Finance Editor — The cream of the nation's capital market, both regulators and operators, gathered in Lagos at the weekend for the reception organised by members of the Harvard Business School Alumni Association (Nigeria) in honour of Ms. Arunma Oteh, the new Director-General of the Securities & Exchange Commission (SEC). She resumed earlier January, replacing Ms. Daisy Ekineh, who acted in that capacity for seven months after the sack of Musa Al-Faki, five months to the end of his first term on October 26, 2009.

The reception attracted dignitaries, including Udoma Udo Udoma, chairman of the SEC; Prof. Ndi Okereke-Onyiuke, director-general, along with past and present General Managers of the Nigerian Stock Exchange (NSE); former Ministers, chairman of a bank; two bank chief executives and Managing Director/Chief executive designates, several executive directors of banks, CEOs and top officials of capital market operators.

Responding to the several accolades, Oteh spoke of plans to make the Nigerian capital market first class system, with a rich blend of all the components of developed markets, which is able to further foster entrepreneurship and ensure zero tolerance for infractions.

According to the SEC boss, the NSE is, as at now, over-exposed to the banking sub-sector, which currently accounts for about 60 per cent of market capitalisation.

The task ahead of the commission, she told the gathering is to "make sure that others (companies) are attracted to the market."

For now, only Starcomms Plc, a full service Nigerian CDMA telecommunications operator owned by the Lebanese-Nigerian Maan Lababidi family, who has been in the country for the past three or more generations, has taken the bold initiative to list on the NSE. The Lababidi as core investors own about 30 per cent of Starcomms, while minority shareholders, including institutional investors own another 32 per cent, while the staff own the remaining.

Among those being targeted for listing are the petroleum exploration and telecommunication companies like Shell Petroleum Development Company, ExxonMobil, Agip Oil, Statoil, Chevron Oil and other energy firms like Nigerian Liquified Natural Gas. Also to be targets are telecommunications giants such as MTN, Glo, Zain, MTS, Multi-Links and Visafone. Also on the list of likely companies to be attracted are: Schlumberger, which is best known for rig and dredging business, Oceaneering, Transocean, Baker & Hughes, Lone Star International.

The announcement of the plans by the new SEC DG is coming almost two years after an earlier statement by Mrs. Okereke-Onyiuke that the NSE has began moves for an act of the National Assembly, to compel petroleum production and exploration companies, especially the majors in the country, to become quoted.

The move, which would enhance the size of the stock exchange, according to the DG, who spoke during the ninth International Investment Road Show in Charlotte, North Carolina, U.SA., follows the failure of past efforts especially moral suasion.

She explained that the move became necessary because the oil majors, most of which operate in the Niger Delta region have in the past refused to list their shares for trading on the NSE. Instead, many of them listed their petroleum products marketing arms, keeping away their exploration businesses, which are listed in their home countries, thereby subjecting themselves to regulatory scrutiny.

"We at the NSE have been trying to get the oil majors to list (their shares) on the exchange, even while their listed on their home exchanges, instead, they set up marketing arms and kept the exploration (upstream) businesses away. We now working on the National Assembly to do a legislation to compel the listing of the oil producing arms, which is the primary sector," she explained.

Rather, she told the gathering of Association of Nigerian Physicians in the Americas (ANPA) that shares of these companies are listed in stock exchanges of their home countries for trading. She noted, for example, that the JSE Exchange, Johannesburg, South Africa, is bigger than the NSE, because the country's mining companies (the main sector of that economy) are quoted.

Findings by Daily Independent at the weekend revealed that as at 2006, there were 401 listed companies on the JSE, out of which about 16 are mining companies including Anglo America Plc, Anglo Platinum Limited, Anglo Gold Ashanti Limited, BHP Biliton Plc, Aflease Gold Limited, Afgem, Tabex Exploration Limited, among others.

As a starting point, Mrs. Okereke-Onyiuke said then that plans are afoot to encourage government "to show example by selling between 5 and 10 per cent of the Nigerian National Petroleum Corporation (NNPC) and the joint ventures for listing on the NSE."

Continuing, she noted that the immediate past administration announced plans in this regard, but that it was frustrated by the top civil servants, because it was not in their interest and because they did not want to open the accounts of the state petroleum behemoth for public scrutiny.

