveraging digital platforms and so far has conducted digital closing gong ceremonies, virtual training of Authorised Dealing Clerks, stakeholder engagement sessions, capacity building sessions, etc. In catering to our investors, we are actively pursuing avenues to deepen the capital market, engage stakeholders and widen the pool of investment instruments for investors with new listings and capacity building exercises. These efforts have culminated in some impressive innovations that have been integrated as business as usual at the Exchange. For instance, the NSE has listed fresh capital raised by quoted companies and the federal government to the tune of N202.989 billion in the first five months of the year, 2020.

Don’t you think the pandemic offers an opportunity to encourage more participation of domestic investors?

In recent times, we have seen market transactions driven by domestic investors who now account for as high as 59 per cent of the equity value traded. This represents a significant shift from the previous 4-year average of 51 per cent from 2016 to 2018. Whereas foreign investor participation has dropped to 41 per cent from an average of 49 per cent of transactions. Interestingly, we also note an increase in participation of retail investors in domestic transactions in Q1:2020 with as high as N60.23 billion out of the N123.69 billion recorded in March 2020. As we seek to continue to attract global flows, growth of the domestic investor base is a key priority for the NSE. We are committed to increasing our impact and ability to create durable wealth for the Nigerian populace, and firmly believe that a vibrant retail investor base is key to the resilience of our market. We are engaging with domestic institutional buy-side, regulators and other stakeholders to ensure regulations around investment of pension funds, insurance and even the development of fund management industry help drive local participation. To stimulate the local investment base, we have grown our product offering over the years – expanded our ETF market, launched the retail bond programme, rolled out a mutual funds trading platform, amongst others – and broadened the scope of our investor outreach activities. We are also leveraging on the Fourth Industrial Revolution (4IR) and the era of digitization to enhance the operation of the market. We are taking the right steps to boost investors’ confidence, promote financial literacy, and provide the necessary information and market data required to increase participation. For instance, we have continued to build capacity through virtual seminars on various investment asset classes.

For investors who are worried about their portfolios due to the uncertainties created by this virus, what message do you have for them?

Well they should appreciate that capital markets are cyclical by nature. This suggests that there will be times of buoyant positive returns and there will be seasons of reversals. What is most important is that investors take a portfolio diversification approach to investing that allows them to minimise risk and maximise returns at all times. The Exchange on its part has created a multi-asset platform that allows investors to choose from a variety of asset classes beyond equities. Looking at the performance of some of these investment instruments, we see that the market capitalisation in the fixed income space has risen by 8.91 per cent to N14.02 trillion ($36.32 billion) from N12.92 trillion ($35.44 billion) as at the end of 2019 as a result of increased listing activity from the federal government and Nigerian corporates. While the ETF market has seen mixed sentiments from investors owing to activities in the equities market. Of the ten listed ETFs, the Exchange reports significant returns in the New Gold ETF with a 48.94 per cent return YTD and the Vetiva S&P Nigeria Sovereign Bond ETF with 16.28 per cent return YTD.

Are you satisfied with measures adopted by the federal government so far towards halting the spread of the virus?

One thing we can all agree on is that every form of economic activity has been affected by the virus and we are living in unprecedented times. As such, there is no playbook to reference on how to survive COVID-19. That said, I believe the Government has been very proactive in its reaction to this pandemic which has led to the levels of containment and the low level of fatality that we have seen. These results can also be attributed to the support of the private sector in providing funding, infrastructure and awareness to the fight against the virus. While community spread is now on the rise, especially in Lagos State, the federal government recently made the announcement to further ease the lockdown and reopen more economic activities, albeit under strict guidelines. We understand the difficulty in making a decision like this, but are also mindful of the socioeconomic effect of a prolonged lockdown on Nigerians. The Exchange, therefore, supports the government and we remain committed to continue to stimulate growth in the economy.

A recent advertorial by the NSE we obtained showed that the NSE Council has started the recruitment process for the role of its Chief Executive Officer currently held by Mr. Oscar Onyema. Executive Search and Consulting Firm, Stanton Chase was engaged by the Governing Council which you head to carry out that task. Can you shed more light about what the process entails and when it is expected to be finalised?

As we pursue the demutualisation of The Exchange, it is important to note that there will also be a restructuring that will see us transition into a Non-Operating Holding Company, the Nigerian Exchange Group. Under this Group, there will be several subsidiaries, one of which will be an operating Exchange. At the Extra-ordinary General Meeting and Court Ordered Meeting that held on March 3, members of The Exchange took a vote on the Directors of the Nigerian Exchange Group, and designated Mr. Oscar Onyema, the Group Chief Executive Officer. We are, however, operating under the highest levels of transparency and have made the move to recruit a qualified CEO that will be in charge of the operating Exchange, just as the other subsidiaries of the Group will have their own designated leaders. All stakeholders will be kept abreast of developments as they unfold.