People purchase stocks in the hope or belief that the stock price will go up. In our dogged attempts to -ride the upward trends, any investment loss generally comes as an unwelcome surprise.
In reality, however, market cycles-the highs and the lows-should be expected. In more than forty years of tracking the performance of stocks and bonds, investment professionals have made one thing clear: What goes up must come down, and vice versa.
The cycles experienced but stocks and bonds characterize every investment, from money markets to real estate. Such ups and downs would make perfect sense to King Solomon, who referred to a “day of prosperity” and a “day of adversity” (Eccles. 7: 14) and wrote that there is a time for everything-from mourning to dancing (See Eccles. 3:1, 4). As investors, we must be prepared for both scenarios.
Saturday, 27 September 2008
LET TIME BE YOUR ALLY
Watching today’s investors is like watching an old “Beat the Clock” game-show rerun. Thinking that time is short, people scurry around looking for the “best” investment options since every day that passes is one less day available for wealth accumulation. Too often, such anxiety-driven decisions turn out to be poor ones. Harrison is a dermatologist I know. The short-term mind-set that once drove him to buy a big house, join an expensive country club, and generally go for life’s “gusto” has come back to haunt him. Burdened by debt and with no preparations made for his children’s education or his retirement, Harrison is in a race against time. He waited too long to start investing for the future, and like those who allow themselves to be pressured into hasty and ill-considered decisions, he now sees time as an enemy.
Had Harrison adopted a long-term outlook, time would have become his ally. Time is a tool-and the more you have of it, the better. It does not matter whether you have a lot of money to invest or just a little as long as you are willing to let time work on your behalf. For example, both a ten-thousand-dollar one-time investment and a one-hundred-dollar-per-month savings effort can yield significant rewards, thanks to the “magic” of compounding over time.
Had Harrison adopted a long-term outlook, time would have become his ally. Time is a tool-and the more you have of it, the better. It does not matter whether you have a lot of money to invest or just a little as long as you are willing to let time work on your behalf. For example, both a ten-thousand-dollar one-time investment and a one-hundred-dollar-per-month savings effort can yield significant rewards, thanks to the “magic” of compounding over time.
Thursday, 25 September 2008
WILL THE NEW CBN POLICY TURN MARKET?
The apex bank reduced the monetary policy rate (MPR) from 10.25 percent to 9.75 percent while cash reserve ratio (CRR) dropped from 4.0 percent to 2.0 percent. Liquidity ratio was sliced from 40 percent to 30 percent as repos transactions against eligible securities would be allowed for 90 days, 180 days and 360 days. The policy mix is primed to attract about N1 trillion in to the economy. Out of this fund, a good proportion is expected into the stock market.
This is likely to increase liquidity in the economy and financially empower investors to take position and stir demand and prices.
The stock market has lost about 27 percent since March. The slide was caused by a number of factors, including the confusion over margin trading; the 100,000 minimum trade before prices could move; and earlier planned recapitalisation of the stock broking firms; now rescinded harmonisation of banks’ year- end; increase in MPR from 9.50 percent to 10.5 percent ; increase in CRR from 2 percent to 4 percent; flight by hedge funds .Each of these factors led to liquidity squeeze in the stock market.
The current effort of government is expected to trigger upward trend in prices. The calculation of government is that reduction of MPR which is the rate the CBN lends money to banks would lead to fall in interest rate and allow customers, including investors to borrow at lower cost. This was meant to increase money supply in the economy, boost liquidity in the capital market and encourage investors to play in the market. Reduction in cash reserve requirement implies that more cash would be available to banks from their reserves and allow them extend credits to desiring investors.
Some of the most potent instruments in stabilising the market are the margin trading shares buy-back and creation of market makers. In share buy back, companies are allowed to buy their shares if they believe that the price is too low. This helps to boost share prices. Margin trading, which was the order of the day before the confusion that surrounded it, allows banks to extend margin credist to stock brokers or investors to take positions in stocks. Margin account was lucrative when the market was bullish. Until late March this year, those who played the market with money borrowed at even high interest rates harvested good returns as some stocks recorded three digit percent price appreciation . The practice was so rewarding that banks exposure in the area was high.
But since the market down turn, many investors have lost so much money that venturing into margin trading, may not worth the plunge. Already, there is share glut in the market now following liquidity squeeze and excess supply of stocks. In response to banks’ pressure to recover their money, stock brokers are said to be selling shares bought with margin credits, a development if allowed, that would further depress the market. To forestall this, the Central Securities and Clearing System, is said to have frozen such accounts.
The share buy back is yet to commence because of the legal hurdle which will take a while to be removed because of the long process of amending the Investment and Securities Act (ISA) to reflect the new rule. The appointment of market dealers would have been one of the best things that would happen to the market. But the logistics are still being worked out by SEC and the Nigerian Stock Exchange. And until that happens, market makers whose responsibility it is to buy off shares from selling investors are not going to be available to bail out the market.
As laudable as the intervention is, it remains an indirect instrument and is yet to impact the market. The truth of the matter is that the market needs direct intervention, if we must achieve similar immediate positive effects like what is happening in Europe and America . The injection of $180 billion by central banks of developed economies, led to market rebound over night because of the direct intervention.
Although the CBN may be cautious of the inflationary tendency of direct injection of funds into the economy, it may be the best option now given the level of loss the stock market has recorded so far. It could be an interim policy, pending when the other policies would start having effect. The apex bank can then mop up as an anti inflationary act.
The suspension of the stabilisation policy, I believe is ill-advised. The decision should be revisited. I do not agree with Finance Minister Shamsudeen Usman that the latest decision to stabilise the market has taken care of the earlier plan for intervention fund. Most of the latest pronouncements to halt the market slide are indirect policies. So, the stabilisation fund would have been a more effective tool.
As for the recovery period for the market, I see that happening soon. A study of the market in the last few days shows that the level of loss is declining. And as the share glut in the market is mopped up following the liquidity- enhancing policies, the market would stage resurgence.
This is likely to increase liquidity in the economy and financially empower investors to take position and stir demand and prices.
The stock market has lost about 27 percent since March. The slide was caused by a number of factors, including the confusion over margin trading; the 100,000 minimum trade before prices could move; and earlier planned recapitalisation of the stock broking firms; now rescinded harmonisation of banks’ year- end; increase in MPR from 9.50 percent to 10.5 percent ; increase in CRR from 2 percent to 4 percent; flight by hedge funds .Each of these factors led to liquidity squeeze in the stock market.
The current effort of government is expected to trigger upward trend in prices. The calculation of government is that reduction of MPR which is the rate the CBN lends money to banks would lead to fall in interest rate and allow customers, including investors to borrow at lower cost. This was meant to increase money supply in the economy, boost liquidity in the capital market and encourage investors to play in the market. Reduction in cash reserve requirement implies that more cash would be available to banks from their reserves and allow them extend credits to desiring investors.
Some of the most potent instruments in stabilising the market are the margin trading shares buy-back and creation of market makers. In share buy back, companies are allowed to buy their shares if they believe that the price is too low. This helps to boost share prices. Margin trading, which was the order of the day before the confusion that surrounded it, allows banks to extend margin credist to stock brokers or investors to take positions in stocks. Margin account was lucrative when the market was bullish. Until late March this year, those who played the market with money borrowed at even high interest rates harvested good returns as some stocks recorded three digit percent price appreciation . The practice was so rewarding that banks exposure in the area was high.
But since the market down turn, many investors have lost so much money that venturing into margin trading, may not worth the plunge. Already, there is share glut in the market now following liquidity squeeze and excess supply of stocks. In response to banks’ pressure to recover their money, stock brokers are said to be selling shares bought with margin credits, a development if allowed, that would further depress the market. To forestall this, the Central Securities and Clearing System, is said to have frozen such accounts.
The share buy back is yet to commence because of the legal hurdle which will take a while to be removed because of the long process of amending the Investment and Securities Act (ISA) to reflect the new rule. The appointment of market dealers would have been one of the best things that would happen to the market. But the logistics are still being worked out by SEC and the Nigerian Stock Exchange. And until that happens, market makers whose responsibility it is to buy off shares from selling investors are not going to be available to bail out the market.
