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Operators say Capital Market recovery is sustainable

By BusinessNews Staff on August 18, 2014

As the Nigerian capital market consolidates on its recovery, market players say the trend is sustainable provided on-going efforts to further deepen the market is equally sustained, reports Festus Akanbi

From all indications, the relative lull which has pervaded the Nigerian stock market will soon give way to increased activities as various sectors of the economy explore the market to raise additional capital.
Although, a number of companies cutting across various sectors of the economy have availed themselves of the opportunity inherent in the nation’s stock market in recent times, market watchers pointed out that those emerging challenges, especially in the banking industry, have necessitated a return to the capital market for more funds.

Rising Appetite by Banks
For instance, the Central Bank of Nigeria (CBN) had a fortnight ago announced a change in the way regulatory capital for banks would be calculated. In the new dispensation, regulatory risk reserves will be excluded from any assessment of capital adequacy. Tier 2 capital will be limited to 33.3 per cent of Tier 1 capital. Impaired loans and receivables will be deducted from capital. In addition to these announced measures, the capital adequacy ratio for systemically important banks has increased.

According to Managing Director, Head, Africa Macro Global Research, Standard Chartered Bank, Razia Khan, the overall effect of the new regulation will be to increase the capital-raising of banks.

Noting that Tier 2 debt issuance has already increased, with an increasing number of banks able to raise their USD funding, she said more foreign exchange-denominated issuance is still anticipated. “Moreover, the cap on Tier 2 capital will mean – potentially – more equity capital raising, encouraging more long-term, ‘stickier’ inflows,” she explained.
To show it has what it takes to accommodate the impending ‘siege’ by banks and other sector players, the Nigerian Stock Exchange was able to generate N365.87 billion which was the value of the capital raised by six companies from its primary market segment between January and July 2014.
A breakdown of the new development in seed funds showed that it was raised through Rights Issue, Placement, Initial Public Offer (IPO) and offer for subscription.
An analysis of the data also showed that Seplat Petroleum Development Company in the period under review raised N318.74 billion through initial public offer of 553.31 million shares at N576 per share.

Vetiva Griffin 30 ETF sourced for N982 million through an offer for subscription of 100 million shares at N18.46 billion, while Oando Plc raised N30.70 billion through placement of 2.05 billion shares at N15 per share.
Another company that accessed the market during the period included UBA Capital, which raised N1.8 billion through rights issue of two billion shares at 90k per share, while Sterling Bank got N12.48 billion from rights issue of 5.89 billion shares at N2.12 billion. Africa Prudential raised N1.2 billion from rights issue to existing shareholders at N1.20 per share.

The Recovery
Expectedly, market participants, including the regulators have described the feat as a sign of recovery, a development which is bound to encourage other capital-seeking firms to access the market.
According to the immediate past President, Chartered Institute of Stockbrokers (CIS), Mr Ariyo Olushekun, the market was gradually recovering from the effects of the recent global financial meltdown.
He said things were getting better in the market with the return of new issues and impressive returns posted by most quoted companies.
He noted that current developments in the country such as insecurity, economic instability and uncertainties over 2015 elections were discouraging investment.

According to him, numerous investors were still withholding their investments in Nigeria due to uncertainties and lull in economic activities following the forthcoming elections.
However, the Director-General of the Nigerian Stock Exchange, Mr. Oscar Onyema, who has continued to beat his chest over the improvement in the market conditions, said the improved regulatory environment and performance of quoted companies from 2012 till date, has positively impacted on stock market prices and overall market indices.

Speaking at a recent investment clinic for finance and capital market journalists in Lagos, Onyema had said: “We have seen strong and improved participation from foreign investors and local institutional investors, but local retail investors are not as active as they used to be.”
He also emphasised that the NSE had adopted a zero-tolerance stance on dealing member firms and listed companies violations. He said in line with one of the bourse core strategic pillars for enhanced market performance and growth, that is instituting a “strong investor protection” framework, the NSE has re-constituted the Board of Trustees for the Investor Protection Fund (IPF).
Another key market player who believed the market has considerably recovered is the Chief Executive, BGL Plc, Mr. Albert Okumagba.
Speaking in an interview, Okumagba said: “There is no doubt that investor’s confidence fell considerably during the financial crisis, evinced by a virtual wiping out of the retail segment of the market and explained to a large extent why a handful of institutional investors, mostly foreign, dominated the market for a long time.”

