Three things tech companies eyeing Nigeria Stock Exchange should consider
Private equity and venture capital may be the biggest sources of investment in the tech ecosystem in Nigeria, but they are yet to sufficiently address the problem of access to funds for many tech companies. Hence, there is always a scramble for the next funding opportunity available.
Over $2.9 billion have gone the way of 177 tech startups in Nigeria so far, according to data from Startuplist Africa. While the investment is spread across the various segments of the ecosystem it is still not enough to sustain the growth and expansion of the many startups that are in the country. This is why the Nigeria Stock Exchange (NSE) represents an option for many companies.
To be sure, the NSE is the physical market of the Nigerian capital market, established in 1960 to provide listing and trading services, as well as electronic clearing, settlement, and delivery (CSD) services through Central Securities Clearing System (CSCS) Plc Act. the instruments listed in the exchange include Federal Government development loan stocks, state government bonds, commercial and industrial loan stock, equity stocks, preference shares, etc.
The Nigerian Stock Exchange has welcomed a decent number of technology companies including MTN Nigeria, Airtel Africa; eTranzact; Computer Warehouse Group (CWG); Triple Gee & Company Plc; Omatek Plc; Chams Plc; and Courtville Business Solutions Plc. Many more businesses are constantly looking in the direction of the stock market to raise funding for expansion.
There are many benefits for companies choosing to list on the stock exchange. For some companies, listing on a stock exchange is a strategy to increase shareholder base and enhance credibility. Going public can also improve a company’s visibility and credibility among institutions and the investing public due to complying with various regulatory norms and ensuring transparency while conducting operations. Listing also allows shareholders to transact in the shares of the company, sharing risks as well as benefiting from any increase in the organisational value.
Although stock exchanges all over the world share some similarities, there are marked differences which companies need to consider. Niyi Toluwalope, CEO of eTranzact one of the fintech companies on the Nigerian Stock Exchange, shares three points that could help companies looking in this direction.
Appetite for risk
The Nigerian Stock Exchange, according to Toluwalope, attracts investors that are interested in steady capital. Tech companies are mainly after growth capital and require investors with a high-risk appetite.
“For example, I want to buy shares in companies that are listed because I know it is going to pay me dividends every year. Hence, it is more like a retirement plan rather than an aggressive investment play because I know that if I put money in this company in the next three years the money is going to grow fivefold,” he explained.
This is mostly responsible for why the stock exchange does not have a strong representation of the GDP of the country. Usually, a strong stock market typically signals a healthy economy. This is not the case for the Nigerian stock market despite the robust growth it has recorded over the years. Today’s economic growth is powered by agriculture and SME growth. Interestingly, not much of the capital in the exchange goes to these areas. The Nigerian stock market capitalisation to the GDP from 2019 is 9.6 percent whereas the world average in 2019 based on 58 countries is 83.64 percent
In the absence of healthy risk appetite from the stock market, many foreign private equity investors with high-risk appetite have dominated investments in technology companies in Nigeria.
“That is why you have private equity putting money because they expect that in three-four-five years they will make three-four-five times their money. They do not have dividend appetites per se but if they get a dividend in the process of achieving their capital appreciation objective it is well and good,” Toluwalope said.
Maturity to stay listed
It is one thing to get listed on the Nigerian Stock Exchange, however, it takes more than filing an application to stay a listed company. To put it differently, how long a company stays listed often depends on the discipline and maturity of that entity.
“A lot of these younger fintech companies still have very tepid growth, they are still battling with steady and consistent compliance issues which may attract sanctions and other types of actions while being listed. These need to be addressed for companies seeking to be listed. They have to be ready to demonstrate the maturity in providing the appropriate disclosures and transparencies that be and remain a listed entity,” Toluwalope said.
The leadership of the NSE has over the years delisted companies for different reasons including poor corporate governance, non-performance, failure to meet required post-quotation standards. For example, in 2018, the NSE said it has delisted 22 companies between 2016 and 2017.
“Companies will delist for different reasons from voluntary to regulatory delisting, mergers and acquisitions and other things that would cause them to delist,” Oscar Onyema, chief executive officer of the NSE had said.
A higher level of compliance
Transparency is not a very big word in the Nigerian technology space which is not healthy for those eyeing the stock market. The Nigeria Stock Exchange is a highly regulated environment with strict compliance expectations.
Often times when a company is delisted it is because of non-compliance. The NSE prides itself on having a zero-tolerance policy on regulatory infractions.