Nigeria’s capital market is engrossed in mergers and acquisitions (M&A) discussions now that it is unlikely the Securities and Exchange Commission (SEC) will push up the December 31, 2014 deadline for recapitalisation of operators.
Indications emerged yesterday that about 150 out of over 250 stockbroking firms will be shown the way out of the market if they fail to meet the new capital requirements.
Mergers and Acquisitions as an option for recapitalising the stockbroking industry was the focus of discussions yesterday at a workshop organised by the Association of Issuing Houses of Nigeria (AIHN) and the Association of Stockbroking Houses of Nigeria (ASHON).
“M&A, private placement, rights issues, are among the important options the SEC has offered capital market operators to take in the recapitalisation exercise, “ said Tilde Isyaku, deputy director at SEC, who represented Arunma Oteh, DG, SEC.
Oscar Onyema, CEO, Nigerian Stock Exchange (NSE) shocked the participants by saying that Nigeria ranks low in capital market’s international benchmarks because of the “fragmented nature of broker dealer businesses”, adding that the country has the lowest market concentration when compared with India, Thailand, and Brazil.
“Across the entire market value chain, our market is not competitive. It is affecting the market and its not driving deal flows in terms of volume, value and new listings,” Onyema said, adding that “50 to 100 dealing member firms are ideal for this market.
“The new minimum capital of N200million for Issuing Houses and Underwriters is too low. We have to look at everything we are doing today from a long term perspective. We have to go away from low broker capabilities. We have to move away from an environment of weak regulatory structure to improved regulatory structure.
“We have to move away from high broker commission to low operating margins. Allowing global brokers to have a stake in your firm opens up market opportunities for you. If you want to move a mountain, it has to be one stone at a time,” Onyema further said in his presentation titled “Benefits of a consolidated stockbroking industry.”
Bolaji Balogun, group CEO, Chapel Hill Denham, charged the regulator to create a safe mechanism to ensure that no client of any stockbroking firm loses money resulting from recapitalisation.
According to Balogun, “The costs the Nigerian Stock Exchange (NSE), SEC, and the Central Securities Clearing System (CSCS) charge issuers are making us lose market to other countries like South Africa.
“The revenue and profit pull in the stock market today doesn’t support many stockbrokers but operators are suffering today because regulators have not focussed on baking a bigger cake in the market. Across the global market, you hardly find an operator who doesn’t leverage on its balance sheet size.
“Whether we like it or not, in future there will be few and better situated brokerage firms in the capital market. There are a variety of reasons why not all M&As globally work, but those are largely irrelevant in a fast growing frontier market.
“M&A is an important possibility in a situation like this. In Nigeria, M&As have largely been value accretive,” Balogun said in his presentation titled “Stimulating corporate growth and survival through mergers and acquisitions.
“There are a number of issues that are very important here. India and Brazil are markets we try to benchmark ourselves with. Everything India and Brazil did was to strengthen their local brokers. Foreign investors can never fix the Nigerian market for us, it can only be fixed by Nigerians, otherwise we are going to lead Nigeria into future colonisation,” Balogun observed.
Sonnie Ayere, Chief Executive Officer, Dunn Loren Merrified, said “I see a house up there but without a foundation. The balance sheet size of institutions is so small because they don’t have access to the market to fund their growth. If we continue to push the issue of foreign players coming into the market, the market will die. We will end up having a market driven by foreign investors.”
Victor Ogiemwonyi, chairman, AIHN said: “Nobody benefits from a fragmented industry. But just raising capital alone is not enough in this market. We must find a way of stimulating growth in the industry. We cannot have a market without operators.”
Ogiemwonyi who is also the chief executive officer, Partnership Investment Company plc, warned that “Too few operators will cripple the market. The decisions we take must reflect the reality of the environment we are in. M&A is one of the options as operators begin to look at ways of meeting the minimum capital base.”
Emeka Madubuike, chairman, ASHON said, “We are looking at M&A option because we have to meet the expectations of SEC in what I call a regulatory induced capital requirement. We should also be open in looking at the risks of M&A.” Madubuike who is also the managing director, Compass Securities Limited, further said “The level of capital we operate today is not too low when we talk about being competitive in the global arena.”
Iheanyi Nwachukwu
