By PETER EGWUATU
With the Nigerian capital market making a gradual recovery in the aftermath of the financial meltdown, Mr. Oladele Sotubo, Chief Executive Officer, Stanbic IBTC Stockbrokers Limited, one of the ten market makers appointed by the Central Bank of Nigeria to stabilise and restore liquidity to the capital market, speaks on the significance of the development as well as other salient issues affecting the financial services industry in this interview in Lagos.
Some operators have said the Market Makers (MMs) will have little impact because the secondary market is shrinking and there are no new issues coming into the system. Also, it is widely believed that liberalisation of the market was pursued without the right financial infrastructure, and the resultant capital inflows contributed in disorienting the health of the local financial system. Will you say that the steps taken so far by the regulators have been effective in strengthening and deepening the capital market?
Regulators are doing a great job in deepening the market and this is seen in the recent review of the listing rule which now accommodates even companies which ordinarily will not have met the previous requirements in the areas of years of operation, free float and some other requirements. As we have it now, NSE has established a unit that will not only see to listing but work with the company to ensure they continue to benefit from being a listed company.
One of the requirements is also that any new company seeking listing will appoint among other professionals a market maker. With the new regime, I believe we will see most of the companies that did Private Placement couple of years ago coming on board.
Stanbic IBTC was recently named by the Nigerian Stock Exchange at the head of a ten-member list of market makers. How will you describe the development?
This is a welcome development and a move in the right direction as it will help boost the liquidity level in the market and also help remove any form of trade imbalance in any stock.
For the sake of enlightenment, what exactly will be the role of the market makers?
A market maker is a liquidity provider and the major role performed by any MM is ensuring a balance is maintained between the bid and offer volume and price of the stock they are market- making in.
Each of the market maker reportedly met the minimum net capital requirement of N570 million, besides other pre-conditions. Do you think this requirement is enough to ensure liquidity of the market?
It’s one of the many requirements considered for the selection of the Market Makers (MMs). It is important but not enough. Market makers will require much more to play their role hence, access to credit is very paramount.
In operation, how will this development pan out? In other words, will the market makers operate as one unit intervening when the need arises or each is allowed to act as it deems fit?
Rightly put, their role is that of intervention and ensuring that any imbalance on any stock is taken care of. However, they have a set volume and price limits within which they are permitted to intervene.
Even though the appointment of market makers has been welcomed in many quarters, some people also believe that the intervention is belated given that investor confidence in the market has ebbed considerably. What is your reaction to this?
We cannot say because the confidence has ebbed we should fold our hands and do nothing. At this point, what we need to guarantee any investor is that; there will always be someone in the market to sell to or buy from at the prescribed price and volume limits. This alone is a confidence booster.
Do you think that the appropriate infrastructure, structures and processes necessary for the effective running of the new regime have been put in place?
The answer is no. All the stakeholders still have a lot to do in the area of infrastructure, legislation, knowledge and processes. But I can say all hands are on deck to ensure that this programme succeeds.
A report claimed that the appointed 10 market makers would account for about 65 per cent of the entire market transactions, with the balance still largely exposed to the indifferent state of the market. Do you share this concern?
This might not necessarily be the case as the role is majorly that of intervention. However, as the market grows, market makers will play a major role in determining volume and price movement.
Banks have a pivotal role to play in providing the funding with which the market makers will execute their briefs. Do you believe the banks will be willing to provide the desired funding? Do you see the incentives for them to do so? Are you looking at other funding options?
As you’ve said, a good credit line is a prerequisite for the effective functioning of any market maker. There is an initiative by the NSE, working with SEC and CBN to look at the CBN credit policy as it affects capital market. The three regulators must work together to open up this line for operators in the Capital Market especially MMs .
Do you think there is merit in the agitation to compel multinationals to enlist on the Nigerian Stock Exchange?
Compel? I don’t think so but Encourage, yes. For the fact that these multinationals do their businesses in Nigeria, there should be opportunities given to Nigerians to share in the goods of these companies. We should go the way of moral suasion, tax holiday and other concessions that will encourage them to list. We MUST not go the way of nationalisation as this will spell doom for the current drive for FDI into Nigeria.
Assuming there are indeed a lot of unlisted companies, what precisely will you say to their owners to make them have their companies quoted on the Exchange?
The market is a global village. Any company that is seriously interested in growth must be a listed company. It gives access to capital, makes valuation possible, enhances good corporate governance and ensures that the business outlives the founders.
Prior to the global financial meltdown, international rating agencies including the Renaissance Group, Fitch and Economist Intelligence Unit rated return on investment in Nigeria among the highest in the world. Have you seen any signs that investors would soon start seeing the returns that used to be a major attraction of the Nigerian market?
The answer is yes. Going by the dividend yield from some of the results published by some listed companies, it ranges from 5 per cent up to 20 per cent. We have continued to see gradual return of capital into the capital market especially from the offshore players. Any investor that wants to enjoy that return should take advantage of the attractive valuations in the market having a long-term view.
Both investors and operators would have learnt a number of useful lessons following the downturn in the capital market. Based on your experience, what lessons have been learnt on the side of the market? Specifically, have you noticed any changes in investor behavior?
If there is any lesson learnt on the downturn, I think it’s the need to play the game according to the rule. In my own view, any player that wants to cut corners cannot last in this new regime as the level of awareness has greatly improved from what it used to be. Also, I believe all must have learnt to curb their greed and do some portfolio diversification.
As currently structured, the Nigerian capital market is predominantly equity-driven, a situation that limits the number of asset classes available in the market. What measures will you suggest to expand the market offerings?
The need for new products is clear to all stakeholders. Recently, ETF was introduced and soon, we shall have MM, short selling, securities lending opportunities introduced to the market. By the time we have all these well grounded in the market, other sophisticated products will be introduced.
Private placement in unquoted companies was recently fingered as being responsible for the plunge of the capital market. To what extent is this true?
This is one of the problems faced by the market as we have lots of investors’ funds locked up in these Private Placements. The management of NSE is doing everything possible to get these companies on board.
With almost 18 per cent share of the market last year, Stanbic IBTC Stockbrokers Ltd was widely celebrated as Nigeria’s largest stockbroking firm. What is your current market share?
We currently have a market share of 19.05 per cent.
What is Stanbic IBTC Stockbrokers Limited doing in the area of human capital development as it affects your industry since you’re the market leader and you have a responsibility to enhance skill in the sector?
Apart from our effort in ensuring that our staff get adequate training and exposure both locally and internationally, as an organisation, we sponsor a couple of academic awards of The Chartered Institute of Stockbrokers and also ensure that our staff participate in any knowledge-sharing exercise in the industry.
The Stanbic IBTC Group is well known for its leadership role in organising public fora where initiatives and strategies that could help all stakeholders, especially investors and operators, are canvassed. The last forum organised by your Group held in March this year. How would you assess the outcome?
The Stanbic IBTC Investors conference has become a must-attend conference in West Africa. This was the third year of the conference and another tremendous success, with 87 investors from 48 individual funds meeting with 31 corporates over the two days. At the end of the conference, the participants were unanimous that the prospects of Nigeria’s economic rebound are very bright as the economic fundamentals remain strong enough to sustain medium to long-term growth and development.
Investors eagerly look forward to this conference as the quality of the organisation and content can compare with international standard.