Claim poor liquidity, listing rules turn off foreign firmsFault absence of telecom, oil firms in NSESEC lists measures to boost marketREGULATORS of the Nigerian capital market may need to do more to regain the waning confidence of local and foreign investors, who have continued to show less interest in the sector and the economy.Although the Securities and Exchange Commission (SEC) and the Nigerian Stock Exchange (NSE) have embarked on reforms to reposition the market after the crash of the global stock market, which also affected Nigeria, key players in the market told The Guardian that the changes were inadequate.The stakeholders argued that the current structure and operations of the NSE in particular were incapable of attracting the needed investors to Nigeria for the country to realise its dream of becoming one of the top 20 economies in the world in 2020.In an interview with The Guardian, the NSE said unlike its counterparts in emerging and developed markets, it lacked the key benchmarks used by genuine investors in staking their resources in the market.It said the current pricing and listing mechanisms, absence of cross-border trading, liquidity problem, and other stringent requirements were disincentives to serious investors, adding that with a daily trade value of N2 billion ($13 million), the market cannot sustain big firms in the telecommunications and oil and gas sectors.Though some stakeholders blamed the current investors' apathy on the last global economic meltdown, others argued that the authorities of the Nigerian stock market have not done enough to restore investors' confidence and by extension attract more firms to the market for listing.One of such critiques is an economist, John Otoide,who advised the industry regulators to work harder by making the market attractive tothe stakeholders.'With the present state of the market and the negative publicity associated with it, how many genuine investors would want to put their money in it'' he asked.Other stakeholders in the nation's bourse said some multinationals, especially in the telecommunications, oil and gas (upstream) and local conglomerates, have good fundamentals and ability to make good returns to shareholders and enhance the value of the market and investors' confidence.The Managing Director and Chief Executive Officer of Seplat Petroleum Development Company Limited, Mr. Austine Avuru, stressed the need for the NSEto regularly interact with the London Stock Exchange (LSE) as part of strategiesto tackle liquidity problems and stringent requirements by the regulators.He said with the right approach by the NSE and SEC, one prospectus could be prepared for both the NSE and LSE to waive some of the stringent listing requirements by the NSE, especially the presentation of five years' financial statements.Avuru asserted that if the situation was well-managed, the LSE would provide the funds for rapid expansion and help build the corporate governance structure needed for sustainability and competitiveness.According to him, with an average daily trade value ofN2 billion ($13 million), the NSE cannot provide enough liquidity to sustain a few oil and gas companies.Avuru pointed out that one company in the industry would require a minimum float of $625 million, noting that to this effect, investors would be looking for a more liquid Exchange to provide them easy exit when necessary.The Chairman, Centre Point Investment Limited, Mr. Dennis Odife, argued thatregulators should create products that would deepen the market before embarking on the demutualization process, especially on how to revive the second tier market.He added that if the scope of the market is expanded, it would give investors choice for diversification and help the market compete with other major Exchanges.Also, the Chief Executive Officer of Cowry Asset Management, Mr. Johnson Chukwu, said listing rules would continue to deter multinationals from the market if the current listing, post-listing requirements of the NSE were not reviewed.He said for the Exchange to attain world class, the NSE must continue to develop it in such a way that it would enable companies to embark on cross-border listing.'Oando is listedin South Africa because of the benefits of listing in that country. We should develop our market such that even foreign companies see the need to be listed in our local market,' Chukwu said.He explained that the major factor that forces multinationals to exit from the market and inhibits new ones from being listed is the NSE pricing mechanisms.Chukwu said the pricing mechanisms on the NSE have become so weak in the last three years, noting that most stocks have become under-valued that they could no longer reflect the intrinsic worth.He continued: 'For such foreign companies, when they value their investment in Nigeria, the market value seems to be lower than their intrinsic worth. So, the market should correct this so that we can have transparent and easy-to-enforce listing and post-listing rules.'But SEC believes that the reforms it had embarked upon were far-reaching and on course.Reviewing the activities of the market last Monday, SEC Director-General, Mrs. Arunma Oteh, saidthe commission in the past 22 months invested significant resources in catalysing its transition to a world-class capital market.Oteh said: 'In the first instance, we undertook a diagnostic review of the capital market and have been implementing reforms. We have improved our enforcement regime. This has resulted in higher levels of compliance and reduced improprieties. We have strengthened market rules and regulations with the introduction of new rules and the amendment of existing ones. One of such is the introduction of margin guidelines designed to curb excessive risk taking by operators.'She further said SEC had also addressed gaps in corporate governance with the introduction of the Code of Corporate Governance on April 22, 2011. 'The new code has been adjudged to be comparable to internationally-acceptable codes.In addition, we are facilitating a seamless transition to risk-based supervision and are working with publicly quoted companies to ensure that they are able to transit to International Financial Reporting Standards (IFRS) in 2012.The Chief Executive of NSE, Mr. Oscar Onyema, who spoke in a similar vein on Monday night in Lagos during a meeting with chief executive officers of quoted firms, pledged theintroduction of new products as part of strategies to further deepen the market.But the Registrar/Chief Executive, Institute of Capital Market Registrars, Mr. Walter Agogo, said multinationals defy listing on the NSE because they do not want any dilution in their shareholding structure.According to him, listing on the stock market means that they need to restructure their shareholding to accommodate more shareholders.He noted that most of the multinationals would not want to expose their financial results to the public, adding that such listing would warrant that they operate in line with the listing and post-listing requirements of the NSE, which involves quarterly release of the company's performance.A top official of one of the leading telecommunication companies confirmed that the firm was listed on the Exchange of its home country, but argued that because the Nigerian capital market had not yielded much to investors lately, it would be a wrong move to invest in it.The official, who pleaded anonymity, noted that investors are closely studying the market, adding that the time is not ripe for fruitful investment due to poor performance.'The major telecommunications companies in Nigeria, including our company, are quoted on the Exchanges of our home countries, but they are not quoted here. This is not because of the companies' policies, but as a result of the performance of the NSE,' the official said.The Interim President of the NSE, Malam Ballama Manu, had said during the 50th anniversary celebrations of the outfit that the bourse should be the barometer of economic performance but this was not the case due to the exclusion of major sectors of the economy from the market.'It is conspicuous to the investing public (both local and international) that two of the leading sectors in the Nigerian economy, telecommunications and the upstream oil and gas, are excluded from the market. Most of the international companies in the two sectors are listed in their home countries and generate significant wealth and growth momentum for their local economies.'We are not advocating for a retroactive legislation to compel the telecommunications to list. Rather, we are calling for a Federal Government's policy in encouraging the telecommunications to list a percentage of their shares in the local market,' he said.
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