By Peter Egwuatu & Nkiru Nnorom
Shareholders of quoted companies on the Nigerian Stock Exchange, NSE and operators have expressed lack of confidence over some companies’ proposed plans to raise funds of over N160 billion through the Nigerian capital market, just as operators differ over second half of the year projections of the market.
The shareholders said that some of the companies quoted on the NSE have not paid dividend for quite some years, a situation which will make it very difficult for them to achieve full subscription of whatever financial instrument they intend to raise the funds.
They further lashed out at regulators for neglecting retail investors, which they ought to protect and encourage. They also berated the federal government for the low economic activities which has made disposable income in the hands of consumers worthless as inflation continues to bite harder.
The companies which have indicated interest to raise funds are Forte Oil Plc, N50 billion , Flour Mills Nigeria Plc, N40 billion, Sterling Bank Plc, N35 billion, Wema Bank Plc, N20 billion and First City Monument Bank Plc, FCMB, N15 billion. Others are Diamond Bank and and Skye Bank that have not yet disclosed how much they intend to raise from the capital market. Vanguard gathered that last year alone, the NSE, approved applications for N89.7 billion corporate bonds
Reasons for preference for bonds among corporates
According to Mustapha Suberu, Lead Research & Strategy at Eczellon Capital Limited: “The rise in bond issuance witnessed recently was due to the relatively low interest rate environment in the economy at the beginning of the year, which made borrowing cheaper for most of the companies in question.
He, however, stated that the recent hike in monetary policy rate from 12 to 14 per cent and rising inflationary pressures which has hit 16.4 per cent has reversed this as cost of borrowing has generally increased in recent weeks. According to him, the recent hike in interest rate would taper the spate of bond issuance going into the second half of the year as the cost of issuance may become too high for corporates to bear.”
On dearth of Initial Public Offering, IPO, and Public Offers in the equities market, he attributed it to the depressed nature of the economy and the low level of confidence among the investing public. “The equities market is still depressed and confidence level is still quite low to guarantee the success of any public offering at the moment. This can be largely tied to the blur economic climate prevailing in the country at the moment.
Likewise, most companies believe the price of their shares are currently trading way below their true valuation, and as such, may not be in their best interest to raise money via rights issue or public offering. We believe this trend should reverse once the market picks up and confidence level increases.” Mr. David Adonri, Managing Director/CEO, Highcap Securities Limited, said: “When an economy is in recession, equities are depressed. Issuers then switch to financing by debt, especially when benchmark interest rate is below inflation rate.”
The Chairman of Progressive Shareholders Association of Nigeria, PSAN, Mr. Boniface Okezie said “ The reason why companies will find it difficult to raise money from the capital market is not just because of economic downturn but their inability to declare dividend for several years. Some of these companies have not declared dividend for many years, so there is lack of confidence in their management’s ability to meet shareholders’ expectations.
For instance, Wema Bank has not paid dividend for more than four years. So, how can investors be encouraged to invest in such a company especially in this present economic downturn? For companies paying dividend consistently such as Forte Oil, Sterling Bank etc they may succeed in raising funds”
He further stated that bond issue could be favouarble to companies especially when it is non convertible, stressing that companies should indicate how the debt would be serviced
According to him “Rights issue and public offering are not favourable at this period in time as the economy is in recession. There is nothing happening in the economy as activities have been low keyed. Workers are being owed salaries and contractors are not being paid.”
The Chairman, Renaissance Shareholders Association of Nigeria, Ambassador Olufemi Timothy said “This is not the right time to float Rights Issue or Public Offering because the economy is in recession. The disposable income of consumers has been depleted by general rise in prices of goods and services. It is common knowledge now that state governments are not paying salary to workers, contractors are being owed and no meaningful economic activities are going on. So, how can an investor save and invest in the capital market.”
He further said “However, the companies have their strategies and target. Good companies with fundamentals will somehow sell no matter the economic challenges. Any company paying dividend will attract shareholders’ patronage. One cannot put his money where he does not get value for it.
Our investments have been destroyed over the years. The regulators do not protect the retail investors. If retail investors’ investments are protected, then the market would be better. What the regulators chase after is foreign investors who are only interested on return on investment and not market development.
The Chairman, Professional Shareholders Association of Nigeria, Mr. Godwin Anono said “The retail investors do not have confidence in the market any longer as regulators do not protect their interest in the market. The retail investors have been short changed. If the retail investors cannot go the market to buy and sell, will the foreigners come to such market? So the companies which are about to raise money will find it difficult. Only few companies paying dividends consistently will succeed.”
