Regulatory sanctions, macro-economic headwings crimping economy

Recent regulatory sanctions and the macroeconomic headaches in the economy will further worsen the balance sheets of some firms, with attendant stunted growth, unless necessary measures are put in place, analysts say.

The analysts argue that the timing of the string of bad news, typified by the slamming of a US$5.2bn fine on MTN Nigeria by the Nigerian Communications Commission (NCC) for SIM card registration infractions and the ordered withdrawal of financial statements and suspension of some board members of Stanbic IBTC by the Financial Reporting Council of Nigeria (FRCN) are capable of sending wrong signals to the international business community.

They say this is especially pertinent at a time that Nigeria is experiencing an economic slow down arising from the plunge in oil prices, and needs the tonic that FDI can deliver.

Similarly, the epoch post-tax loss of N183.9bn by Oando, declared this week, more than seven months after the regulatory deadline of 31st of March 2015 and the Central Bank of Nigeria (CBN)’s slamming  FBN Holdings and UBA with a fine of N1.9bn and 2.9bn respectively for Treasury Single Account infractions, call to question adherence to corporate governance and level of regulatory supervision in the economy.

OANDO Plc’s shares have since tumbled 36.6% and 23.0% in two trading days following the announcement of the result on the JSE and NSE respectively.

Although MTN has issued a statement to the effect that it is still studying the regulators letter, investors have reacted to the news with the shares of the Johannesburg listed MTN Group recording a 16.8% loss on Tuesday.

Stanbic IBTC’s shares listed on the NSE have recorded a 9.7% decline in two days of trading following the release of the FRC report.

“Looking at the nine months performance and Outlook of both Banks, FBNH and UBA, in 2015, we are of the opinion that this sanction cast a veil on the seemingly impressive FY:2015 performance for UBA, but further worsens the already impaired outlook for FBN Holdings, given the very challenging macroeconomic environment experienced so far in the year that has impacted its operations,” say Afrinvest analysts.

Already analysts at Ecobank said yesterday that the Nigerian Stock Exchange (NSE) All Share Index (ASI) “depreciated by 0.86% to close at 29,572.90 point, with Year-to-Date (YTD), depreciating by 14.67%. The depreciation was due to the losses recorded in the share prices of some highly capitalised stocks such as Unilever, Guinness, FBN Holding, GT Bank and Zenith Bank. The market capitalisation depreciated by 0.86% to close at N10.16trn.”

According to analysts at Afrinvest , “the Nigerian capital market and business community have been hit with a string of “bad news” in the last few days, as unimpressive earnings releases – including the monumental loss reported by OANDO Plc – filtered into the market. The sequence of negative press was further amplified by regulatory sanctions on select listed and unlisted companies for alleged regulatory breaches.

The actions and reactions that have trailed these events have brought to fore, questions on regulatory compliance, corporate governance and risk management practices of companies operating in Nigeria. These have also raises concerns — rightly or wrongly — on the business friendliness of Nigerian regulators to foreign investors.

Expectedly, investors’ sentiment on the companies involved have ebbed, resulting in major sell-offs on both the Nigeria and South African bourses.”

Speaking further, the analysts said, “Putting all this together, should foreign investors stay well clear of the Nigerian investment environment? Although we believe the timing of the above unsettling news flow is rather bad for the market, given the mammoth besetting of macroeconomic headaches in capital market at the moment.”

Giving further analysis, Afrinvest analysts say the fine represents 37.5% and 48.1% of the MTN group’s 2014 Revenue (US$13.6bn) and 2015 analyst estimate (US$10.6bn).

However, investors reacted swiftly on Tuesday by dumping the shares of both FBNH and UBA as the Tickers fell 3.0% (FBNH) and 2.0% (UBA) each at the close of trade on Monday. While the loses sustained by UBA may have been moderated by its impressive Q3:2015 earnings release which indicated that the Bank’s Gross Earnings expanded by 17.3% to N247.2bn, even as PBT and PAT surged 34.8% and 44.4% to N57.4bn and N48.6bn respectively for the  nine months period, that of FBNH was compounded by the Bank’s Audited its  nine months earnings numbers which indicated that Gross Earnings expanded 16.9% to N390.0bn but PBT and PAT declined significantly by 19.2% and 9.7% to N59.6bn and N50.2bn respectively.

Their analysis further showed that based on the 9 months result already released by both banks, a N1.88bn fine on FBN Holdings implies a 3.7% drag on Profit After Tax (PAT) while N2.9bn fine on UBA will slash PAT by 6.1%. On the basis of the analysts’ FY:2015 Gross Earnings and PAT forecasts for both banks, they expect the sanction of FBN Holdings to represent 0.3% of N575.4bn forecast gross earnings  and 2.5% of forecast PAT of N74.7bn.

John Omachonu