As a starting block, the DG who retires on November 2, 2010, when she will be 60, however, announced that the NSE achieved a major breakthrough in its efforts to establish an petroleum exploration sub-sector, as Allied Energy, the first oil exploration and production company will list its shares for trading on the Exchange in the coming weeks. The Quotations Committee of the NSE Council was to have considered the application of the company owned by Dr. Kaase Lawal, a Nigerian resident in the US, at July 4, 2008.

The company, according to her, would not raise fresh capital from the market, but offer 25 per cent of its shares by way of sales to the public at a price to be determined at that meeting. The NSE DG spoke of plans to seek the understanding of the capital market apex regulator- the Securities & Exchange Commission (SEC) to allow Allied Energy, which produces crude oil in the Niger Delta region to preferentially allot 5 per cent of the shares being sold to indigenes of the oil rich region.

The company is, however, yet to be listed, apparently owing to the global financial turmoil that have since enveloped the Nigerian economy and from which it is still trying to wriggle itself out of.

The Case for listing

Those making a case for the listing of the oil exploration and telecomm giants, analysts believe that companies like MTN, Africa's largest mobile operator, by virtue of its very successful operation in Nigeria, with about 28.8 million of the continent's 448.1 million subscribers at the end of September 2009, according to a statement, along with Zain, the second largest, with about 14.9 million customers, and Glo, is a quick way to further significantly broaden and boost the NSE.

Victor Ogiemwonyi, chief executive of chief executive of Partnership Investment Limited, a capital market operator however told our correspondent on Monday that: "Listing by a company is principally to attract more capital and make its funding more flexible, as it can (then) go to investors to raise additional capital when it is needed."

In this case, he noted the likes of Shell, MTN, Globacom, he said, are very large companies that need lots of capital and feel, for instance, that "the large amount of money they need is not readily available in the Nigerian (financial) market."

Continuing, Ogiemwonyi explained: "You will notice that all t he project money raised by oil companies like Shell and ExxonMobil are usually offshore."

The starting point to attract foreign energy and telecom giants, he believes, is for government to sell part of its stake in the behemoths like the Nigerian National Petroleum Corporation (NNPC) and then list the shares on the NSE.

"After that, if the NNPC wants Shell to be listed, it will be done, (after all, it) is a joint venture operation with NNPC," he added.

Others expect also that the privatisation by the government of public utilities, like the Power Holding Company of Nigeria (PHCN) and Nigerian Telecommunications Limited would significantly boost the exchange's indicators. After a third attempt, New Generation Consortium Limited, a Hong-Kong based firm involving China Unicom, recently emerged preferred buyer for debt-ridden NITEL, beating four others with its $2.5 billion bid.

For Ogiemwonyi, "as for MTN (Etisalat, Zain) and Glo, it is only a matter of time, before they will come to the Nigerian stock exchange to be listed. The fact that a company is generating lots of cash flow like MTN and Glo does not mean they are making profits. At this stage of their network development, they are reinvesting almost all the money they make (on building critical infrastructure)."

Another stockbroker, who craved anonymity, however, told Daily Independent that the telecom and energy giants are unwilling to become listed on the NSE to evade regulation and market scrutiny of their activities.

Those are those who also wonder at what price the stocks would be listed and how many middle and lower income can afford the price the shares would most likely be listed on the Nigerian bourse. Each of the 1,840.516 shares outstanding in the name of MTN on the JSE presently priced at R11,694.000 each, translating to market capitalisation of R215,248.300 (at R1.00 =N20.3276).

It will be recalled that Godwin Obaseki, Managing Director, Afrinvest West Africa Limited, told chief executives of quoted companies and other operators at a forum in 2006 that there is need for the exchange, its council and management to do more to raise the capitalisation as a ratio of Nigeria's Gross Domestic Product (GDP). While market cap to GDP of the NSE was just 11 per cent at the time, which is still relatively small compared to 138.45 per cent in the US; Japan, 121.12 per cent; UK, 166.86 per cent; Canada, 134.05 per cent and Brazil, 30.1 per cent.-

Continuing, he wants the management of the NSE to focus on training of operators in the market, while seeking to review the cost of issuing and trading securities downward from its current height. "High cost of trading," he warns, "hampers liquidity."

There is equally an urgent need to further strengthen the market's regulatory environment and improving on the corporate governance of companies and operators.

The market would be further deepened, he agreed, if "key sectors of the economy such as oil exploration and production, telecommunications, mining, electricity, utilities," are represented on the stock exchange.