23 December 2012

Nigerian Stock Market On the Path of Recovery

As the year gradually winds down, CHRIS UGWU, examines the gradual recovery of the stock market which had taken a nose dive few year's back.

Hopes by experts as well as market observers in the Nigerian capital market, that transactions in equities will rally back more in the 2012 can be said to be a dream coming to pass, as the recent activities on the stock market showed a gradual return of confidence.

This is because transaction on the Nigerian Stock Exchange, akin to the preview of experts for the year under review has continued to sustain trajectory as the market which closed low at N6.513 trillion in market capitalisation and 20,671.06 in index at the beginning of trading on January 3, 2012 closed on Tuesday December 18, at N8.767 trillion and 27,437.76 index points, hence has gained a year to date, loss of about N2.254 trillion or 25.7 per cent.

The regulators and the Exchange have tried to put some measures in place in seeking to reposition the market for growth and development as well as increased the dividend yields of shares to investors during the year under review.

Since the resumption of Mr. Oscar Onyema as the new Chief Executive Officer of the Nigerian Stock Exchange (NSE) last year April, the nation's bourse has continued to experience several reformation agenda in order to restore investors' confidence and improve the current low market capitalisation.

New Listing Rules

One of such agendas was the decision of the NSE to review its Listings Rules for companies, to accommodate international standards. And in February this year, the Securities and Exchange Commission, (SEC) capital market regulator, approved the amendments proposed by the NSE to its Listing Rules as part of its new initiatives to achieve targeted goals.

The Nigerian Stock Exchange had embarked on a number of new initiatives, including: reinvigorating business development in order to achieve a market capitalisation of one trillion dollars in five years; paying more attention to rule drafting and interpretation for market participants; aggressively pursuing the listing of privatised government entities and significant corporations in different sectors; reviewing the current market segmentation to be more reflective of global industry classifications as well as increasing market accessibility to attract greater foreign participation, among others.

A fundamental requirement to drive these initiatives is a set of Listings Rules that are attractive to quality issuers on both the Main Board and the Alternative Securities Market (ASeM).

The Chief Executive Officer of the Nigerian Stock Exchange, Mr. Oscar Onyema said that the NSE embarked on reviewing the Listings Rules because some of the stakeholders of the Exchange including prospects, listed companies, issuing houses, and brokers assert that the Listings Rules of the NSE are inflexible.

According to Onyema, "The requirement that companies must have a five-year financial and operating track record has been cited as hindrance to many companies that would have been listed on The Exchange. Specifically, this is said to have led to the exclusion of some exploration and production companies which are not in a position to provide such records".

The NSE boss explained further: "Our research reflects that many leading exchanges have greater flexibility than we do, particularly on the quantitative requirements in the area of profit, market capitalisation, price, public float, among others".

The General Manager, Listings Sales and Retention, Mrs. Taba Peterside explained that the main board listing requirements for New York Stock Exchange, London Stock Exchange, Johannesburg Stock Exchange, Singapore Stock Exchange, NASDAQ and other leading exchanges were reviewed vis-a-vis the Exchange's; stressing that alternative board listing requirements for Alternext (New York Stock Exchange), AIM (London Stock Exchange), AltX (Johannesburg Stock Exchange), ACE (Malaysia Stock Exchange), Catalist (Singapore Stock Exchange )and other leading exchanges were also reviewed vis a vis ASeM.

Shedding more light on the amendment, Peterside said that the new Rules determined quantitative criteria suitable for The Exchange from comparison with other exchanges and an analysis of current listed companies over a three-year period.

The exchange also consulted widely with existing listed companies, prospects and other industry stakeholders. She expressed the belief that the new listing requirements will act as a major catalyst to attracting new companies to list on The Exchange.

Appointment of Market Makers

The NSE in April announced the names of 10 market makers, as part of efforts to bring back liquidity and depth into the embattled market.

Onyema said the move, which was approved by the SEC, "is a great milestone and a major step in the direction of turning the market round to have liquidity and depth back into the market. We will continue to move forward on this".

According to the NSE, the 10 stockbroking firms were selected from a list of 20 that had applied last year.

The market makers as announced by the NSE are Stanbic IBTC; Renaissance Capital; Future View Securities; Vetiva Capital; ESS/DunnLoren Merrifield; WSTC; Capital Bancorp; FBN Securities; GreenwichSecurities and CSL Stockbrokers.

