Facilitating Capital Formation

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The federal government and corporates raised over N4 trillion while investors witnessed significantly growth in their investments in the stock market through the Nigerian Stock Exchange platform last year, writes Goddy Egene

Nigeria as a developing country needs funds, especially long-term funds, for its economic development and growth. And the capital market serves as the appropriate place to pool such capital resources and make it available to the government and private sector players.

The role of the capital market in capital formation that lead to economic growth manifested last year as the Nigerian Stock Exchange (NSE), which is one of the platforms in the market, facilitated the raising of over N4.015 trillion by governments and corporates. Also, the wealth of equities investors appreciated by over N8 trillion.

The N4.015 trillion raised by government and corporate was through bonds and equity issuances. However, bond market accounted for the highest of capital raise as the federal government and companies raised N2.6 trillion from bond market. Also, companies raised N1.415 trillion through equity offerings.

Speaking at the annual 2020 market recap and 2021 outlook of the exchange last week, the Chief Executive Officer of the NSE, Mr. Oscar Onyema, said continuing the trend in recent years, the Federal Government of Nigeria(FGN) dominated issuances, which comprised 92 per cent of total bond issuances.

According to him, corporates also leveraged the low yield environment to fund expansion objectives and pursue debt refinancing, raising a total of N192 billion bonds. He explained that capital-raising activities in the fixed income market increased significantly in 2020, pushed the NSE’s bond market capitalisation by 35.5 per cent from N12.92 trillion in 2019 to N17.50 trillion.

“Some of the ground breaking achievements for the year include: the historic listing of Interswitch’s N23 billion 15.00 per cent Fixed Rate Series 1 bond. The premier bond listing illustrates the potential of the Exchange to support FinTechs and growth companies across various economic sectors. The listing of Dangote Cement’s N100 billion 12.50 per cent Series 1 bond under its N300 billion bond programme which became the largest corporate bond issuance in Nigeria’s fixed income market and the listing of Primero Plc’s first bond on the NSE, the Primero BRT Securitisation SPV Plc bond valued at N16.5 billion.”

Looking at the performance of the exchange in 2020, Onyema said it was indeed a historic one for global capital markets.

“Facing buffeting headwinds, world markets saw sharp swings and steep losses, but largely remained resilient and orderly amid rising uncertainty. For the NSE, renewed investor optimism coupled with improved economic conditions and low fixed income yields, propelled a year end bull run. Of 93 global equity indices tracked by Bloomberg, the NSE All Share Index (ASI) emerged the best-performing index in the world, surpassing the S&P 500 (+16.26 per cent), Dow Jones Industrial Index (+7.25 per cent) and other global and African market indexes, to post a one-year return of +50.03 per cent,” Onyema said.

Product performance

The NSE boss noted that the Nigerian equities market got off to a strong start in 2020, returning 10.4 per cent by the eighth trading session, adding that by October, the equities market entered a much awaited bull run.

“ Buoyed by the formal declaration of the United States(U.S) president-elect, unattractive fixed income yields and better-than-expected corporate earnings, the NSE ASI recovered from first quarter (Q1’20), to close the year at 40,270.72 (+50.03 per cent) and erase losses of -14.90 per cent recorded in 2019.

“During its remarkable year end run, the ASI gained 6.23 per cent in a single trading session which triggered a 30-minute halt of trading on all stocks for the first time since the NSE Circuit Breaker was introduced in 2016 to safeguard market integrity in periods of extraordinary volatility,” he said.

The CEO said at the close of the year, the NSE’s equity market capitalisation was up by 62.42 per cent, from N12.97 trillion in 2019 to N21.06 trillion in 2020 while market turnover saw an uptick of 7.25 per cent, from N0.96 trillion in 2019 to N1.03 trillion in 2020.

“Although Initial Public Offering (IPO) activity was mute, the value of supplementary issues increased dramatically from 2019, rising by 851.37 per cent to N1.42 trillion, from N148.77 billion. Also noteworthy is that for the second consecutive year, equity market transactions were dominated by domestic investors who accounted for 65.28 per cent of market turnover by value (Retail: 44.98 per cent; Institutional: 55.02 per cent) while foreign portfolio investors accounted for 34.72 per cent,” he said.

Speaking on the NSE Exchange Traded Fund (ETF) market, he said it experienced its best year yet.

“Market capitalisation increased by 272.30 per cent from N6.58 billion recorded in 2019 to N24.51 billion in 2020 while trade volumes increased by 218.23 per cent from 4.15 million units in 2019 to 13.20 million units in 2020, and turnover skyrocketed by 51,830.59 per cent.