As laudable as the intervention is, it remains an indirect instrument and is yet to impact the market. The truth of the matter is that the market needs direct intervention, if we must achieve similar immediate positive effects like what is happening in Europe and America . The injection of $180 billion by central banks of developed economies, led to market rebound over night because of the direct intervention.
Although the CBN may be cautious of the inflationary tendency of direct injection of funds into the economy, it may be the best option now given the level of loss the stock market has recorded so far. It could be an interim policy, pending when the other policies would start having effect. The apex bank can then mop up as an anti inflationary act.
The suspension of the stabilisation policy, I believe is ill-advised. The decision should be revisited. I do not agree with Finance Minister Shamsudeen Usman that the latest decision to stabilise the market has taken care of the earlier plan for intervention fund. Most of the latest pronouncements to halt the market slide are indirect policies. So, the stabilisation fund would have been a more effective tool.
As for the recovery period for the market, I see that happening soon. A study of the market in the last few days shows that the level of loss is declining. And as the share glut in the market is mopped up following the liquidity- enhancing policies, the market would stage resurgence.
Wednesday, 24 September 2008
STARCOMMS CLARIFIES LOSS SITUATION
Starcomms on Wednesday 17th September, held a stakeholders forum aimed at providing insight to the company’s performance for the half year ended 30th June 2008. Contrary to our expectations, Starcomms had posted a half year net loss of N1.014 billion on the back of turnover of N8.965billion. A swift market reaction to the result announced on August 14 saw the stock shedding 23% of its value, thus resulting in a need for the company to throw more light on its operational and financial performance.
We present below major highlights of the forum pending our equity note on the stock:
· Management reiterated that the result was adversely impacted by exogenous factors, mainly attributable to a spike in power costs (owing to sharp increases in diesel price during the period), and exchange rate related losses as a result of foreign currency debt. Diesel expenses as at end of Half year 2008 was approximately N583million, an increase of 82.7% over management’s budget figure of N319million. Management also stated that losses due to foreign exchange were approximately N233million.
· Management also stated that it made debt provisions of N172million in respect of Interconnect charges owed by four telecoms operators during the period.
· At the end of June 2008, Starcomms had an estimated net debt position of $26million, and cash balance $229 million, implying total balance sheet debt of $255million.
· It was affirmed that the company’s ownership structure remained intact, as the core investor (SN Communications Holdings ltd) increased its equity stake in the company to 29%. Management stated that the huge volumes observed upon listing was in line with the Nigerian Stock Exchange (NSE) rules on listing by introduction, which stipulated that the issuer offered 5% of its outstanding shares (approximately 350million) to the market to provide liquidity for the stock.
· Current subscriber base is estimated at 1.5million with average daily activations of 10,000 subscribers, while Average Revenue per User (ARPU) at $19 per user remains solid, and well above competitors ARPU; MTN $16/ user, Zain $12/ user and Globacom$ 14/user.
· The company’s network expansion plan is very much on course. Starcomms effective coverage now extends to 21 major cities in the country. The company’s coverage is expected to extend to 31 major cities by the end year. Management also stated that revenue projections were also on target.
· Starcomms intends to adopt the Co-location of base station infrastructure with competitors with a view to reducing costs. It is expected that this measure would greatly reduce capital investment costs on network development.
· Key strategies being employed by management in meeting its year end forecasts include, Aggressive growth of its higher margin data business, driving volume growth in its tele-centre business segment and development of product lines to cater for corporate customers.
While management has expressed great optimism in meeting its full year earnings forecast, we tend to adopt a more cautious stance in view of the company’s recent results. It is our view that the results for the next few quarters would be very crucial in determining management’s ability to meet key performance indices as stated in its offer prospectus. We will be publishing our recommendation on the stock once we get the required input for our financial model.
We present below major highlights of the forum pending our equity note on the stock:
· Management reiterated that the result was adversely impacted by exogenous factors, mainly attributable to a spike in power costs (owing to sharp increases in diesel price during the period), and exchange rate related losses as a result of foreign currency debt. Diesel expenses as at end of Half year 2008 was approximately N583million, an increase of 82.7% over management’s budget figure of N319million. Management also stated that losses due to foreign exchange were approximately N233million.
· Management also stated that it made debt provisions of N172million in respect of Interconnect charges owed by four telecoms operators during the period.
· At the end of June 2008, Starcomms had an estimated net debt position of $26million, and cash balance $229 million, implying total balance sheet debt of $255million.
· It was affirmed that the company’s ownership structure remained intact, as the core investor (SN Communications Holdings ltd) increased its equity stake in the company to 29%. Management stated that the huge volumes observed upon listing was in line with the Nigerian Stock Exchange (NSE) rules on listing by introduction, which stipulated that the issuer offered 5% of its outstanding shares (approximately 350million) to the market to provide liquidity for the stock.
· Current subscriber base is estimated at 1.5million with average daily activations of 10,000 subscribers, while Average Revenue per User (ARPU) at $19 per user remains solid, and well above competitors ARPU; MTN $16/ user, Zain $12/ user and Globacom$ 14/user.
· The company’s network expansion plan is very much on course. Starcomms effective coverage now extends to 21 major cities in the country. The company’s coverage is expected to extend to 31 major cities by the end year. Management also stated that revenue projections were also on target.
· Starcomms intends to adopt the Co-location of base station infrastructure with competitors with a view to reducing costs. It is expected that this measure would greatly reduce capital investment costs on network development.
· Key strategies being employed by management in meeting its year end forecasts include, Aggressive growth of its higher margin data business, driving volume growth in its tele-centre business segment and development of product lines to cater for corporate customers.
While management has expressed great optimism in meeting its full year earnings forecast, we tend to adopt a more cautious stance in view of the company’s recent results. It is our view that the results for the next few quarters would be very crucial in determining management’s ability to meet key performance indices as stated in its offer prospectus. We will be publishing our recommendation on the stock once we get the required input for our financial model.
START BUYING NOW!
Sometimes investors will like to stay away from the stock market when there is a sustained market downturn. These investors will run away after being bombarded with all the negative news.
I think this is wrong. This is the time to be active here, to ask all buying questions now, to make your purchases now, and they wait for the bulls to arrive. That bullish time is when mistakes are common. That is when caution is thrown to the winds, when people buy just because others are buying, when everyone suddenly becomes the stock expert. Giving buying tips because it’s easy to say this stock will go up, and it does. That is when you need to sell, not buy!
Bear periods are supposed to be active time while bull periods, well you just sell and hide.
I think this is wrong. This is the time to be active here, to ask all buying questions now, to make your purchases now, and they wait for the bulls to arrive. That bullish time is when mistakes are common. That is when caution is thrown to the winds, when people buy just because others are buying, when everyone suddenly becomes the stock expert. Giving buying tips because it’s easy to say this stock will go up, and it does. That is when you need to sell, not buy!
Bear periods are supposed to be active time while bull periods, well you just sell and hide.
Monday, 22 September 2008
AFROIL TO PAY DIVIDEND
After 10 years without a dividend payout to its shareholders, the management of Afroil Plc has concluded plans to declare dividends at the end of its 2009 financial year.
A statement from the company on Friday stated that the payment of dividend had become imperative following the resolution of its internal crisis and the company’s drive for profitability.
The statement added that the company had assured investors of increased return on investment as soon as the technical suspension placed on its shares by the Nigerian Stock Exchange was lifted.
The Managing Director, Afroil Plc, Mr Olakunle Sanni, while speaking at its extra-ordinary general meeting in Kano, stated that the company was no longer indebted to any commercial creditor and as such, its long-term solvency as at June 2008, had been re-established with a total shareholders’ fund of N300m and a turnover of N200m.
He noted that with the inauguration of a new board of directors, the company was well repositioned for effective competition with N4.5bn capital expenditure programme within the next three years; construction of 30 new service petrol stations, investment in lubricants blending and aviation depots.
While commending officials of the Securities and Exchange Commission and the Corporate Affairs Commission for their presence during the EGM, Sanni pointed out that the relationship between the company and the regulatory authorities would lead to a favourable impact on its shareholders.
Meanwhile the company’s shareholders at the meeting approved the resolution to consolidate its share capital of N65m divided into 235 million shares of 20 kobo each, to 130 million shares of 50 kobo each, with all shares ranking equally in rights, as contained its articles of association.
