Daily Independent (Lagos)
Kingsley Ighomwenghian
10 October 2008
Nigerian Stock Exchange (NSE) said on Thursday it was collaborating with banks to restore investors' confidence in the market, which for sometime now has continued to wane.
Also on Thursday, President Umaru Yar'Adua canvassed urgent partnership between the public and private sectors as a way of averting dire consequences of the prevailing global financial crisis, which he admitted was yet to hit Nigeria.
At the close of Thursday's trading session, the All-Share Index fell by 294.85 points or 0.65 per cent to 44,638.26 points, while the value of all companies listed on the Exchange shed N62.785 billion.
The day's closing figures translated to a decline of 13,351.96 points or 23.02 per cent, and about N675 billion from last year's closing figures respectively, but this amounts to a loss of 21,732.94 points or 32.74 per cent and N3.135 trillion respectively, when compared with the year's high achieved on March 5, 2008.
According to NSE spokesman, Sola Oni, discussing with the bank chiefs is one of the several efforts aimed at "moving the market forward".
The clarification is against the backdrop of recent reports of a N600 billion bailout package put together by the Council of NSE in partnership with six banks, all of which reportedly agreed to contribute N100 billion. Under the arrangement, the banks would be allowed to buy up to 15 per cent of their own shares.
Oni said no market makers have been appointed yet, arguing that the number of banks to be involved had not been decided, and adding that "they may be more than six", just as details of the package are still in the works. He also said the amount of money to be involved in the package was not fixed yet since the process is still being worked out.
The report also attracted reaction from both the Federal Government and the private sector. Minister of State for Finance, Remi Babalola, restated the resolve first made by Finance Minister, Shamsuddeen Usman, that government was not contemplating a bailout as being done in the U.S., Europe and Asia, since the fundamentals of the various companies quoted on the exchange were still very sound.
Babalola said, "Since financial institutions represent the pivot of the economy, government can come to their rescue if there is crisis. But the financial statements declared by the banks have not shown government that they have problems or that they need assistance. Government has no hand in this (bailout package)."
Also reacting to the report, market analysts at CSL Stockbrokers Limited, a member of the First City Group, said: "We do not believe this would be a viable strategy as banks may utilise depositors' money to achieve their objectives. This could be risky, as things may not turn out as expected. More so, we believe any impact the plan could have on the broader market would be short-lived."
The lingering meltdown, analysts believe, is also a reflection of investor's continued apathy in the market, just as they blame it also on the recent global financial crisis, which is said to have an indirect effect on the Nigerian capital market. They also agreed on the need for stakeholders, especially the regulators to give life to the various palliatives already suggested as a way out of the mire.
The capital market's apex regulator, the Securities and Exchange Commission (SEC) recently released guidelines for appointment of market makers, who are under obligation, according to the rule, to stabilise the market by ensuring continued liquidity, operate within established bid and offer spread of a maximum limit of three per cent, subject to review.
Each is also expected to have the capacity for two-way quotes in relevant stock throughout the trading session on a minimum quoted size of 100,000 units of shares. They are also required to "have the capacity to deliver and settle transactions within the prescribed (T + 3) settlement cycle".
The rules also require companies interested in becoming market makers under a new Rule 31C to register with the SEC and with the Corporate Affairs Commission (CAC). They are also required to have a minimum paid up capital of N2 billion and maintain sufficient liquid assets to cover its current indebtedness. Such role must also be stated in its Memorandum and Article of Association "that it can deal in securities in the capital market."
Speaking at the State House when he received the Board of the Nigerian Economic Summit Group (NESG), President Yar'Adua said, "There is no better time than now for government and the private sector to collaborate" against the financial crisis that began with the collapse of American mortgage banks.
He expressed confidence that government and the private sector as "equal partners in the national economy" would rise to the challenge and "chart a path to growth."
He commended the critical role NESG had been playing in partnering with government to ensure that key economic policies that would lead to the realisation of Vision 2020 were put in place.
The President expressed confidence that the 14th Nigerian Economic Summit scheduled for between October 21 and 24 "will come up with policy directions and programmes to critically address major challenges facing Nigeria."
He also assured the NESG of government's full support on national economic matters and the successful take-off of Vision 2020 structure.
Chairman of the Board of NESG, Sam Ohuabunwa, had earlier briefed the President on preparations for the summit and commended him for involving the private sector in the management of the nation's economy.
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