Forte Oil N50 billion
Meanwhile, specifically, Forte Oil Plc has disclosed plans to raise N50 billion through the debt capital market in the second half of the year to finance its expansion programme. The company also said it plans to grow its profit before tax, PBT, to N11 billion in 2016 financial year.
Making the remarks at the company’s Facts Behind the Figure presentation on the Nigerian Stock Exchange, NSE, Mr. Akin Akinfemiwa, Group CEO, Forte Oil Plc, said the capital raising exercise would be phased with the company raising maximum of N15 billion in the first phase.
He stated that the company is already in talks with the NSE’ management in respect of the capital raising. Akinfemiwa assured that the company is on track to meet the forecasted PBT figure having achieved N4.3 billion in the first half of the year and a major overhaul of the Geregu Power Plant, which is on course to generate 435Mwatts.
Flour Mills, N40 billion
Flour Mills Plc on its part has registered plans with regulators to raise up to N40 billion in equity over the next three years, its chief financial officer, Jacque Vauthier said recently. Jacque Vauthier said the company’s directors had decided that the most appropriate way to raise the funds was via a shelf programme, enabling Flour Mills to sell shares in several tranches over a three-year period.
Flour Mills, which has interests in food manufacturing and agro-business, won shareholders’ approval for the issue last year but weak capital markets delayed its launch.
Sterling Bank N35billion bond
Sterling Bank, in a bid to shore up its capital, said it has completed book building for a N35 billion bond sale, its first tranche of a debt programme, The bank’s Executive Director, Mr. Abubakar Suleiman said, but added that the bank will raise only 20 per cent of that amount to gauge appetite once it receives regulatory approval.
“Once we see that the structure is acceptable and yields are moderate, we will complete series one this year. If the market remains turbulent, we will do it next year,” Suleiman said
Wema Bank N20 billion capital raising
Wema abnk, in a bitd to plug the hole in it’s shareholders’fund, obtained shareholders’ approval in May to issue bonds or preference shares this year to raise N20 billion in the first tranche of a N50 billion programme, but market conditions then deteriorated. Wema Bank, which aims to expand its branch network this year, plans to issue N20 billion in bonds this month, its chief finance officer, Tunde Mabawonku had said “We expect to open in a couple of weeks.
We are awaiting final regulatory approvals and we expect to conclude the process this quarter,” Tunde Mabawonku told Reuters. The bank is issuing local currency bonds after scrapping plans last year to issue a $100 million seven-year dollar bond because of currency devaluation in June. Mabawonku said the bank was watching debt markets closely for rates, adding that it had a target break-even rate at which it wanted to issue the notes.
FCMB, N15 billion
FCMB plans to raise N10 to N15 billion also in attempt to shore up it’s depleted shareholders’fund, in Tier II debt to boost its capital ratio and will target its retail investors for the offering, its chief executive officer said last week. Ladi Balogun said its capital ratio was close to the regulatory limit of 15 percent by half-year, and that it was doing the capital raising to provide some cushion. He said the bank was also slowing down loan growth.
“For the Tier II we would be looking at anywhere in the range of 10 to 15 billion naira. Its really going to be targeted at retail because we feel that the rates from institutions will be high,” Balogun told an analysts conference call. “We have interest from some depositors who want higher yields.”
Diamond Bank might raise new capital, sell some assets – CEO
Diamond Bank is considering raising fresh capital and selling some assets in order to maintain its capital ratios, its chief executive said. Uzoma Dozie said the bank’s capital plan will ensure it meets all regulatory requirements both in the short term and in the future. Diamond Bank’s capital adequacy ratio had fallen to 15.6 percent of assets by mid-year from 18.6 percent a year ago.
“We are doing a capital management plan and that will determine how much capital we want to raise, tenor and size,” Dozie told an analysts’ conference call. We don’t have any need to grow our branch network any more. We are also looking at some assets that we can dispose of and we are a long way into that, he said.
Projections for second half 2016
Analysts and other capital market operators were divided as to what to expect in the second half of the year, but generally, they agree that policy direction and transparency or otherwise of the new flexible foreign exchange regime will shape activities in the equities market going forward.
Suberu said the capital market will perform much better in the second half of the year compared to its performance in the last six months. He noted that the expected positive performance in the period would be driven by the reforms in the foreign exchange market, which should stimulate inflows into Nigeria’s financial markets, other things being equal. “Similarly, the commencement of the government’s fiscal stimulus programme should provide necessary support for the economy and by extension, the capital market,” he added.
“The key downside to our view lies in the high rate of returns on government securities which are considered secured.” Should this hold for most part of the second year, it will crowd-out (suppress) private borrowings, and make investments in equities unattractive as well,” he further stated.