A statement from the company on Friday stated that the payment of dividend had become imperative following the resolution of its internal crisis and the company’s drive for profitability.
The statement added that the company had assured investors of increased return on investment as soon as the technical suspension placed on its shares by the Nigerian Stock Exchange was lifted.
The Managing Director, Afroil Plc, Mr Olakunle Sanni, while speaking at its extra-ordinary general meeting in Kano, stated that the company was no longer indebted to any commercial creditor and as such, its long-term solvency as at June 2008, had been re-established with a total shareholders’ fund of N300m and a turnover of N200m.
He noted that with the inauguration of a new board of directors, the company was well repositioned for effective competition with N4.5bn capital expenditure programme within the next three years; construction of 30 new service petrol stations, investment in lubricants blending and aviation depots.
While commending officials of the Securities and Exchange Commission and the Corporate Affairs Commission for their presence during the EGM, Sanni pointed out that the relationship between the company and the regulatory authorities would lead to a favourable impact on its shareholders.
Meanwhile the company’s shareholders at the meeting approved the resolution to consolidate its share capital of N65m divided into 235 million shares of 20 kobo each, to 130 million shares of 50 kobo each, with all shares ranking equally in rights, as contained its articles of association.
STABILIZATION FUNDS SHOULD HAVE COME EARLIER
Analysts have said that the bearish trend of activities in the Nigerian capital market have continued because the establishment of the stabilisation fund was not given priority.
According to them, the intervention measures by the Federal Government were not being implemented in the order of importance.
While noting that the rescue measures were in the right direction, they said if implementation was not at the right priority level, it might not have the desired effect.
The Chief Consultant, B. Adedipe Associates Limited, Mr. Biodun Adedipe, said that if the establishment of a capital market stabilisation fund had been implemented on time, the market might have started to pick up.
Speaking during the Securities and Exchange Commission’s workshop for journalists in Kaduna, he said, “The intervention fund by the Federal Government, through the immediate injection of funds into the system, should have been put first.
“Other jurisdictions, which have experienced this same trend, usually implement the intervention funds first.
“This is the reason why the intervention in the Nigerian capital market has not yet brought the desired results. It is because the intervention fund has not been properly applied.”
The Minister of Finance, Dr. Shamsuddeen Usman, however, said on Thursday that with the recent liquidity injection measures taken by the Central Bank of Nigeria, the establishment of a stabilisation fund was no longer required.
But Adedipe advised that there should be teamwork between the CBN, SEC and the Nigerian Stock Exchange to effectively regulate the financial services sector of the economy.
He said, “The pattern and nature of market operations compel collaboration by the financial system regulators. For effectiveness of regulation, regulators must protect investors and represent their interest, and should be fully schooled about the operations of the system.”
He said that the regulators should ensure that they created an enabling environment, if they wanted wider participation from both local and foreign investors in the capital market.
“SEC must be primed to handle issues that have to do with cross border listing and trading, 24-hour trading and other complications in the market. The Director-General has to ensure market integrity, without thinking of the political undertone of the ideas,” he said.
On whether it was right for operators to intervene in capital market activities, the Managing Director, Nigerian Capital Market Institute, Mr. Oluwatobi Oyefeso, said some form of intervention was required.
He said that the regulatory bodies, including the CBN, had been intervening through moral suasion to improve the money market.
According to them, the intervention measures by the Federal Government were not being implemented in the order of importance.
While noting that the rescue measures were in the right direction, they said if implementation was not at the right priority level, it might not have the desired effect.
The Chief Consultant, B. Adedipe Associates Limited, Mr. Biodun Adedipe, said that if the establishment of a capital market stabilisation fund had been implemented on time, the market might have started to pick up.
Speaking during the Securities and Exchange Commission’s workshop for journalists in Kaduna, he said, “The intervention fund by the Federal Government, through the immediate injection of funds into the system, should have been put first.
“Other jurisdictions, which have experienced this same trend, usually implement the intervention funds first.
“This is the reason why the intervention in the Nigerian capital market has not yet brought the desired results. It is because the intervention fund has not been properly applied.”
The Minister of Finance, Dr. Shamsuddeen Usman, however, said on Thursday that with the recent liquidity injection measures taken by the Central Bank of Nigeria, the establishment of a stabilisation fund was no longer required.
But Adedipe advised that there should be teamwork between the CBN, SEC and the Nigerian Stock Exchange to effectively regulate the financial services sector of the economy.
He said, “The pattern and nature of market operations compel collaboration by the financial system regulators. For effectiveness of regulation, regulators must protect investors and represent their interest, and should be fully schooled about the operations of the system.”
He said that the regulators should ensure that they created an enabling environment, if they wanted wider participation from both local and foreign investors in the capital market.
“SEC must be primed to handle issues that have to do with cross border listing and trading, 24-hour trading and other complications in the market. The Director-General has to ensure market integrity, without thinking of the political undertone of the ideas,” he said.
On whether it was right for operators to intervene in capital market activities, the Managing Director, Nigerian Capital Market Institute, Mr. Oluwatobi Oyefeso, said some form of intervention was required.
He said that the regulatory bodies, including the CBN, had been intervening through moral suasion to improve the money market.
ZOOMMOBILE?
ZOOMmobile, one of Nigeria’s foremost telecommunications solutions providers, has rolled out its national voice, data and other value-added services in Kano, the company said on Thursday.
The Emir of Kano, His Royal Highness Alhaji Ado Bayero, while receiving the Management team of ZOOMmobile at his palace, as part of activities marking the launch, lauded the company for pioneering tariff reduction in the industry, and continuously striving to make telecommunications services affordable to all, irrespective of social or economic class.
The emir further urged the company to ensure that residents of Kano enjoyed world class services on its network, and pledged his continued support and encouragement to the company.
Earlier in his speech, the Group Managing Director of ZOOMmobile, Mr. Tony Okonkwo, said that his team was in the palace to pay homage to the monarch and seek his royal blessing for a mutually beneficial business relationship with the good people of Kano.
Okonkwo stated that ZOOMmobile was in Kano to alter the telecommunications landscape for good, by providing a robust, fast, stable, effective and affordable network that empowered people to excel in all of their aspirations and endeavors.
In keeping with its corporate social investment strategy of empowering enterprising Nigerians to own their own businesses, the company donated 50 telephone handsets and recharge cards to the Emir, for distribution to some of his subjects, as a way of helping in the fight to alleviate poverty in the country.
It will be recalled that ZOOMmobile re-branded recently, dropping its former name (Reltelwireless), and launching the unique 0707 range of numbers, making it the first CDMA operator to acquire a four-digit number prefix.
The company has also maintained leadership of the CDMA segment of the market by having the widest coverage and subscriber base. ZOOMmobile currently covers 20 states in Nigeria, including the Federal Capital Territory, and has a subscriber base of more than 1.5million.
ZOOMmobile was recently voted the “CDMA Company of the Year 2008” and the “Most Improved Telephone Company of the Year 2008 at the Nigeria Telecoms Award.
TIGERKENN comments.........
All these companies are fighting for the soul of Nigeria's telecomm business, we hope Nitel will wake up and give some little challenge.
The Emir of Kano, His Royal Highness Alhaji Ado Bayero, while receiving the Management team of ZOOMmobile at his palace, as part of activities marking the launch, lauded the company for pioneering tariff reduction in the industry, and continuously striving to make telecommunications services affordable to all, irrespective of social or economic class.
The emir further urged the company to ensure that residents of Kano enjoyed world class services on its network, and pledged his continued support and encouragement to the company.
Earlier in his speech, the Group Managing Director of ZOOMmobile, Mr. Tony Okonkwo, said that his team was in the palace to pay homage to the monarch and seek his royal blessing for a mutually beneficial business relationship with the good people of Kano.
Okonkwo stated that ZOOMmobile was in Kano to alter the telecommunications landscape for good, by providing a robust, fast, stable, effective and affordable network that empowered people to excel in all of their aspirations and endeavors.
In keeping with its corporate social investment strategy of empowering enterprising Nigerians to own their own businesses, the company donated 50 telephone handsets and recharge cards to the Emir, for distribution to some of his subjects, as a way of helping in the fight to alleviate poverty in the country.
