By Peter Egwuatu
As equities lead N4.5trn new listings in 2019
Stakeholders lament dearth of corporate bond listing
The Nigeria Stock Exchange enjoyed a 200 percent boom in the value of new securities (equities and bonds) listing, which shot up to N4.48 trillion in 2019 from N1.6 trillion in 2018, indicating revival of liquidity in the capital market.
Similarly, the volume of total new securities listed on the Exchange soared by 123.5 percent to 50.3 billion units in 2019 from 22.5 billion units in 2018.
Financial Vanguard analysis of data from the NSE shows that the bullish primary market was private sector driven as equities recorded the highest listing, accounting for 70.8 percent of the total value of primary market transactions listed during the year under review while corporate bond listing recorded the least value, accounting for 3.4 percent of the total value of securities listed on the Exchange.
Stakeholders and analysts in the nation’s capital market explained that the listing of MTN Nigeria and Airtel significantly impacted on the equities’ listing on the Exchange. However, they posited that the paucity of new listing on corporate bond portends weak market depth of the Exchange, adding that government should design incentives like tax cuts etc. that would trigger more corporates to raise funds and list while also educating them on the benefits of being a publicly quoted company.
They also argued that regulators must interface with government to create appropriate regulation, tackle liquidity problem, and review other stringent listing rules.
Capital market stakeholders, who spoke on the dearth of Initial Public Offering (IPO) in the stock market, argued that aside withdrawing from business, government must introduce fiscal and monetary policies that would stimulate private sector investment.
According to them, a deliberate policy on incentive would attract more multinational firms’ in the telecoms, and oil and gas to float IPOs, which would ultimately resuscitate the primary market segment, improve the current illiquidity position, and deepen the market.
An IPO is the first time that the stock of a private company is offered to the public. Smaller, younger companies seeking capital to expand often issue IPOs, but this can also be done by large privately owned companies looking to become publicly traded.
Breakdown of new listing
Analysis of the new listing on the Exchange for the period under review shows equities listing of 48.8 billion units of shares valued N3.4 trillion, thus accounting for 70.8 percent of the total value of new securities listed on the Exchange.
The government securities of new listing on the Exchange trailed behind the equities, with 1.3 billion units of bonds valued at N1.3 trillion. This accounted for 27.1 percent of the total value of new listing on the Exchange, while there while new corporate securities listing stood at 165.6 million units valued at N165.6 billion in, accounting for 3.4 percent of the new listing on the Exchange.
Commenting on the activities of the primary market listing, Managing Director/CEO, APT Securities and Funds Limited, Mallam Garba Kurfi said: “The listing of MTN and Airtel were the major achievement ever recorded by NSE in respect of listing equities. The two companies have a total market capitalisation of 25 percent of the market. That is why we recorded what you saw in the market .There is a need for the regulator to encourage more of other sectors to get listed such as power generating companies (Gencos) and power distribution companies (Discos), off shore oil companies, NLNG and refineries. If these entities get listed on the Exchange, it will improve the capital market especially if NNPC is listed as done for AREMCO by Saudi Arabia.
“The current policy adopted by the monetary authority -the Central Bank of Nigeria, CBN if sustained will encourage more IPO to the market in 2020.”
In his own reaction, Victor Chiazor, Head of Research and Investment, FSL Securities Limited, said: “The equities market accounted for a higher value of newly listed securities because we had the listing of two very highly capitalised stocks. The listing of MTN which is now the second most capitalised stock on the Exchange as well as Airtel which is the third most capitalised stock on the Exchange. These two listings drove the market value significantly in the period. The listing of corporate bonds was low because most corporate listing were done on the FMDQ platform while a decent number of corporate bonds remained private. In the new year, 2020 we expect a higher number of corporate bonds as yields continue to drop given room for large companies to begin refinancing their high yielding debt instruments while we expect an array of new issues as companies take advantage of the low interest rate regime. However, the decision to either list these bonds on the NSE or FMFQ platform will be a decision for the management of these companies depending on the incentive available to them.
“To encourage more listings on the NSE, the government must find ways to support the already listed companies in ways that aid their profitability and enhance their share price. In the process of time good news, consistent market activity and positive share price movement will be visible to the world and more companies will want to benefit from a higher market value and the ability to raise capital at anytime.”
Commenting as well, Managing Director/CEO, Sofunix Investment and Communications Limited, Mr Sola Oni said: “Regulators should provide strategic direction for development of the bond market. Market efficiency such as standardized bond offering document and reduction in time for registration of bond application should be reduced. Introduction of efficient market making mechanism, promotion of retail participation and removal of all obstacles to trading on corporate bonds will go a long way in establishing a robust corporate bond market.
“In order to encourage companies to do IPO, government should grant such companies tax holiday, patronize their products and services. Also, capital market regulators should reduce cost of listing.”
Reacting as well, Chief Operating Officer, InvestData Limited, an investment firm, Mr Ambrose Omorioduon said: “Equities market having higher number of new listing was as a result of two reasons -the regulators push and companies willingness to become transparent and create value for their shareholders.
“The reason why the federal government floats the bonds (securities) was due to the increasing desire to bridge its low revenue base by borrowing to finance public infrastructure. The newly listed securities in equities market helped to reduce losses for 2019.
“Regulators may not do much in this low interest rate regime as companies can have access to cheap loan and it is company decision to go the way of bond because it is costly compared to ordinary share. With confidence returning to the market and prices rallying, more IPOs will help to deepen the market, but the government must provide enabling business environment for companies to grow, this will drive expansion that will boost primary market activities by way of IPO’s, Right Issue and others.”
Reacting, Chairman of Progressive Shareholders Association of Nigeria, PSAN, Mr Boniface Okezie said : “Confidence building is very important in driving the market and where this is absent there is nothing any one can do than to keep away from the market.
“Therefore, the SEC needs to do a lot in terms of sensitising public investors on the issues of corporate bonds because many are not aware of how to invest in bonds instruments. On IPO, well SEC needs to do some explanations because they helped to create the problem by aligning themselves with CBN in truncating investors’ investments in the banking industry during the former CBN’s Governor, Mallam Sanusi’s regime. Their actions are hurting the market unfortunately they have not done much to appease the investors .If they are really serious the IPO will improve the market and also restore confidence in the moribund stock market that has gone sore .
“Listed equities have not done badly at all despite the non performing economy over the years; at least it is encouraging so far, for there is still hope if our so called regulators will do their jobs. With due diligence and ultimate care, we will be there someday, especially if SEC and NSE are up and doing in their oversight functions. That is the key for surviving.”
Another shareholder activist, the National Chairman of New Dimension Shareholders Association of Nigeria, Mr Patrick Ajudua said: “The equities market witnessed higher value of new securities listed. This is due to the fact that investors want to take advantage of the earnings yield which is one of the best on the African continent. It is also to enable other stakeholders interested in the fortunes of the company to invest in it.
“Corporate bonds have a low yield by its nature. Also the bureaucratic bottleneck in getting it listed is one major setback. Therefore, the regulator must reduce the rigorous process of listing, improvement on its transparency and make for an attractive yield.
“Government needs to create a more conducive atmosphere for investment to strive. Observance of the rule of law is very paramount. There is need to review the issue of multiple taxation, improve infrastructure particularly energy, accessibility to foreign exchange at official rate and provide discounted energy rate for companies in capital market.”