Scarce MTN shares heighten brokers’ anger

…bubble looms as stock only available on cross deals…Shares up N600bn in 3 days...Demand floatation of at least 5% of MTN shares 

It’s the hottest listing to come to the Nigerian Stock Exchange (NSE) in the past three years, but good luck getting a hand on the shares of MTN Nigeria (MTNN), whether you are an institutional or retail investor.

The scarcity of MTNN shares is largely due to the unusual listing by introduction approach used to bring it to market, which is in turn causing a mismatch between buy (bid) and sell (ask) orders leading to a spike in price.

Market sources tell BusinessDay that there is increasing anger among many stockbrokers and dealers who are unable to fill orders for their clients, and that the NSE may need to intervene to tame what could be shaping up to be a massive bubble in MTNN shares.

“The NSE may at this point need to force MTN Nigeria to make available at least 5 percent of its shares as free float to stop this ugly trend,” one market source said.
The stock of the telco is up N600 billion since its listing.
Chapel Hill Denham acted as a joint financial adviser with Stanbic IBTC Capital in the historic listing.

In 61 deals on Monday, stock dealers exchanged 61 million units of MTN Nigeria shares valued at N6.1 billion.

Here are various comments by other capital market operators who spoke to BusinessDay largely on condition of anonymity because of the sensitivity of the matter.
“Most likely, about or more than 90 percent of these crosses are being done by one house Stanbic IBTC Capital. It is not a great way to deepen the market. Let us call a spade by its name…it is price manipulation,” said a source.

Another broker said, “Increasing price through cross deals does not look like a market-driven activity. It is at best financial engineering.”

Off-market, negotiated cross deals, means that the deals were not subjected to the dynamics of price discovery for the particular period, implying that the deals were previously negotiated and only sealed through the transfer portal of the Exchange.

“Going by current rule of the market, what is the legality or otherwise of increasing stock price via cross deal transactions? We need the NSE to say something here. Pending when we get a response from NSE, my understanding of the trading rule guiding cross deal is that the daily price change must be within the 10 percent maximum per day,” a third source said.

The NSE on Thursday, May 16, listed by introduction on its Premium Board 20.35 billion ordinary shares of MTN Nigeria Communications plc at N90 per share.
It closed trading on Monday at N119.75 per share, equivalent to gains of 33.3 percent or N30 since Thursday.

“If they meet the volume to justify the price change, then everything is okay,” another broker simply said.

“However, the implication is that they can drive the price to any level, sell at the price they need to meet all obligations and leave the market to carry the can of a sour offer or be responsible enough to stop at a reasonable point and make the stocks available in reasonable portions to keep a high market rate that will not distort the actual price of the stock and will be sustainable,” the broker said.

“Maybe the rule should have stated that the maximum price change of a stock on introduction should trade via a minimum number of houses (maybe 10 or 20 percent of the houses in the market), so as to ensure that there is a broad market base,” she further said.

BusinessDay had ahead of the listing exclusively revealed that a record upfront demand for the shares of MTN Nigeria Communications plc resulted in a queue by potential investors, noting that it would only cause the price to maintain upward trajectory in the near-to-medium term.
“N150 per share is today’s going rate for MTN Nigeria in off-market deals,” said another Lagos-based fund manager speaking anonymously to BusinessDay.

He confirmed that people are now negotiating MTNN share prices on two days limit up.
“I have been on phone all morning scrambling, trying to get exposure for my clients and fund,” our source said.

A N150 stock price would value MTNN at N3.052 trillion, slightly higher than Dangote Cement which closed trading at N3.033 trillion on Monday.

Another fund manager told BusinessDay that there was huge unmet demand from indexers cut out by the idea to do the listing by introduction.

Indexers own index funds or mutual funds with a portfolio constructed to match or track the components of a financial market index, such as the NSE 30 Index or broad All Share Index.
“If you don’t have MTNN you will under-perform the benchmark. So you have to buy it,” he added.

Still on the scarce MTN shares, an angered broker said, “I think the key question is if our clients (particularly retail) who have been so excited about the planned listing of MTN benefitted so far? I have N50 million plus to purchase MTN for my clients and I can’t get it (imagine the huge potential income). Also, how do we think this event would further affect client’s perception of our market?

“Especially seeing the daily trade on MTN shares and its prices appreciation, and you’re trying to explain that the trades are crosses and that is the reason you can’t get them and with these crosses comes daily 10 percent upwards price gain,” he said.

“Honestly these issues need be addressed so we don’t further worsen the negative market sentiment we’re making efforts to improve. I don’t think the listing presently has benefitted the brokers and retail clients. It’s obvious those who have benefitted currently. My advice is for the appropriate authority to take note…because sincerely the comments even from clients regarding the MTN listing aren’t palatable,” the broker said.

Another fund manager source told BusinessDay that demand is also rising from offshore funds worried that the MSCI index would add MTNN, meaning they would have to have exposure just to track the index.

On Customs street, however, anger remains.
“Can anyone tell me what ‘listing by introduction’ is and prove to me that what MTN did on May 16, 2019 was listing by introduction? Which house got a unit on the day of listing and even up till now aside from Stanbic IBTC that crossed the entire 5.5 million traded that day amongst its clients? The issue is, why was it not available to the market on the day of listing? Have the rules changed? Dangote Cement also listed by introduction even when they got a waiver, it was not like this. Shares were allotted and made available for trading on listing day. Same for NASCON,” another broker with pending orders of over N80 million for MTNN shares said.

“I think the stockbrokers to the listing should have advised the major shareholder, MTN International Limited, to make available enough shares on the day of listing to guarantee liquidity of the stock in the market,” he said.

Sources tell BusinessDay that ensuring that 200m to 500m shares were available for trading over the course of the first six months would have solved the problem and would not have reduced MTNN controlling interest in any significant way.

“The regulators could as a matter of urgency sit down with the financial advisors and the major shareholders and urgently come up with a solution to provide adequate liquidity for the shares in the market. This could be achieved through suasion,” according to another broker.

Ferdi Moolman, CEO of MTN Nigeria, in response to questions raised on shortage of supply of the listed stock during the Facts behind the Listing presentation at the Exchange, said the listing was the first step towards creating liquidity around the stock.

“We are committed to finding equilibrium between demand and supply to arrive at a proper valuation for the stock on the NSE,” he said.


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