It will be recalled that ZOOMmobile re-branded recently, dropping its former name (Reltelwireless), and launching the unique 0707 range of numbers, making it the first CDMA operator to acquire a four-digit number prefix.
The company has also maintained leadership of the CDMA segment of the market by having the widest coverage and subscriber base. ZOOMmobile currently covers 20 states in Nigeria, including the Federal Capital Territory, and has a subscriber base of more than 1.5million.
ZOOMmobile was recently voted the “CDMA Company of the Year 2008” and the “Most Improved Telephone Company of the Year 2008 at the Nigeria Telecoms Award.
TIGERKENN comments.........
All these companies are fighting for the soul of Nigeria's telecomm business, we hope Nitel will wake up and give some little challenge.
CHEVRON SALE, WORKERS MEET TOMORROW
The Petroleum and Natural Gas Senior Staff Association and its National Union of Petroleum and Natural Gas Workers, will meet on Tuesday to discuss Friday’s announcement that Chevron Oil Plc had been sold to a Panamanian company, Corlay Global S.A.
The Chairman, PENGASSAN, Chevron Branch, Mr. Mr. Clement Ofoegbu, who spoke with our correspondent on Sunday, said the sale was another gimmick being adopted by the United States corporation to deny workers of their benefits and severance package.
He said, “We heard the announcement on Friday that the company (Chevron Oil) had been sold to a Panamanian company, when we all know it is MRS Oil and Gas, but they will not go too far.
“The unions are going to meet on Tuesday to discuss the development, because of this Panama angle. That was the same thing the management did when the issue of the divestment came up, and suddenly Chevron Oil became a Bermuda company, rather than the one in San Ramon, California.
“No matter what excuse they come up with, they must pay us because we have worked for it, and to think that the announcement was made when the matter was still in court shows that some of the top management are ready to go to prison.”
Inquiries showed that Corlay Global S.A. is registered in Panama and is owned by an African-based consortium composed of MRS Holdings Limited, an indigenous oil marketing firm owned by business mogul, Sayyu Dantata, and Petroci Holdings.
The lack of information on Corlay, made analysts believe that it was merely a portfolio company set up purposefully for the buy out, which confirms workers fears that the transaction was all a rouse to deny them of their benefits.
Chevron Corporation announced that its subsidiary, Chevron Africa Holdings Limited has agreed to sell Chevron Nigeria Holdings Limited to Corlay Global S.A,
According to the corporation, “Chevron Nigeria Holdings is a Bermudan company that holds 60 per cent of the issued shares of Chevron Oil Nigeria PLC, a public listed operator and owner of downstream marketing assets in Nigeria.”
The Chairman, PENGASSAN, Chevron Branch, Mr. Mr. Clement Ofoegbu, who spoke with our correspondent on Sunday, said the sale was another gimmick being adopted by the United States corporation to deny workers of their benefits and severance package.
He said, “We heard the announcement on Friday that the company (Chevron Oil) had been sold to a Panamanian company, when we all know it is MRS Oil and Gas, but they will not go too far.
“The unions are going to meet on Tuesday to discuss the development, because of this Panama angle. That was the same thing the management did when the issue of the divestment came up, and suddenly Chevron Oil became a Bermuda company, rather than the one in San Ramon, California.
“No matter what excuse they come up with, they must pay us because we have worked for it, and to think that the announcement was made when the matter was still in court shows that some of the top management are ready to go to prison.”
Inquiries showed that Corlay Global S.A. is registered in Panama and is owned by an African-based consortium composed of MRS Holdings Limited, an indigenous oil marketing firm owned by business mogul, Sayyu Dantata, and Petroci Holdings.
The lack of information on Corlay, made analysts believe that it was merely a portfolio company set up purposefully for the buy out, which confirms workers fears that the transaction was all a rouse to deny them of their benefits.
Chevron Corporation announced that its subsidiary, Chevron Africa Holdings Limited has agreed to sell Chevron Nigeria Holdings Limited to Corlay Global S.A,
According to the corporation, “Chevron Nigeria Holdings is a Bermudan company that holds 60 per cent of the issued shares of Chevron Oil Nigeria PLC, a public listed operator and owner of downstream marketing assets in Nigeria.”
TRADING MOVES FOR THIS WEEK
Hello good people out there, its another brand new week for us traders in the Nigerian capital markets, the stock market to be exact. We have been presented with another opportunity to better our fortunes trading stocks on the good old NSE.
Looking at the recent happening, as regards the announcements that were made by the CBN after due consultations with many institutions, the market condition seems to be headed for the better, i.e., stock prices going up and allowing investors that have already taken position in the stock market to enjoy some capital appreciation.
After those announcements were made last Thursday, investors all expected to see a full reversal of all market indices, we all expected to see all stocks gaining across board as early as last Friday, but that was not to be as the market still closed Friday at a loss. Some has suggested that the real impact of this announcement will take some time to kick in since the market players are still studying the rules and its possible effects, negative and positive. But others say the loss on Friday was as a result of investors discomfort with the persistent fall in the stock prices.
So, what do we do as traders? Buy now and risk a possible relapse to the losing streak or stay off buying and also risk being left behind as the bulls take over. The good trader will want to be in on the bull as it as it starts, but care should be taken to avoid burning our fingers.
There was also this rumor at the end of last week for the suspension of the 1% maximum drop in share prices, we await this announcement as it will return things to near normal and clear the way for good trading.
We are watching
Looking at the recent happening, as regards the announcements that were made by the CBN after due consultations with many institutions, the market condition seems to be headed for the better, i.e., stock prices going up and allowing investors that have already taken position in the stock market to enjoy some capital appreciation.
After those announcements were made last Thursday, investors all expected to see a full reversal of all market indices, we all expected to see all stocks gaining across board as early as last Friday, but that was not to be as the market still closed Friday at a loss. Some has suggested that the real impact of this announcement will take some time to kick in since the market players are still studying the rules and its possible effects, negative and positive. But others say the loss on Friday was as a result of investors discomfort with the persistent fall in the stock prices.
So, what do we do as traders? Buy now and risk a possible relapse to the losing streak or stay off buying and also risk being left behind as the bulls take over. The good trader will want to be in on the bull as it as it starts, but care should be taken to avoid burning our fingers.
There was also this rumor at the end of last week for the suspension of the 1% maximum drop in share prices, we await this announcement as it will return things to near normal and clear the way for good trading.
We are watching
Thursday, 18 September 2008
NIGERIA INJECTS BILLIONS TO SAVE MARKET
ABUJA, Sept 18 (Reuters) - Nigeria's central bank said on Thursday it injected about 150 billion naira (around $1.27 bln) into the financial markets and reduced the cash reserve requirement to 2 percent from 4 percent.
"In order to lubricate the system, (the Monetary Policy Committee) has decided to ensure that the financial system remains liquid," said Central Bank Governor Chukwuma Soludo.
The bank also lowered its liquidity ratio to 30 percent from 40 percent, and said it would allow repo transactions against eligible securities for 90 days, 180 days and 360 days. (Reporting by Camillus Eboh; Writing by Randy Fabi)
"In order to lubricate the system, (the Monetary Policy Committee) has decided to ensure that the financial system remains liquid," said Central Bank Governor Chukwuma Soludo.
The bank also lowered its liquidity ratio to 30 percent from 40 percent, and said it would allow repo transactions against eligible securities for 90 days, 180 days and 360 days. (Reporting by Camillus Eboh; Writing by Randy Fabi)
BUY NBC NOW!
From reliable information, there is a good reason to get in and stay long in NBC stocks. The company is embarking on some reorganization unseen in the last 20 yrs of the company’s existence. Cost cutting, better negotiation of contracts and generally profit oriented moves will start to pay in about one year from now. Load up on this one if you plan to stay long.
2ND QTR RESULT FOR NBC PLC
2ND QUARTER ENDED JUNE 2008
NIGERIAN BOTTLING CO. PLC. 2ND QUARTER ENDED 30/06/08.
TURNOVER 08 N39.4B 07 N34.1B
PBT 08 N2.22B 07 N2.0B
TAXATION 08 (N5M) 07 (N332.0M)
PAT 08 N2.21B 07 N1.68B
NIGERIAN BOTTLING CO. PLC. 2ND QUARTER ENDED 30/06/08.
