Musa Simon Reef
24 February 2008
The Nigerian capital market was jolted penultimate week when the Securities and Exchange Commission (SEC) announced that it was initiating a probe into alleged equity price manipulation in six companies.
The companies, according to SEC, are African Petroleum (AP), quick service restaurant and confectioneries maker Big Treat, and chemical and paints maker IPWA, Afroil, First Aluminium and Capital Oil.
SEC said it was initiating the probe to safeguard the market and protect investors from unscrupulous speculators. "If at the end of the investigation, a case of price manipulation or insider dealing is established against any person/financial adviser, the SEC would apply appropriate punitive measures," the commission said.
Some key players in the capital market who spoke to our reporter last week attributed the rise in prices of shares to increase in the flow of capital to the country and rising confidence of investors in the economy.
The fears of share price manipulation became visible when Zenon Oil took over 30 per cent stake in African Petroleum (AP). AP's share soon shot up from N80 to an all time high of N300. Some investors are alleging that there are fundamentals to support the rapid rise.
Capital market observers say that even with increase in the flow of capital to the market, the rising interest of new investors is not enough to drive the price of a stock without a deliberate manipulation by insiders.
The probe by SEC on alleged insider dealing, according to a key player of the capital market who requested anonymity, may not be unconnected with the avalanche of complaints received by investors on the alleged manipulation of share prices of some companies.
Chairman of the House of Representatives Committee on Capital Market, Hon Ahmed Aliyu Wadada, said that there have always been sharp practices on the floor of the Stock Exchange. He sees the planned probe of the equity price scam as coming rather too late. Wadada said the probe is an attempt to cover up ahead of the House's commitment to unearth the rot of the stock market.
"The proposed investigation in the activities of banks vis-a-vis other quoted companies in the Nigerian Stock Exchange, to undertake which the House has mandated the joint committee which comprises the House Committee on Capital Market and House Committee on Banking and Currency is what is informing all these revelations.
"Because they know definitely we will get to them. And with due respect to the apex regulator, this is rather coming too late because the apex regulator should have reacted and responded to all these issues before now," he said
But Director-General of the Nigerian Stock Exchange, Professor Ndi Okereke-Onyiuke, has denied any form of share price scam on the floor of the stock exchange, saying that if such existed, the NSE would have been the first to blow the whistle.
"I am really at a loss about the allegations," Okereke-Onyiuke said. "Nothing was communicated to us with regards to the alleged probe; we only saw it on the pages of newspapers. Honestly, it is a surprise to me. I don't know where this is coming from. I am just reading the papers and I don't know anything about the issue."
She said there could never have been any price manipulation of shares. "I don't know how somebody can say that there is manipulation in price or anything. I think it is only the Stock Exchange that can say whether there is manipulation or not. We have a trading floor, we have a trading mechanism," Okereke-Onyiuke said.
Okereke-Onyiuke's denial of any scam seems to suggest that there are some sorts of cold relationship between NSE and SEC which is the apex regulator in the capital market. Penultimate week, there were allegations that SEC was embarking on a campaign of witch hunt against Zenon Oil because the company refused to patronise stock brokers close to officials of SEC. But the commission swiftly debunked the allegations.
Mr. Lanre Oloyi, Head of Media to the commission, said SEC was only interested in ensuring that transparency and orderliness as spelt out by the rules of the game are observed by players in the capital market.
On his part, Head of the Corporate Affairs of SEC, Ismaila Mohammed Ville, told our reporter last Friday that there was no basis for clash of interest between the commission and the NSE since the two organisations were set up on the basis of ensuring transparency in the affairs of the capital market.
But what do the stock brokers make of the simmering feud? Alhaji Umaru Kwairanga and Mr. Jonathan L. Kogis, both key players in the Nigerian capital market, denied claims of sharp practices in stock exchange. Kwairanga, who is managing director of Finmal Finance Limited, said with the level of checks and balances in the capital market, it was impossible for such practices to occur.
"As someone who is a key player in the Nigerian capital market, the possibility of manipulating price is not there," Kwairanga said. "Even if there is, with the level of checks and balances that we have on ground and the type of regulators we have, I can tell you it is difficult, if not impossible.