He, however, believe that confidence has returned to the market as can be seen from the impressive performance of the market in recent years.
“The sweeping sanitisation of the financial services sector and the improved reporting standards and corporate governance has also helped in this regard. This is evidenced in the increased participation of the domestic investors in the market as foreign portfolio investors reduce their holdings,” he said.

On measures to enhance investors’ confidence in the market, the BGL boss said: “I believe that a lot of work is being done in this regard. As stated earlier, the improved transparency in terms of reporting and the stronger regulatory push for proper corporate governance is achieving good results. However, further measures to enhance confidence will be the active display of zero tolerance for market infractions by market operators. In addition, the regulators must ensure speedy delivery of settlement/judgement to investors in cases of disputes with capital market operators.

“Finally, speedy implementation of decisions by regulators and government would also help to boost confidence of investors. For example, the quick implementation of the removal of stamp duties and VAT payment on secondary market transactions could attract stronger interest in the market.”

Okumagba insisted that Nigeria’s financial market is already very attractive to foreign investors considering the yield that the market offers, noting however that although the equity market is currently experiencing a lull, our stocks are trading at very attractive valuation.
He maintained that the structural deficit in terms of lack of infrastructure and some policies to aid production/manufacturing, the country’s risk profile appear to be high in attracting long term capital through direct investment. This, he said, also limits the ability to attract patient capital that can play in the capital market for a long time.
“While the government is doing a good job of improving infrastructure deficit in the country, there is need to increase the speed to meet up with investor’s expectation within the shortest possible time,” he said.

Attracting IOCs, Telecoms Firms
But the Chairman of Stanbic IBTC Holdings Plc, Mr Atedo Peterside, has a more robust approach to the sustenance of the current tempo. Peterside, who expressed the confidence that the current depth of the market could be improved upon said effort, should be doubled to attract international oil companies (IOCs) and major telecommunications companies in Nigeria to list on the Nigerian Stock Exchange.
To achieve the NSE’s 2016 $1 trillion market capitalisation ambition, he said the management of the Exchange must double its effort to ensure the listing of companies in the sector that drives Nigerian economy.

According to him, “No major oil and gas company is quoted in Nigeria and no major telecoms company is quoted in Nigeria. Part of this $1 trillion dream is that if you can do all it takes or get some of those companies to list, then you may get to your $1 trillion.
“This is because in many other economies, the biggest players in the biggest sectors are listed. In Nigeria, it is not so. The market capitalisation now is constrained by the fact that the biggest players in some of the biggest sectors are not listed. I have given you oil and gas and telecoms as an example, they are not listed.

“The situation, he stressed will change the day these companies are listed on the capital market.
He said: “But it takes only one day for that to happen, as you know listing is a voluntary decision. If MTN Nigeria wakes up one day and decides to list, overnight, your market capitalisation jumps up. It takes one company at a time. You saw what happened when Dangote Cement came to list. You achieve day-to-day growth by share price adjustment, increment and so on, and have quantum leap when a new person joins the market. This is partly why this $1 trillion dream is not necessarily impossible; it depends on how many people come with quantum leaps.”
As the nation gears for fever-pitch political activities, preparatory to next year elections, some market watchers believe the economy in general and the capital market may not be spared from the heat from politicians.
However, the Chief Executive, Proshare Nigeria Limited, Mr. Olufemi Awoyemi ,is of the opinion that the current performance indices of the market have shown that the so-called recovery is not real.

