CHARLES IKE-OKOH
One question among others that has become constant is whether the appetite for new issues will be sustained in 2009.
When the Central Bank Governor, Chukwuma Soludo, re-engineered the banking system in 2005, the outcome and impact was pronounced and felt across all sectors of the economy.
In more than one way it triggered a wide range of buzz and set businesses thinking of strategic financing for economy of scale. The options where not unlimited but the most readily available was the capital market.
The capital market itself took a cue from the banking system repositioning and began a process of self re-invention. This process saw a raft changes introduced by the way trading is conducted on the floor of the exchange.
From computerization to human capital development and a whole range of seminars to emphasise the strategic importance of the market for growing the economy, the managers of the market set new standards and rules that created not only confidence but a more transparent playing field.
Soon, the market became a place to play in. The reforms’ was quickly recognised and became the catalysts to spur a raft of money raising activity from 2006 that eclipsed what it has ever done in the past.
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In 2008, the first major shock shook the market. The deceleration in share value was almost alarming. Analysts called it the much awaited correction given the hazy pricing of some stocks. Soon a raft of measures was suggested to calm nerves. The bearish run held through out 2008 and has continued in 2009 but in a subdued pattern.
One question among others that soon became a constant is whether the appetite for new issues will be sustained in 2009 after the frenetic pace of growth of activities from 2006.
Fueled by a raft of hybrid issues, 2007 was viewed as the strongest year for the Nigeria’s issues markets. Approved new issues value in the first quarter of year exceeded N209 billion. Anther set of new issues after the first quarter valued at about N190 billion had gone through the approval or consideration process. Both sets, totaling N399.5 billion in value, exceeded 5 per cent of the total N199.9 billion recorded in the entire 2006 by the year’s top 5 new issues.
Top three new issues that year include the UBA Plc N54 billion hybrid offer, the Oceanic Bank’s N55.4 billion public offer which the bank say netted about N100billion as well as the N100 billion First Bank hybrid offer. Access Bank Plc as well as GTBank were on queue for N70billion and N120 billion hybrid offer respectively during the period.
Public Offers (PO) proceeds were expected to double the average in the previous five quarters. The largest issue that year was projected to be nearly twice the size of 2006 largest deal.
As in prior years, financial services lead the way in triggering activities in the market. The banking sector was the differentiating factor in 2007 with the top end volume and lead the pack in terms of proceeds raised.
In 2006, a range of companies from other sectors came in, particularly towards the end of the year led by Dangote Group and Transcorp whose N60 billion Initial Public Offering (IPO) became the new benchmark for industries and companies outside the banking sector. Non-bank corporate issues for the period accounted for 49 per cent of the new issues approved. There were in all 42 applications valued at N689.9 billion. The banking sector accounted for 41 per cent with 21 applications valued at N577 billion.
Many more banks also queued to tap the capital market through a combination of rights and domestic offerings.
The bullish activity in the issues market then reflected the shifting landscape of the country’s economy. While a key trend in 2006 was an increase in mergers & acquisitions, 2007 showed its capacity to absorb even bigger issues.
The interesting trend then was that the issues, irrespective of huge volumes, went through smoothly, driven by the huge demand for banking paper among investors. Bankers maintained that most investors viewed banking scrips as a play on the long-term growth of the economy.
The consensus in the banking sector also was that there was the appetite for quality bank issues at reasonable prices to spur the demand.
The market came really alive and was extremely robust in 2006 when the Nigerian Stock Exchange considered and approved applications for 64 new issues and mergers & acquisition valued at N1.42 trillion as against 52 applications for new issues valued at N730.54 billion in 2005. IPOs accounted for N129.4billion of the 2006. N95.7 billion was raised through supplementary issues, while N47.7 billion was raised through rights issue. Bonds accounted for N168.5 billion.
Optimism in the issues market was equally bolstered by the number of new listings in the market in 2006. 10 new companies were listed. Among the new listing was a mortgage finance institution, three banks and six non-bank corporate institutions.
In 2008, the market was even more frenetic as more companies and even government looked to the capital market. 70 applications for new issues and mergers & acquisition was considered and approved. All of which was valued in excess of N2.2 trillion or 9.53 percent of GDP.
All of these were before the market adjusted its pace. We would likely be witnessing a cautious issues market this year but not a dull one says one stock broker who spoke to Businessday on the floor of the exchange. His views reflect the equally wary climb back in share values from the beginning of the year.
But, the Director General of the Nigerian Stock Exchange (NSE), Ndi Okereke-Onyiuke is optimistic it would be a very busy Primary Market considering that a number of companies obtained Council approval during 2008 but were yet to make the issues available in the market She expects that some companies will capitalize using the instruments available in the market.
Even the Secondary market she says has equally good prospect because of the expected conclusion of many private placements embarked upon during 2008. Again she is hopeful that the Bureau of Public Enterprise (BPE) would consummate the decision of the National Council of Privatisation to list the shares of the Nigerian National Petroleum Corporation (NNPC), NITEL and some other government parastatals like PHCN on the market this year.
Osita Odili, a stock market analysts with MBL Financial Services Limited reinforced Ndi,s optimism in response to the question of whether the market’s appetite for hybrid issues will be sustained in the year. There are those who still desire to be quoted on the Exchange for many reasons he says. Don’t forget that there are still strategic buyers and companies who believe in themselves. Again there are a number of international investors with appetite for these companies all of these will surely help sustain the interest in the market.
Indeed, the country’s economy points to a continued growth path. Although Foreign Direct Investments (FDI) is expected to drop alongside foreign investors’ appetite for risks, but the credentials built up in recent years and the raft of policy measures crafted to keep the economy churning at reasonable pace has the potential of sustaining companies appetite for finance for expansion and repositioning. And since the capital market has been creating the depth and absorptive capacity, it is expected that the issues market will remain active. The only thing unclear is whether the level of activity will match that of the last two years.