"Why should a stock broker manipulate the price? You see, people are alleging that prices of shares are being manipulated because they see the price going up. It is nothing but the product of market forces which is that of demand and supply."
He added: "All stakeholders are always on the floor of the Stock Exchange and as you are trading, they see everything and they know what is going on. Sometimes when you are trading and they see the type of quantity you are offering and the quantity you are buying, they will call you to order to explain your actions."
For Kogis, who is the managing director of Tower Assets Management Limited, the capital market is liberalised and has a free entry and exit points. "The capital market is liberalised and people are free to come and go; there are free entries and free exits. Prices are made through the forces of demand and supply. People buy shares for various reasons. But a particular reason is that of strategic acquisition and positioning.
"So far, what we have seen in the case of AP really agreed with the basis of acquisition. In this sense, there is a deliberate attempt by a particular company to buy a sizeable quantity of shares and for whatever reason; the company is interested in strategic acquisition. For whatever price he chose to buy, this is a capitalist market and if he has the money, you cannot stop him. But given certain concerns being raised on alleged price manipulations, the issue of money laundering, corruption, the regulatory agency moved and set up a committee to look into this allegation of price manipulation on the floor of the Stock Exchange," Kogis said.
Kogis wants a wholesale probe of the alleged manipulation going on. "In this case both SEC and EFCC should move in to really investigate the allegation. If indeed the fundamentals of AP do not support the value of these prices, then SEC needs to know the truth and the Nigerian people should be informed of what is happening," Kogis said.
Since the announcement to probe the share price scam of the six companies, there has been reported panic sale in the shares of companies under probe. Reports indicate panic sales in Afroil and Capital Oil, resulting in price losses. Afroil was said to have lost N1.30 to close at N24.79 as investors offloaded 837,406 shares in 126 deals last week. Investors offloaded12.567 million units of First Aluminium, causing a drop of N0.24 to close at N4.66. IPWA which is one of the companies being probed dropped N0.05 to N8.45 as investors dropped 1.3 million shares at the exchange.
However, AP and Big Treat and other companies being investigated finished strong with unfilled bids and a full 5 per cent surge in price. AP had recorded a low and high price of N46.29 per share in July 2007 and N155.57 per share in December 2007.
At the close of trading Friday, the price closed at N260.50 per share. That means the price has risen by 461.7 per cent from a low price of N46.29 per share in July last year.
Big Treat Plc, which was listed last December at N3.30 per share at the Nigerian Stock Exchange (NSE), rose to N16.99 per share at the close of trading last Friday. First Aluminium Plc, another quoted company in the Industrial/Domestic Products sub sector, closed at N5.09 per share from a low of N0.63 per share last year.
Capital Oil Plc, another company in the Emerging Markets sub sector, rose to N17.50 per share from a low of N0.33 per share last year while IPWA Plc closed at N8.57 per share from a low of N0.33 per share last year.
Ville told Sunday Trust that the role of SEC was to ensure that all players in the capital market were observing the rules. He said that Nigerians should take note that no one has been indicted and nobody should exercise any form of fear.
It could be recalled that SEC had, in the case of Bonkolans Investments Limited, through its Administrative Proceedings Committee (APC), punished some operators on the alleged scam over the sale of Nestle Foods Plc, Unilever Plc and other securities by some individuals through some stockbroking houses.
The stockbroking firms and individuals involved, including the Nigerian Stock Exchange, the Central Securities Clearing Systems Ltd (CSCS) and Union Bank Plc (Registrar Department) were later invited to appear before the APC of the commission.
At the end of the hearings, APC directed indicted stockbroking houses to either restore or buy back the shares illegally sold by them to their bonafide owners. Some of the stockbrokers were suspended while others were banned from participating in the capital market.
From the fireworks that have accompanied the planned probe of equity price scam by SEC, there is no telling how far the probe can go. Wadada told our reporter last Friday that his committee is committed to unearthing the rot that has encapsulated the Nigerian capital market. He vowed that anyone found culpable would be dealt with.
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