A stock market psycological barrier that kept companies playing a game of wait-and-see in the Initial Public Offering (IPO) market appears to have been broken with the successes recorded by a number of Nigerian companies who have raised N120 billion in 2014 alone.
The psycological barrier followed in the wake of a 2008 market crash that saw many investors bruised and kept them away creating concern among firms that the market would not be receptive to an IPO and could lead to failure. But that story is changing, say analysts who follow trends and behaviour of the market.
They say the development which saw three companies- SEPLAT Petroleum Development Company plc; Caverton Offshore Support Group plc and recently, Transcorp Hotels plc in the market against none last year, signals a recovery of the primary segment of the equities market.
Though investor sentiment is relatively weak at the secondary segment of the stock market, as reflected in the 0.55 percent year-to-date (YtD) loss on the NSE ASI Index, analysts say new listings and IPO reflect the improved confidence of Issuers (Companies), following the twin stellar performance of Nigerian equities in 2012 and 2013, when the NSE Index rallied 35 percent and 47 percent, respectively.
In April this year, SEPLAT Petroleum Development Company plc made the first debut in the Nigerian IPO market and raised $500 million (about N80billion) at N576 per share.
A stock market debut by the oil and gas firm was seen by many analysts as a step that was capable of unleashing a round of initial public offerings (IPOs) in Nigeria, after they stalled in the wake of a 2008 financial crisis. Seplat’s successful listing shows the success of Nigeria’s policy of indigenisation of the oil sector.
Also, in May 2014, Caverton Offshore Support Group plc tested the waters of the primary segment of the equity market and successfully listed 3.35 billion units of its shares at N9.50 per share.
The listing added about N32 billion ($200million) to the value of the NSE market capitalisation. Analysts say the listing of Caverton Offshore Support Group plc was a major plus for the Federal Government policy of encouraging local capacity and ownership in the oil and gas sector.
The latest in the IPO market is Transcorp Hotels plc, part of the Transcorp conglomerate which is currently raising N8billion (about $48.8 million) from the market. Transcorp Hotels is offering 800 million ordinary shares to new investors at N10 per share.
“This year has been good for the IPO market. Take for instance, Septlat, Caverton, and the recently Transcorp Hotels. One of the things that have made the stock market vibrant is the IPOs.
In a dull market, we have had three IPOs, imagine what will be the situation in future,” said Aigboje Higo, managing director, Capital Bancorp plc.
Investor appetite for indigenous companies (with sound business fundamentals and corporate governance) is compelling investors to increase their bet in their equities, as demonstrated during the Seplat IPO with impressive domestic investor participation.
At the end of the Transcorp Hotels IPO, companies would have successful raised about N120billion from the primary segment of the Nigerian stock market, through Initial Public Offering (IPO) and listing within 10 months.
Operators are already optimistic that Transcorp Hotels will be oversubscribed, saying that the N8billion which the company is raising is little or nothing, particularly as the sector in which the company will be listed (Hotels) is currently under-represented in the market, as investors continue to search for higher returns. This further reinforces the optimism of the IPO success.
“The political climate of the country, especially with the impending 2015 presidential elections, may have an impact on our market as historically, trading activities during election periods are usually tame. As a result, these may impact our business, trading volumes and revenue,” Oscar Onyema, CEO, Nigerian Stock Exchange, said recently at the bourse’s annual general meeting.
Iheanyi Nwachukwu