He said: “The market has bottomed out, moved to new heights in 2013 but in 2014 has been caught in the x-factor mix-dominated by the 2015 elections cycle, the absence of an incentive to invest in Africa – security, Ebola and international travel issues…despite the upsides in foreign direct investments, credit and government policies.”
Genesis Electricity Named 2014 Africa Utility of the Year
Genesis Electricity Ltd (GEL) was recently named African Power Utility of the year at the Africa Utility Week Awards announced at the International Convention Centre in Cape Town, South Africa.
According to a statement by the company, Genesis was recognized for its multiple projects deployment in a few countries in Africa over the past nine years and particularly for the development of the 84MW Off-Grid Gas-fired power plant at the Nigerian National Petroleum Corporation owned Port Harcourt Refinery Complex (PHRC) in partnership with General Electric and Engro Corporation.
The PHRC is the largest refinery in Sub-Sahara Africa, at 210,000 barrels per day of crude oil processing capacity.
The annual award is selected by an independent panel of judges based on the nomination of Power Utilities in Africa that excel in any one or more of the following fields: Service delivery, project roll-out, technology roll-out, revenue protection measures, loss reduction, grid integration and new energy sources.

The finalists nominated in this category were: Copperbelt Energy Corporation, Kenya Electricity Transmission Company, Genesis Electricity Limited and ZESCO Limited of Zambia.
It is estimated that almost 50 per cent of Nigeria’s Gasoline, Diesel oil, Kerosene and other refined products requirements can be met by the PHRC when operating at full capacity, and thus significantly reducing the huge petroleum products importation bills currently being incurred by the Nigerian economy.

Reliable, qualitative and competitive power supply to the PHRC has been one of the critical factors affecting efficient operations of the refinery, leading to loss in substantial revenues that would have been earned from sale of refined products from the refinery, and the resultant greater loss continuously incurred as a result of the prohibitive huge petroleum products importation bills hammering Nigerian economy.

Noting the technical descriptions for these projects, the statement said it include:The 84MW Off-Grid/Captive power project is delivered on a Fast-track basis of eight months commencement of construction and consists of three units of 28MW GE Gas Turbines now being installed on site; 100 per cent privately funded investment project on the back of a 20-year Power Purchase Agreement (PPA) between Genesis and NNPC; and that the project has attracted foreign direct investment from GE (USA) and Engro PowerGen (Pakistan).

It also stated that the 84MW power plant had natural gas as primary fuel for electric power production, and Diesel oil as back-up, in the event of gas supply shortages, adding, ”the 3 x 28MW units guarantees reliable power supply to the refinery, given that the refinery requires just one gas turbine unit to meet all its needs, whilst the other 2 units serve as triple redundancy back-up in the event of shutdown of the first unit.”

It also noted that the tariff contracted under the project is one of the lowest in the Country (and indeed West Africa), trailing behind the tariff paid by the private customers in Nigeria.
“Profit maximisation is thus not the key motivating factor for Genesis in driving this project to positive outcome”, it added.

The statement by Genesis Electricity Communication Advisor, Ms Desiree Mc Nabb, said the positive multiplier effect on the Nigerian economy when Port Harcourt Refinery is operating at its full capacity engendered through the provision by Genesis and partners of qualitative, reliable and competitively priced power supply to the refinery is simply enormous, including but not limited to substantial reduction of billions of dollars worth of petroleum importation bills, job creation for skilled, semi-skilled and unskilled labour, excess power supply to the local distribution network, potential increased value of naira and improvements in the country’s balance of trade due to huge reduction in petroleum products importation bills.

It also quoted the Company’s CEO, Mr Akinwole Omoboriowo II, who has been listed amongst 60 Most Influential Figures in East and West African Power in ESI Africa 2014), as saying, “We at Genesis Electricity Ltd (GEL) are elated, and indeed humbled by so great an honour to be recognised with an award of such magnitude. We congratulate the Federal Government of Nigeria for creating and fostering a vibrant enabling environment for the Power Sector in Nigeria, and for granting us the opportunity to invest in the construction of the 84MW Off-Grid Electric power supply solution to the largest complex refinery in Sub-Sahara Africa: the Port Harcourt Refinery Complex.

“We would like to dedicate the award to the loyal and tireless workforce of Genesis, our faithful customers and the company’s anchor customers: it is because of their sustained commitment beyond the call of duty, and their vigorous dedication that we have taken these few positive “baby steps” in pursuit of our vision of lighting up Africa…. one community at a time!”

[This Day]

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