TURNOVER 08 N39.4B 07 N34.1B
PBT 08 N2.22B 07 N2.0B
TAXATION 08 (N5M) 07 (N332.0M)
PAT 08 N2.21B 07 N1.68B
2ND QTR RESULTS FOR GTB
GUARANTY TRUST BANK PLC
UNAUDITED RESULTS FOR SECOND QUARTER ENDING AUGUST 31, 2008
2008 2007 %CHANGE
TURNOVER N57.2b N33.0b 73
PROFIT BEFORE TAX N23.0b N11.0b 109
TAXATION (N7.4b) (N3.5b) 109
PROFIT AFTER TAX N15.7b N7.5b 109
UNAUDITED RESULTS FOR SECOND QUARTER ENDING AUGUST 31, 2008
2008 2007 %CHANGE
TURNOVER N57.2b N33.0b 73
PROFIT BEFORE TAX N23.0b N11.0b 109
TAXATION (N7.4b) (N3.5b) 109
PROFIT AFTER TAX N15.7b N7.5b 109
Wednesday, 17 September 2008
ARE NIGERIAN BANKS AS HEALTHY AS THEY CLAIM?
THE bright logos of Nigeria’s financial institutions adorn the tallest and poshest office blocks in central Lagos, the country’s commercial capital, testimony to years of impressive growth in banking. But now, after a rocky year, there are worries that some of the optimism may have been overblown.
The reform of Nigeria’s creaking, corrupt banking system was one of the big achievements of President Olusegun Obasanjo in his second term in office (2003-07). As part of a policy to squeeze weak or failing banks out of business, in 2005 the Central Bank of Nigeria raised banks’ capital requirements. In a hectic round of consolidation, the number of banks dropped from 89 to 24. Those that remained have had a very good few years, with massive local expansion and sometimes triple-digit growth in their share prices. And with less than a fifth of Nigerians keeping their money in banks and with fast growth led by private companies, there still seems to be plenty of potential for more business. Banks surveyed by a Lagos-based stockbroker, Afrinvest, showed that median before-tax earnings had risen by 141% year-on-year by June.
Yet share prices have been dropping throughout 2008, suggesting a lack of confidence. Would-be investors have started to eye Nigeria’s banks, in particular their regulatory practices, more warily. Some wonder whether the apparent gains of the past few years are all they seem. “The foundation is not there, it’s weak,” says an analyst, Osaruyi Orobosa-Ogbeide, of a Lagos-based firm, Financial Derivatives.
Though banking standards have certainly risen a lot in recent years, they still lag behind those of America and the European Union, particularly in terms of transparency. In April, United Bank for Africa, one of the country’s biggest, fell foul of American regulators who served the bank with a $15m fine for ignoring anti-money-laundering regulations despite several warnings. “There’s no resemblance at all between operating in Britain or America and operating in Nigeria,” says Fola Fagbule, a research analyst with Afrinvest. “It’s light years apart, and it’s an issue [the banks] need to address”.
The top seven Nigerian banks, with a combined market value of almost $40 billion, are overvalued by as much as 56%, according to a report published in May by JPMorgan, an American financial-services company. Part of the problem is that banks have used their own money to push up their stock prices by engaging in risky lending to corporations and individuals who invest in the banks’ own shares.
Those in charge of imposing some order on the sector have also been found wanting. After share prices began to fall earlier this year, the central bank set a floor on trading in a bid to buoy the market. Investors were left with no choice but to hold on to stocks; that unnerved many of them. Bismarck Rewane of Financial Derivatives described the action as “a disorderly intervention in a chaotic market.”
Lamido Sanusi, a risk-control officer who will take over next January as the head of Nigeria’s oldest bank, First Bank, is disappointed that regulators are not tougher in insisting on transparency and disclosure of information. Foreign investors demand open banking procedures, he says, yet banks are not now obliged to open their books to scrutiny. “Are these banks being properly managed? Are these assets being properly deployed?” asks Mr Sanusi. “We don’t know the reality.”
Nigeria is sub-Saharan Africa’s second-biggest economy after South Africa’s and the world’s eighth-largest oil exporter, yet the continent’s most populous country (with 140m-plus citizens) has yet to fulfil its economic potential. A robust banking sector that everyone can have confidence in is essential; the country’s reformers and regulators cannot rest on their laurels.
The reform of Nigeria’s creaking, corrupt banking system was one of the big achievements of President Olusegun Obasanjo in his second term in office (2003-07). As part of a policy to squeeze weak or failing banks out of business, in 2005 the Central Bank of Nigeria raised banks’ capital requirements. In a hectic round of consolidation, the number of banks dropped from 89 to 24. Those that remained have had a very good few years, with massive local expansion and sometimes triple-digit growth in their share prices. And with less than a fifth of Nigerians keeping their money in banks and with fast growth led by private companies, there still seems to be plenty of potential for more business. Banks surveyed by a Lagos-based stockbroker, Afrinvest, showed that median before-tax earnings had risen by 141% year-on-year by June.
Yet share prices have been dropping throughout 2008, suggesting a lack of confidence. Would-be investors have started to eye Nigeria’s banks, in particular their regulatory practices, more warily. Some wonder whether the apparent gains of the past few years are all they seem. “The foundation is not there, it’s weak,” says an analyst, Osaruyi Orobosa-Ogbeide, of a Lagos-based firm, Financial Derivatives.
Though banking standards have certainly risen a lot in recent years, they still lag behind those of America and the European Union, particularly in terms of transparency. In April, United Bank for Africa, one of the country’s biggest, fell foul of American regulators who served the bank with a $15m fine for ignoring anti-money-laundering regulations despite several warnings. “There’s no resemblance at all between operating in Britain or America and operating in Nigeria,” says Fola Fagbule, a research analyst with Afrinvest. “It’s light years apart, and it’s an issue [the banks] need to address”.
The top seven Nigerian banks, with a combined market value of almost $40 billion, are overvalued by as much as 56%, according to a report published in May by JPMorgan, an American financial-services company. Part of the problem is that banks have used their own money to push up their stock prices by engaging in risky lending to corporations and individuals who invest in the banks’ own shares.
Those in charge of imposing some order on the sector have also been found wanting. After share prices began to fall earlier this year, the central bank set a floor on trading in a bid to buoy the market. Investors were left with no choice but to hold on to stocks; that unnerved many of them. Bismarck Rewane of Financial Derivatives described the action as “a disorderly intervention in a chaotic market.”
Lamido Sanusi, a risk-control officer who will take over next January as the head of Nigeria’s oldest bank, First Bank, is disappointed that regulators are not tougher in insisting on transparency and disclosure of information. Foreign investors demand open banking procedures, he says, yet banks are not now obliged to open their books to scrutiny. “Are these banks being properly managed? Are these assets being properly deployed?” asks Mr Sanusi. “We don’t know the reality.”
Nigeria is sub-Saharan Africa’s second-biggest economy after South Africa’s and the world’s eighth-largest oil exporter, yet the continent’s most populous country (with 140m-plus citizens) has yet to fulfil its economic potential. A robust banking sector that everyone can have confidence in is essential; the country’s reformers and regulators cannot rest on their laurels.
FBN 1:4 BONUS REFUSED?
Security & Exchange Commission (SEC) is yet to clear and register First Bank of Nigeria Plc (FBN) bonus of one for every four shares declared by the Directors of the bank for the year ended March 31 2008.
A source at First Registrars Limited confirmed this to Proshare NI today in Lagos Nigeria. “We have no clearance from SEC to go ahead and pay the bonus” the source affirmed.
“For the fact that a bonus is declared does not mean that we would just issue same, it has to be cleared and registered by SEC” the source said.
The source further affirmed that if there are new issues in the market, the Apex Capital Market Regulatory Body would be convinced that such issues to be given out are appropriate and are from the right source.
Proshare NI sought to confirm the issue with another source at FBN Capital. However our source at FBN Capital affirmed to Proshare NI that it is the duty of the Board of a company to approve and issue bonus to investors and not within the purview of SEC.
“This may be a recent development, which I may not be aware; that a company is awaiting SEC’s clearance to issue bonus declared by it to investors” the source said.