“These achievements can be attributed to several factors including: growing adoption of the asset class by investors and asset managers on the back of strong year on year growth; launch of two new ETFs – Meristem Growth ETF and Meristem Value ETF by Meristem Wealth Management Limited which track the NSE Meristem Growth Index and NSE Meristem Value Index respectively; and unattractive yields in the fixed income market which led investors to seek alternative asset classes as also experienced in the equity market,” he said.

He explained that the NEWGOLD ETF, which tracks the price of gold and offers investors the opportunity to invest in a listed instrument that is backed by a gold bullion and serves as a good currency hedge, was the best performing ETF for the second year running as it returned 66.03 per cent in 2020, reflecting investors’ continued preference for risk-backed securities.

Strategic Performance of NSE

According to Onyema, in terms of the strategic performance of the exchange, several milestones were recorded last year.

”The NSE moved closer to its goal of launching Exchange Traded Derivatives as NG Clearing Limited received approval in principle from the Securities and Exchanges Commission (SEC) to launch clearing and settlement of exchange-traded derivative products as Nigeria’s premier Central Counterparty Clearing House (CCP),” he said.

The CEO said that plans for demutualisation of the exchange also advanced significantly following the Court Ordered Meeting (COM) and Extraordinary General Meeting (EGM) where members of the exchange unanimously voted in favour of the resolutions presented for consideration, while the Scheme of Arrangement for the NSE’s demutualisation was also sanctioned by the Federal High Court.

”The NSE launched the Growth Board to support SMEs to access the capital market, by offering advisory support, relaxed entry criteria and reduced post-listing obligations. Four companies – McNichols Consolidated Plc, The Initiates Plc, Living Trust Mortgage Bank Plc and Chellarams Plc., were successfully migrated to the Growth Board. Building on its digital credentials, the exchange revamped the NSE Data Portal to facilitate easier access to NSE market data; upgraded the X-Issuer platform to further enhance market integrity and X-Whistle to strengthen investor protection; launched the X-PO to boost retail participation in the market and automate listing processes,” he said.

Market initiatives

In the area of market initiatives, Onyema said NSE sustained its thought leadership and advocacy role in the capital market evidenced by the successful transition of stakeholder engagement activities to virtual sessions including the Oil and Gas webinar, Sustainable Capital Markets forum, Smart Investing Workshop, 5th Market Data Workshops, 2nd NSE CEO’s Stakeholder Engagement Call, Nigerian Securities Lending Forum and 2nd Islamic Finance Forum.

“The NSE reviewed and amended the Pension Index to ensure that it represents the appropriate benchmark for evaluating Pension Fund Administrators’ equity portfolios. Reviewed its trading fee charge on debt instruments to 0.0005 per cent (N5 per million) to boost liquidity in the fixed income market.”

Others included: accreditation of X-Academy by the Chartered Institute of Bankers, Nigeria (CIBN). The academy also partnered with the Institute of Chartered Secretaries and Administrators of Nigeria (ICSAN) and the IoD Centre of Corporate Governance (IoDCCG) to run Corporate Governance trainings in view of the pandemic.

Compensation of a total of N17.02 million to 49 investors/claimants who suffered pecuniary losses in 2020. The NSE also facilitated restitutions and recoveries of shares worth N305.11 million for investors in 2020,” he said.

Corporate citizenship development

Onyema disclosed that in upholding its key pillars of sustainability, the joined the fight against COVID-19 in Nigeria by committing a total of N100 million.

According to him, N60 million was donated to Capital Market Support Committee for COVID-19 (CMSCC), while N40 million was donated to the NSE’s “Masks for All Nigerians” campaign which saw the distribution of face masks to low-income households.

“The NSE hosted a half day symposium which ended with the closing bell to commemorate International Women’s Day (IWD) and gender equality. The exchange published the first and second editions of StockTown, a comic book aimed at promoting financial literacy in Nigeria. The NSE won the Best Regulatory Information Management award from the Lagos Public Relations Industry Gala and Awards (LaPRIGA Awards),” the CEO said.
Outlook for 2021

Looking ahead, Onyema said: “The year has started on a positive note as the ASI has already returned 2.0 per cent after 11 trading sessions. We expect the marginal reopening of businesses, normalization of the economy and revenue-diversification drive of the Nigerian government to elicit positive sentiments throughout the year. Our growth expectations should be noted with caution, as the recent second wave of COVID-19 in Nigeria and globally, may slow down renewed social and economic activities.”

According to him, as the NSE transitions to a demutualised exchange group, the appointments of Mr. Temi Popoola as the CEO of NGX and Ms. Tinuade Awe as CEO of NGX REGCO were recently announced.

“The NSE believes that these appointments will support its vision to be “Africa’s preferred Exchange Hub” and looks forward to consolidating on the benefits of demutualisation in the coming year. The exchange also reiterated its intention to aggressively pursue cutting-edge products and services, access new markets and deliver better value to its stakeholders,” he said.