• Monday, May 27, 2024
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Dual-listed stocks offer escape route for foreign investors

Foreign investors find escape route from Nigeria in dual-listed stocks

Foreign investors are among those buying record shares of dual-listed Airtel Africa Plc, as the slump in the telecommunication firm’s share price this year opens the door to cross-border trading that puts dollars in the hands of the investors seeking to leave Nigeria but can’t get the greenback.

Investors splashed N2.7 billion on some 2.14 million shares of Airtel Africa on Monday, the most since June 7, according to data collated by BusinessDay.
Brokers told BusinessDay that a good part of the shares were bought by foreign investors but could not specify the exact size.

“There’s a good chance that these foreign investors are indeed eyeing cross-border trading of Airtel shares as a means of exiting Nigeria, especially now that the difference between the price in Lagos and London is a lot smaller than in the past,” a senior investment banker said.

Read also: Foreign investors raise further bet on Nigerian stocks

It’s not the first time that foreign investors with funds trapped in dollar-strapped Nigeria are buying stocks of dual-listed companies like Airtel in Lagos and reselling in London, a practice called cross-border trading.

Airtel is listed on both the London Stock Exchange and the Nigerian Exchange Limited which gives an investor the opportunity to buy shares of the company in Nigeria with the option of selling in London and vice-versa.

Some foreign investors with naira they had no use for bought Airtel shares in the past for this purpose but the practice slowed when the telco’s share price in Nigeria doubled within eight months to N2,000 in August 2022.

The price increase meant investors took a haircut buying the shares at a higher price in Lagos and reselling for less in London. The stock sold for an average of 1.4 British Pound (N700 at an exchange rate of N500 per GBP) in London in August 2022, leaving investors who bought at N2,000 in Lagos with a loss of 65 percent per unit of shares bought.
However, with the price now down by 35 percent since then, the gap between the price in Lagos and that in London has narrowed. The stock closed at N1,300 in Lagos and 1.26 GBP in London (N1,210 at Tuesday’s official exchange rate of N961 per GBP).
This means investors would have to take a haircut of 7 percent at current prices compared to 65 percent last year.

Read also: Foreign investors uptick in sight for Nigeria’s equities market

“It is an option that we may or may not explore,” one foreign fund manager told BusinessDay. “It’s more likely that those who took this option in the past may revisit it again because people still have their money trapped in Nigeria,” the fund manager who did not want to be named said.

Foreign portfolio investors have around $3 billion trapped in Nigeria, according to some estimates.
Weak oil income and a drastic slump in investment inflows have drained Nigeria of badly-needed dollars, with investors, manufacturers and importers on a long queue for dollars that the banks can’t provide.

The Central Bank of Nigeria (CBN) promised to clear a part of the backlog in two weeks but the timeline has elapsed and nothing has been done, dashing the hopes of several businesses and investors on the queue for dollars.

The dollar demand backlog has drained confidence in the CBN’s bold move last June to float the naira. The central bank’s latest financial accounts, which show the apex bank’s external reserves is much less than officially published, have also exposed a lack of firepower to defend the naira.

Read also: Nigeria is on the lips of foreign investors again

The naira has gone from overvalued to undervalued after shedding over 60 percent of its value yet foreign investors are not flocking back to Nigeria due to a raft of pending reforms from clearing the dollar backlog to allowing all legitimate transactions return to the official market.

It’s unclear how the new presidential nominee for the role of CBN governor, Yemi Cardoso, will restore investor confidence and halt the slide in the naira.
Seplat, Nigeria’s largest indigenous oil firm, is another dual-listed stock that provides the cross-border trading option as it is also listed in Lagos and London.

The firm’s share price closed at 1.31 GBP (N1,258) in London and N1,837 in Lagos. Buying the stock in Lagos to resell in London will leave an investor with a loss of around 30 percent. It therefore does not make a more compelling case for cross-border trading than Airtel.

Seplat has had a good patch of form this year with the stock up 63 percent since January.
On Sept. 14, investors bought the highest number of Seplat shares in a month.