Our source at FBN Capital further affirmed that bonus issue is not a thing done in a hurry. “It takes a little time” the source confirmed.
This is coming on the heels of investors enquiries that has inundated the mail box of Proshare NI in respect of the 1 for 4 bonus issue recommended by First Bank’s Board of Directors.
However, as at the time of filling in this report, Proshare NI could not clarify the true status of the issue with either the officials of SEC or FBN.
As earlier published on Proshare NI’s website FBN audited results for the year ended March 31 2008 showed the bank made a Gross Earnings of N155.3 billion in year 2008 compared to N91.2 billion recorded in 2007.
In the same vein, its Profit after Tax (PAT) increased from N20.64 billion in year 2007 to N36.54 billion in the
A source at First Registrars Limited confirmed this to Proshare NI today in Lagos Nigeria. “We have no clearance from SEC to go ahead and pay the bonus” the source affirmed.
“For the fact that a bonus is declared does not mean that we would just issue same, it has to be cleared and registered by SEC” the source said.
The source further affirmed that if there are new issues in the market, the Apex Capital Market Regulatory Body would be convinced that such issues to be given out are appropriate and are from the right source.
Proshare NI sought to confirm the issue with another source at FBN Capital. However our source at FBN Capital affirmed to Proshare NI that it is the duty of the Board of a company to approve and issue bonus to investors and not within the purview of SEC.
“This may be a recent development, which I may not be aware; that a company is awaiting SEC’s clearance to issue bonus declared by it to investors” the source said.
Our source at FBN Capital further affirmed that bonus issue is not a thing done in a hurry. “It takes a little time” the source confirmed.
This is coming on the heels of investors enquiries that has inundated the mail box of Proshare NI in respect of the 1 for 4 bonus issue recommended by First Bank’s Board of Directors.
However, as at the time of filling in this report, Proshare NI could not clarify the true status of the issue with either the officials of SEC or FBN.
As earlier published on Proshare NI’s website FBN audited results for the year ended March 31 2008 showed the bank made a Gross Earnings of N155.3 billion in year 2008 compared to N91.2 billion recorded in 2007.
In the same vein, its Profit after Tax (PAT) increased from N20.64 billion in year 2007 to N36.54 billion in the
EXPERTS TO REFORM OUR CAPITAL MARKET
The Securities and Exchange Commission (SEC) will today inaugurate a 10-man committee of experts, including international fund managers, to review the operations of the Nigerian capital market and align it with its peers around the world.
The planned reform comes in the wake of lingering worry over the continued downward trend in the stock market in spite of desperate moves by the Federal Government to stem the fall.
This latest intervention at the instance of SEC is expected to be the forerunner to perhaps the most fundamental reform of the market and should help to restore the market’s reputation and give comfort to major market players who have taken a very dim view of the unorthodox methods applied lately by the authorities.
Business Day learnt that the committee which to be chaired by Adedotun Suleiman, chairman of both Accenture and Cornerstone Insurance plc, draws membership from both J.P Morgan and Goldman Saachs. Other members of the committee include Albert Okumagba, chief executive of BGL Securities, Francis Wood, managing director of FCMB Capital and Bismark Rewane, leading economist and managing director of Financial Derivatives who has consistently canvassed more market transparency.
The review panel is expected to focus on such issues as the controversial upper and lower cap on price movements and the cost structure of transactions on the market.
The stock market lost 25.5 percent before the Federal Government intervention which appear only to have caused more concern than comfort. . Source: BusinessDay Newspaper
The planned reform comes in the wake of lingering worry over the continued downward trend in the stock market in spite of desperate moves by the Federal Government to stem the fall.
This latest intervention at the instance of SEC is expected to be the forerunner to perhaps the most fundamental reform of the market and should help to restore the market’s reputation and give comfort to major market players who have taken a very dim view of the unorthodox methods applied lately by the authorities.
Business Day learnt that the committee which to be chaired by Adedotun Suleiman, chairman of both Accenture and Cornerstone Insurance plc, draws membership from both J.P Morgan and Goldman Saachs. Other members of the committee include Albert Okumagba, chief executive of BGL Securities, Francis Wood, managing director of FCMB Capital and Bismark Rewane, leading economist and managing director of Financial Derivatives who has consistently canvassed more market transparency.
The review panel is expected to focus on such issues as the controversial upper and lower cap on price movements and the cost structure of transactions on the market.
The stock market lost 25.5 percent before the Federal Government intervention which appear only to have caused more concern than comfort. . Source: BusinessDay Newspaper
DAAR COMES TO MARKET
Proshare NI
September 16, 2008 at 20: 11 GMT
Broadcast Giants DAAR Communications Plc (DAAR) owners of radio station Ray Power 100.5 Frequency Modulation (FM) and African Independent Television (AIT) would September 26, 2008 list is shares at N5.00 per share on the Floors of the Nigerian Stock Exchange (NSE). A source close to Proshare NI made this confirmation today in Lagos Nigeria.
DAAR in February 2008 approached the Nigerian Capital Market to raise fresh funds of N13.947 billion through a hybrid offer of Initial Public Offering (IPO) by way of an offer for subscription of 1.829 million and DAAR Investment Holding Company Limited offer for sale of 960 million ordinary shares of 50 Kobo each at N5.00 per share respectively.
During the offer from the Prospectus made available to Proshare NI, DAAR affirmed that an application has been made to the council of the NSE for admission to its Daily Official list of its 8.0 billion Ordinary Shares of 50 Kobo each.
This is coming on the heels of investors concern as regards the listing of the Broadcast Giants.
Though as at the time of filling in this report, Proshare NI could not get further details in respect of the proposed listing of the company.
In the same vein, come October, 2008, DAAR would be launching its satellite television in Abuja Nigeria; viewers are expected to pay in order to have access to this satellite station.
September 16, 2008 at 20: 11 GMT
Broadcast Giants DAAR Communications Plc (DAAR) owners of radio station Ray Power 100.5 Frequency Modulation (FM) and African Independent Television (AIT) would September 26, 2008 list is shares at N5.00 per share on the Floors of the Nigerian Stock Exchange (NSE). A source close to Proshare NI made this confirmation today in Lagos Nigeria.
DAAR in February 2008 approached the Nigerian Capital Market to raise fresh funds of N13.947 billion through a hybrid offer of Initial Public Offering (IPO) by way of an offer for subscription of 1.829 million and DAAR Investment Holding Company Limited offer for sale of 960 million ordinary shares of 50 Kobo each at N5.00 per share respectively.
During the offer from the Prospectus made available to Proshare NI, DAAR affirmed that an application has been made to the council of the NSE for admission to its Daily Official list of its 8.0 billion Ordinary Shares of 50 Kobo each.
This is coming on the heels of investors concern as regards the listing of the Broadcast Giants.
Though as at the time of filling in this report, Proshare NI could not get further details in respect of the proposed listing of the company.
In the same vein, come October, 2008, DAAR would be launching its satellite television in Abuja Nigeria; viewers are expected to pay in order to have access to this satellite station.
MARKET SITUATION FOR LAST WEEK
For the week ended September 12, 2008, the NSE index declined 878 or 1.8% to 48,738, representing a 17,633 or 26.6% decline relative to its 52 week high of 66,371; maintaining the market in a bear state. However, it should be noted that the decline in the NSE index would have been more severe if the new NSE regulation which mandates that only a one percent maximum downward limit on daily price movement would be allowed, while the current five per cent limit on upward movement is retained.
Since the market began its downtrend in the middle of March 2008, there has been three attempts at recovery. These brief recoveries were spurred by some new polices or policy changes by the government and market regulators. Some of the policy changes that have been implemented to turn the market around are:
1. Posting the uniform fiscal year-end deadline for commercial banks from December 31, 2008 to December 31, 2009.
2. Suspension of the N 1 billion capitalization for Stock brokerage firms
3. Issuance of an exemption to the provisions of the relevant sections of CAMA, to permit quoted companies to buy back up to 20 per cent of their shares to curb the spate of bearish trading in the market by the office of the Attorney General of the Federation
4. Policy reversal to allow commercial banks to continue extending margin loans to inventors
5. Reduction of the NSE fees by 50 percent effective September 8, 2008.
6. Allowance of one percent maximum downward limit on daily price movement , while retaining the current five per cent limit on upward movement
The regulators and the government should get some kudos for all the efforts they have put forward so far to turn the market around. I believe it is time to give this market the shock treatment that it truly needs.