"This is a great milestone and a major step in the direction of turning the market round to bring liquidity and depth back into the market. We will continue to move forward on this.

"The companies selected went through a very rigorous process and met the minimum net capital requirement of N570 million, we also examined their compliance history and looked into their operational capabilities including their technology and processes," he said.

He added further that the selected firms were taken through trainings, debated the appropriate market structure to be used and the Exchange further went through the approval of the Securities and Exchange Commission in the selection process.

A major highlight of the unveiling was the selection of a basket of quoted companies in which the financial intermediaries would provide the desired level of liquidity via a blind draw.

The Exchange added that the primary obligation of the Market Maker was to always make a two-way price in each of the stocks in which they make markets.

The market makers which commenced operation at the end of third quarter required to quote a buy and a sell price for each of the securities in which they make market. They are also obligated to buy and sell any particular financial asset at their displayed bid/offer rates.

Forbearance Package

Some operators in the nation's stock market had in different forum reiterated the need for an intervention fund from the government to help mop up the excess shares in the market to facilitate market stability.

They agreed that the market could only regain its lost glory if the authorities would provide a bailout fund to stabilise the market as it was done in the banking and textile industries adding that the fund would boost the market and help restore and sustain investors' confidence.

The Coordinating Minister of the Economy and Finance Minister at the tail end of the last quarter fulfilled part of the Federal Government's promise to work out a forbearance package for stockbrokers as part of measures to stimulate confidence in the Nigerian stock market and increase liquidity.

This the government did by the recent announcement of the N22.6 billion debt relief for 84 Stockbrokers and a 12 per cent tax exemption on stock trading which attracted commendations from the operators in the local bourse and also confirmed analysts forecast that the action would provide the much needed tonic to ginger the activities in the floor of the Nigerian Stock Exchange.

The Nigerian Capital Market riding on the back of forbearance package and market making process has responded positively and continued on upbeat but for few days of profit taking since the news broke to investors.

Speaking to LEADERSHIP SUNDAY on the review of activities of the market in 2012, the Managing Director, Crane Securities Limited, Mr. Mike Okpara Eze said both the market making process acted and debt relief package acted as a tonic as the market became vibrant and bullish following position investors take on different stocks particularly the banking sector.

He noted that most banks posted excellent results which consequently led to a quantum leap on their share prices and help to lift other sectors in the market.

"Some of the banks paid interim dividends as a result of their good performance. GTB, Access Bank are good example.

Union Bank that has been posting negative in the last couple of years posted a Q3 result that is excellent as a result their price moved from N4.50 to N9.23. This was an excellent trend that is believed to continue in the Q4 which will invariably transmit into a favourable result for the market. And this will lead to payment of good dividend, bonus and high capital appreciation," Eze said.

Reacting to the news of the forbearance package, President of Chartered Institute of Stockbrokers (CIS), Mr. Ariyo Olushekun, said the forbearance was a welcome development that would help in sustaining the recovering being witnessed in the market.

According to him, this is something the stockbroking community had been asking for; the Federal Government must be commended for acceding to the request, which has demonstrated the government commitment to the development and growth of the market.

"The forbearance is a fantastic development that is highly welcomed by the stockbroking community. The immediate effect it would have on the broking firm is to improve their balance sheet and bring it to positive. After this they can recapitalise and begin proprietary trading and contribute to the flow of activities in the market," he added.

Olushekun noted that while there were other things needed for the market to attain full recovering, the forbearance was a good move that would sustain the recovery.

"The stockbroking community is grateful to the Federal Government, members of the committee that make this forbearance possible," he said.

Similarly, Managing Director and Chief Executive Officer, Cowry Asset Management Limited, Mr. Johnson Chukwu, noted that the debt forbearance granted stockbrokers by the federal government was a critical step towards the resuscitation of the Nigerian capital market.

Chukwu added that the forbearance would no doubt significantly relieve the operators of the huge debt burden which most of them had been subjected to since the capital market crash of 2008.

"Although the forbearance will not necessarily lead to an immediate restoration of their liquidity, it offers the stockbrokers a fresh lease of life to either recapitalise or merge their operations so as to be economically viable.

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