By Peter Egwuatu
THE Nigerian capital market last year experienced few new issues apparently for the downturn in economic activity which affected quoted companies on the Nigerian Stock Exchange, NSE, from raising fresh capital to meeting challenging needs.
The Nigerian equity market declined massively last year as companies’ revenue and bottom line dropped due to recession.
Unlike bond markets, equity capital markets tend to bear the initial brunt of a recession, as seen in low Initial Public Offers, IPOs in 2016.
This year, many market operators believe that the market will experience more new issues than in 2016, given the fact that the country is expected to move away from recession and with growth forecast of 1.0 percent by the World Bank.
Also, the implementation of favourable government’s policies will contribute significantly to boost performance of more companies as many would want to approach the market to raise fresh funds.
The PricewaterhouseCoopers, PwC had stated: “we expect to see activity pick up in the equity market in 2017 as the Naira begins to stabilize, investors regain confidence, and issuers who paused their plans due to uncertainty, access the market again. We particularly expect to see renewed activity in the Nigerian telecommunications sector.”
Already in the first month of the year, the market has recorded fresh issue, though from the Exchange Traded Fund, ETF segment. In similar vein, Guinness Nigeria Plc has received shareholders’ approval to raise N40 billion by way of rights issue.
Specifically, Stanbic IBTC Asset Management Limited concluded its fresh offer of its Pension ETF with 60 percent subscription and last week listed it on the secondary segment of the market.
The NSE last week also admitted the 5.97 million units of Stanbic IBTC Asset Management Limited, SIAML Pension ETF 40 to its daily official list at a par value of N100 per unit and the issuer has appointed Stanbic IBTC Securities Limited (SISL) as Liquidity Provider to facilitate secondary market liquidity on the product.
SIAML Pension ETF 40 has become the first Exchange Traded Fund (ETF) to replicate the NSE Pension 40 Index as it is designed to track the price/yield performance of the NSE Index.
Meanwhile, it will be recalled that last year, the Nigerian capital market only recorded two new issues, namely, Seplat Petroleum Development Company Plc and Transcorp Hotels Plc, with the former recording 100 percent subscription while the latter recorded 50 percent subscription.
The Nigerian capital market has been incapable of providing the needed funds required to spur activity in several listed companies with large debt overhangs.
Debt to equity ratios of most companies rose last year as both local and foreign investors pull out their money from the financial system, making IPOs very difficult.
It should be noted that in 2007 and 2008, IPOs were common before the market witnessed a downturn and companies began avoiding IPOs, embracing mostly rights issues and bonds.
The Chief Executive Officer of Cowry Asset Management Limited, Mr. Johnson Chukwu had stated that IPOs cannot thrive in an environment where the secondary market is not vibrant.
According to him “Several reasons entice companies to list on the NSE. One, they expect that the market will appropriately buy them and that the market has a premium to the intrinsic worth as to justify investors having to trade their equities. Again, that there is liquidity in the equities market so that people can actually buy and trade their shares. Lastly, that the listing will give them better access to credit.”
He maintained that the stock market has become unattractive to companies because of the absence of these three factors. “Unfortunately, in a bearish and dampened equities market, these factors are not present. Until there is a significant recovery in the secondary market, one should not expect a re-launch in IPO.”
The Doyen of stockbrokers, Mr. Sam Ndata, expressed confidence that the market will experience more new issues than last year.
According to him “There are signs that we will see more companies raising fresh funds. Most of the companies quoted on the NSE have good fundamentals; what is really affecting them is the depressed economy occasioned by drop in global oil price and exchange rate volatility. But since we have started seeing recovery in oil price, it is our hope that the country will come out of recession and activity will increase with increase in purchasing power to drive savings and investment.”