For example, the NSE’s new policy of one percent maximum downward limit on daily price movement, while the five per cent limit on upward movement is retained is very wrong. This policy has an upward bias and in the long run negates what the NSE is trying to achieve, which is to prevent the continued decline of the capital market.
With this new policy of one percent downward price movement limit, it will take longer for the market to complete its current downtrend, because the policy will never completely allow stock prices to truly bottom out. For the markets to truly correct, sellers in the market must be completely washed out.
Although this may sound callous, studies have shown that until most traders (or gamblers) not investors throw in their towels saying that they can’t take the beating any more, the market downtrend will continue.
The truth of the matter is that some investors in the Nigerian stock market for the 4 years prior to March 2008 saw the NSE as a casino that paid out large sums of money. As a result, some of these investors invested heavily in the market by buying every secondary or initial public offering and throwing caution to the wind with some of their speculative trades. Some of these investors were caught in the downtrend and are still waiting in the winds to sell their shares. Since the Nigeria bull market had a prolonged run ( approximately 4 years), it is safe to believe that there are many speculators in this category and significant up trend will be sold into.
Some of the recent government/NSE policies that I believe will help the market turnaround are:
1) The postponement of the uniform fiscal year-end deadline for commercial banks from December 31, 2008 to December 31, 2009;
2) The possible issuance of an exemption to the provisions of the relevant sections of CAMA, to permit quoted companies to buy back up to 20 per cent of their shares to curb the spate of bearish trading in the market;
3) The policy reversal to allow commercial banks to continue to extend margin loans to inventors; and
4) The 50% reduction in NSE fees.
I believe allowing stock prices to decline only by one percent, while allowing the prices to increase by 5% daily is the worst policy. As noted in the schedule below, a N10.00k stock which gained 5% daily in five consecutive days will take 18 days to lose the same points it gained in five days.
One of the reason that I believe that this is a wrong policy is that the banks and institutional traders might be favored in this policy. While the large and institutional traders might be able to sell easily in an uptrend, retail investors might not be able to do so. Additionally, the commercial banks might use the uptrend in a bear rally to sell the shares of customers who are unable to satisfy their margin requirements.
My recommendations:
· Scrap the current policy of one percent daily allowable decline, while the 5% allowable increase is still in effect. This policy has an upward bias and will result in traders selling into the upward trend.
· Reinstate the former policy of the 5% upward limit and a 5% downward limit. This will allow the market to get to the bottom faster.
· Remove all artificial stop gap measures and let prices float freely with one caviar, introduce simple option strategy and shorting selling to enable investors hedge their positions. The current policies will discourage foreign investors from investing in the NSE, because it breaks all the rules of an “efficient market”. My stance might seem controversial to many investors, but I believe that in the long run it will be good for the market. The current policy strikes me as stock price manipulation.
Since the market began its downtrend in the middle of March 2008, there has been three attempts at recovery. These brief recoveries were spurred by some new polices or policy changes by the government and market regulators. Some of the policy changes that have been implemented to turn the market around are:
1. Posting the uniform fiscal year-end deadline for commercial banks from December 31, 2008 to December 31, 2009.
2. Suspension of the N 1 billion capitalization for Stock brokerage firms
3. Issuance of an exemption to the provisions of the relevant sections of CAMA, to permit quoted companies to buy back up to 20 per cent of their shares to curb the spate of bearish trading in the market by the office of the Attorney General of the Federation
4. Policy reversal to allow commercial banks to continue extending margin loans to inventors
5. Reduction of the NSE fees by 50 percent effective September 8, 2008.
6. Allowance of one percent maximum downward limit on daily price movement , while retaining the current five per cent limit on upward movement
The regulators and the government should get some kudos for all the efforts they have put forward so far to turn the market around. I believe it is time to give this market the shock treatment that it truly needs.
For example, the NSE’s new policy of one percent maximum downward limit on daily price movement, while the five per cent limit on upward movement is retained is very wrong. This policy has an upward bias and in the long run negates what the NSE is trying to achieve, which is to prevent the continued decline of the capital market.
With this new policy of one percent downward price movement limit, it will take longer for the market to complete its current downtrend, because the policy will never completely allow stock prices to truly bottom out. For the markets to truly correct, sellers in the market must be completely washed out.
Although this may sound callous, studies have shown that until most traders (or gamblers) not investors throw in their towels saying that they can’t take the beating any more, the market downtrend will continue.
The truth of the matter is that some investors in the Nigerian stock market for the 4 years prior to March 2008 saw the NSE as a casino that paid out large sums of money. As a result, some of these investors invested heavily in the market by buying every secondary or initial public offering and throwing caution to the wind with some of their speculative trades. Some of these investors were caught in the downtrend and are still waiting in the winds to sell their shares. Since the Nigeria bull market had a prolonged run ( approximately 4 years), it is safe to believe that there are many speculators in this category and significant up trend will be sold into.
Some of the recent government/NSE policies that I believe will help the market turnaround are:
1) The postponement of the uniform fiscal year-end deadline for commercial banks from December 31, 2008 to December 31, 2009;
2) The possible issuance of an exemption to the provisions of the relevant sections of CAMA, to permit quoted companies to buy back up to 20 per cent of their shares to curb the spate of bearish trading in the market;
3) The policy reversal to allow commercial banks to continue to extend margin loans to inventors; and
4) The 50% reduction in NSE fees.
I believe allowing stock prices to decline only by one percent, while allowing the prices to increase by 5% daily is the worst policy. As noted in the schedule below, a N10.00k stock which gained 5% daily in five consecutive days will take 18 days to lose the same points it gained in five days.
One of the reason that I believe that this is a wrong policy is that the banks and institutional traders might be favored in this policy. While the large and institutional traders might be able to sell easily in an uptrend, retail investors might not be able to do so. Additionally, the commercial banks might use the uptrend in a bear rally to sell the shares of customers who are unable to satisfy their margin requirements.
My recommendations:
· Scrap the current policy of one percent daily allowable decline, while the 5% allowable increase is still in effect. This policy has an upward bias and will result in traders selling into the upward trend.
· Reinstate the former policy of the 5% upward limit and a 5% downward limit. This will allow the market to get to the bottom faster.
· Remove all artificial stop gap measures and let prices float freely with one caviar, introduce simple option strategy and shorting selling to enable investors hedge their positions. The current policies will discourage foreign investors from investing in the NSE, because it breaks all the rules of an “efficient market”. My stance might seem controversial to many investors, but I believe that in the long run it will be good for the market. The current policy strikes me as stock price manipulation.
NITEL GIVING BASELESS EXCUSES
NITEL accuses PTOs, GSM operators of sabotage
By Everest Amaefule, Abuja
Published: Wednesday, 17 Sep 2008
The Nigerian Telecommunications Limited on Tuesday accused Fixed Wireless Operators popularly known as PTOs and leading GSM operators of willfully damaging its transmission cables to cut it off from the booming telecoms market.
Speaking at a Stakeholders’ Forum on Vandalism of Telecommunications Infrastructure organised by the Nigerian Communications Commission, General Manager, Operations at NITEL, Mr. Alex Achi, also accused the NCC of doing little to intervene in its predicament.
Giving graphic details of several instances of damage to its underground transmission cables across the country, Achi said other operators took advantage of its loss of steam in the telecoms market to inflict additional blows on the company’s capacity to compete.
He said, “The problems associated with the theft and vandalisation of NITEL cables nationwide has grown to such a huge extent that today it has crippled our network.
“On the whole, NITEL has lost billions of naira as a result of the vandalisation of its infrastructure. This has been made difficult by its present financial condition.”
He added that as a result of the vandalism of its infrastructure especially by other networks, the first national operator was operating below 30 per cent of its installed capacity.
Representatives of other telecom operators at the forum argued that NITEL was not the only company that had suffered vandalisation of its cables as a result of installation of cables by competitors and construction of roads by various tiers of government.
Spokesperson of Globacom at the event disclosed that as a result of vandalism of its cables, it suffers the loss of 150 hours a month, which translates to six days in a month of 30 days.
