By Chinenye Anuforo and Chinwendu Obienyi
As the call for the listing of the telecommunications and power firms gets more strident, Nigerians have been told to allow their mission statements dictate the pace of business decisions.
According to the Chief Executive Officer of the Nigerian Stock Exchange (NSE), Mr. Oscar Onyema, companies should be allowed to ship in and ship out of the bourse in line with their corporate objectives.
“We have to allow companies to list if it meets their strategic objectives, and allow them to leave if it no longer meets their strategic objectives”, he said
Addressing capital market community recently, Onyema disected the market and came up with the notion that better days lie ahead. Excerpts:
Role in economy
The Nigerian Stock Exchange (NSE), as you know, provides a platform for investors and savers to accumulate savings and our job is to provide an efficient platform that allows buyers and sellers to come together, that allows issuers to be able to raise capital. Our job is not to under-perform or outperform the economy. Having said that, equities markets all over the world are indicators of an economy.
As you know, we do not completely reflect what is available in the economy. So, for example, we don’t have utilities listed on the exchange, we don’t have telecoms companies listed yet. So, it is still a developing market that will continue to strive to better reflect activities in the economy. But it will never be a one for one. There will be a correlation that shows general direction but you shouldn’t expect it to be one for one; even the most advanced economies with the deepest market do not show you that correlation.
Quoted companies
We have to allow companies to list if it meets their strategic objectives, and allow them to leave if it no longer meets their strategic objectives. So for us, we have to create a market place that continues to service the needs of investors and issuers and to make it attractive for issuers to come to this market and to stay.
For example, Coca Cola Bottling Company wanted to make serious investment. So they asked the domestic investors to bring money and the money wasn’t forthcoming. So, they had to get the money elsewhere where the investors are willing to bring up the money.
We don’t go to AGM and scare companies to list. So, it is the responsibility of the platform, market participants and everybody to create an environment that is conducive for issuers to come and raise money here and to stay here. For our part, we have a sale and retention programme to maintain contact with various issuers at various levels from a purely business perspective outside the regulatory perspective. And so we continue to innovate from the product perspective to make it attractive for them to be able to participate in the market.
Corporate governance
On suspension of the corporate governance code and the impact it will have on investors’ confidence, quite frankly, if you look at the feedback we have received from investors and issuers, we think the code needs some more work. It needs to be consistent with other existing laws and other codes. I do not think the confidence of investors will be negatively impacted because the corporate governance code has been suspended. I think if there is anything, it will be positively impacted because you need to have a code that is well vetted by everybody and is supported by the majority of the people if you are looking for that kind of positive impact.
Collaboration
We work very much in collaboration to support the government wherever we can. For example, in the recently announced Whistle blower Policy in the fight against corruption, we worked very closely with the government to build that portal and to make it available for use for Nigerian citizens. So, we make our expertise available wherever we can in order to help. Also, in order to find creative ways of borrowing money, we introduced the idea of the green bond to the government which they have taken up. Another one is the retail Federal Government savings bond and again we made that proposal to the Federal Government and they took it on board . So we are working very closely with the government. As you know, being a market, we are very much in support of market solutions to a number of these structural issues and challenges that we face.
PFAs
With regards to how attractive the market is without Pension Fund Administrators (PFAs), we believe that the pension fund industry today probably accounts for the largest group of domestic investors in the country. However, their portfolio allocation is based on guidelines as provided by PenCom. The allocations are made within their guidelines to protect pensioners’ assets and look for where they will get maximum returns. That is why the Exchange has taken an approach to make sure we provide the list of products so that investors can have a menu to choose from. So, just because they are not necessarily in equities does not mean the market is unattractive. The market is attractive and covers equities, fixed income and exchange traded fund.
On the question that the shine has been taken off the capital market to the money market, I would like to believe investors are rational human beings and anybody that is investing is investing for returns. Given the economic conditions and what is going on in the debt and money market and people’s perception of risk, they will choose the market they want to invest in. For us, it is important we provide a credible list of products and services they can take advantage of to meet their objectives, which is to get the highest returns with the lowest risk; that is if they are rational investors.
Fragmentation
On the registration of other exchanges, our view is this, for a developing market such as ours, you do not want to fragment the market because you don’t even have enough liquidity in one market but that question is better addressed towards the regulators that are registering exchanges. The exchange itself has to make sure it is in a robust position to continue to provide services at fees that are competitive and will keep investors and issuers in these exchanges. However, we do not believe we should fragment the market, so in turn it is very important for the regulators to have a level playing field and that the regulations are clear as to what areas the market can play.
Demutualisation
Demutualisation of the NSE is an ongoing project and there are certain things that need to happen before you conclude it, including member consensus, getting appropriate legislative framework and regulatory approval before one moves forward to do it. And so, the plan is very well articulated and the implementation is ongoing as indicated. If one of the prerequisites is a member vote, then we would want to make sure that you have a credible member list that is auditable, and that took some time to accomplish. Nevertheless, that has been done now and we hope to see more public progress in the implementation of the demutualisation project.
Market makers
As to whether there are still market makers in the market, yes, we have market makers across all our products; we have market makers in equities, fixed income and exchange traded funds. On the equities market makers programme, I would say we are not completely satisfied with the level of performance. Having said that, I want to re-emphasise that the work of market makers is not to stop the market from moving in any direction it wants to move, but to make sure that there is continuity in the market. So, if the market is going up, it doesn’t go from N1 to N10 but it goes from N1 to N2 and so on till it gets N10. So, there is continuity in the market. That is the job of the market makers. And we think more can be done in that space and as a result, one of the things we are doing this year is doing a comprehensive review of market makers programmes and coming out with a more tightened over sized review to make sure they meet the expectations of the market.
WACMIC
West African Capital Market Integration Council (WACMIC) is a programme designed to facilitate cross border trading within the West African region and we believe we have done enough work to facilitate phase one and we have seen some trades between Ghana and Nigeria. There is a challenge with the French speaking West African countries where the rules have not been approved by the regulators yet. And so it is difficult for any trading to occur without the underlined regulatory framework and that has also delayed the implementation of phase 2 even though work is going on to fine-tune it. Phase2 is passporting phase where, instead of going through a broker in the foreign country, you go directly. So that work is still ongoing and I can assure you that the technical and governing committees are working very hard to get the WACMIC project to its logical conclusion.
Short selling
We have a framework for securities lending and short selling at the exchange and initially it was limited to institutional participation. When we did not see a lot of activities in that space, we extended it to retail participation by creating new rules and framework to facilitate that.
So, if you go to any authorised securities lending agent, you can actually borrow security and you can short sell in the market. Rules, technologies and framework are primed to support that, so, it is now left for market participants to take advantage of it.
Late submission of financials
On late submission of financials and quality of financials submitted, the NSE has done a lot of work in this space and we will keep working towards that. Since we started five years ago, we had to work first of all to gather statistics to engage with the companies before the due date and to improve on the percentage of compliance rate. We also made it easier for the submission by introducing the x-issuer portal. It is now electronic submission with appropriate template for these submissions.
The rules around submission was also tightened to make penalties higher and all of these were done to make companies comply, hence we will continue to monitor the situation and to engage with issuers to report on time and to report with more eligibility but you know, we can take the horse to the river, but we can’t force it to drink water.
Choice of market to invest