A representative of MTN Nigeria Limited, on the other hand, also informed the forum that his company lost an average of 30 generators in a month.
Executive Vice Chairman, NCC, Mr. Ernest Ndukwe, wondered why NITEL should be losing its cables installed by Siemens, the same company that MTN has hired to install its own fibre optic cables.
TIGERKENN COMMENTS.......
Excuses are very easy to invent. I dont know how true it is that there is sabotage going on to frustrate Nitel, or any other GSM operator for that matter. But why are they business managers if they cant prevent vandalism? How does MTN manage to operate amidst vandalism while Nitel cant? And why hasnt they caught at least one vandal to prove their points.
Their comment smacks of people that are not even ready to face competition.
By Everest Amaefule, Abuja
Published: Wednesday, 17 Sep 2008
The Nigerian Telecommunications Limited on Tuesday accused Fixed Wireless Operators popularly known as PTOs and leading GSM operators of willfully damaging its transmission cables to cut it off from the booming telecoms market.
Speaking at a Stakeholders’ Forum on Vandalism of Telecommunications Infrastructure organised by the Nigerian Communications Commission, General Manager, Operations at NITEL, Mr. Alex Achi, also accused the NCC of doing little to intervene in its predicament.
Giving graphic details of several instances of damage to its underground transmission cables across the country, Achi said other operators took advantage of its loss of steam in the telecoms market to inflict additional blows on the company’s capacity to compete.
He said, “The problems associated with the theft and vandalisation of NITEL cables nationwide has grown to such a huge extent that today it has crippled our network.
“On the whole, NITEL has lost billions of naira as a result of the vandalisation of its infrastructure. This has been made difficult by its present financial condition.”
He added that as a result of the vandalism of its infrastructure especially by other networks, the first national operator was operating below 30 per cent of its installed capacity.
Representatives of other telecom operators at the forum argued that NITEL was not the only company that had suffered vandalisation of its cables as a result of installation of cables by competitors and construction of roads by various tiers of government.
Spokesperson of Globacom at the event disclosed that as a result of vandalism of its cables, it suffers the loss of 150 hours a month, which translates to six days in a month of 30 days.
A representative of MTN Nigeria Limited, on the other hand, also informed the forum that his company lost an average of 30 generators in a month.
Executive Vice Chairman, NCC, Mr. Ernest Ndukwe, wondered why NITEL should be losing its cables installed by Siemens, the same company that MTN has hired to install its own fibre optic cables.
TIGERKENN COMMENTS.......
Excuses are very easy to invent. I dont know how true it is that there is sabotage going on to frustrate Nitel, or any other GSM operator for that matter. But why are they business managers if they cant prevent vandalism? How does MTN manage to operate amidst vandalism while Nitel cant? And why hasnt they caught at least one vandal to prove their points.
Their comment smacks of people that are not even ready to face competition.
NITEL GIVING BASELESS EXCUSES
NITEL accuses PTOs, GSM operators of sabotage
By Everest Amaefule, Abuja
Published: Wednesday, 17 Sep 2008
The Nigerian Telecommunications Limited on Tuesday accused Fixed Wireless Operators popularly known as PTOs and leading GSM operators of willfully damaging its transmission cables to cut it off from the booming telecoms market.
Speaking at a Stakeholders’ Forum on Vandalism of Telecommunications Infrastructure organised by the Nigerian Communications Commission, General Manager, Operations at NITEL, Mr. Alex Achi, also accused the NCC of doing little to intervene in its predicament.
Giving graphic details of several instances of damage to its underground transmission cables across the country, Achi said other operators took advantage of its loss of steam in the telecoms market to inflict additional blows on the company’s capacity to compete.
He said, “The problems associated with the theft and vandalisation of NITEL cables nationwide has grown to such a huge extent that today it has crippled our network.
“On the whole, NITEL has lost billions of naira as a result of the vandalisation of its infrastructure. This has been made difficult by its present financial condition.”
He added that as a result of the vandalism of its infrastructure especially by other networks, the first national operator was operating below 30 per cent of its installed capacity.
Representatives of other telecom operators at the forum argued that NITEL was not the only company that had suffered vandalisation of its cables as a result of installation of cables by competitors and construction of roads by various tiers of government.
Spokesperson of Globacom at the event disclosed that as a result of vandalism of its cables, it suffers the loss of 150 hours a month, which translates to six days in a month of 30 days.
A representative of MTN Nigeria Limited, on the other hand, also informed the forum that his company lost an average of 30 generators in a month.
Executive Vice Chairman, NCC, Mr. Ernest Ndukwe, wondered why NITEL should be losing its cables installed by Siemens, the same company that MTN has hired to install its own fibre optic cables.
TIGERKENN COMMENTS.......
Excuses are very easy to invent. I dont know how true it is that there is sabotage going on to frustrate Nitel, or any other GSM operator for that matter. But why are they business managers if they cant prevent vandalism? How does MTN manage to operate amidst vandalism while Nitel cant? And why hasnt they caught at least one vandal to prove their points.
Their comment smacks of people that are not even ready to face competition.
By Everest Amaefule, Abuja
Published: Wednesday, 17 Sep 2008
The Nigerian Telecommunications Limited on Tuesday accused Fixed Wireless Operators popularly known as PTOs and leading GSM operators of willfully damaging its transmission cables to cut it off from the booming telecoms market.
Speaking at a Stakeholders’ Forum on Vandalism of Telecommunications Infrastructure organised by the Nigerian Communications Commission, General Manager, Operations at NITEL, Mr. Alex Achi, also accused the NCC of doing little to intervene in its predicament.
Giving graphic details of several instances of damage to its underground transmission cables across the country, Achi said other operators took advantage of its loss of steam in the telecoms market to inflict additional blows on the company’s capacity to compete.
He said, “The problems associated with the theft and vandalisation of NITEL cables nationwide has grown to such a huge extent that today it has crippled our network.
“On the whole, NITEL has lost billions of naira as a result of the vandalisation of its infrastructure. This has been made difficult by its present financial condition.”
He added that as a result of the vandalism of its infrastructure especially by other networks, the first national operator was operating below 30 per cent of its installed capacity.
Representatives of other telecom operators at the forum argued that NITEL was not the only company that had suffered vandalisation of its cables as a result of installation of cables by competitors and construction of roads by various tiers of government.
Spokesperson of Globacom at the event disclosed that as a result of vandalism of its cables, it suffers the loss of 150 hours a month, which translates to six days in a month of 30 days.
A representative of MTN Nigeria Limited, on the other hand, also informed the forum that his company lost an average of 30 generators in a month.
Executive Vice Chairman, NCC, Mr. Ernest Ndukwe, wondered why NITEL should be losing its cables installed by Siemens, the same company that MTN has hired to install its own fibre optic cables.
TIGERKENN COMMENTS.......
Excuses are very easy to invent. I dont know how true it is that there is sabotage going on to frustrate Nitel, or any other GSM operator for that matter. But why are they business managers if they cant prevent vandalism? How does MTN manage to operate amidst vandalism while Nitel cant? And why hasnt they caught at least one vandal to prove their points.
Their comment smacks of people that are not even ready to face competition.
Thursday, 11 September 2008
GASLINK TO RAISE GAS PRICES
The Manufacturers Asso-ciation of Nigeria (MAN) has said over 100 manufacturing companies in the country could be shut down with 50,000 employees thrown out of work if Gaslink Nigeria Limited implements its recent decision to raise the price of industrial gas by over 200 per cent.
MAN said yesterday in Lagos that Gaslink, a subsidiary of Oando Plc, was “set to put the last nail on the coffin of the dying Nigerian manufacturing sector by increasing the price of industrial gas from N21.05 per scm to N63.27 per scm”.
But in response to MAN’s allegations, Oando’s spokesperson, Mr. Niyi Olowola, told THISDAY yesterday that Gaslink was still negotiating with its customers on the issue and was positive that they would come to a common ground.
“Gaslink’s management understands the challenges our customers face and is positive that the issues on ground will be resolved in a matter of days. Already, another meeting is scheduled for tomorrow (today) towards achieving an amicable resolution,” Olowola said. “Only nine of our over 80 customers are yet to make any form of payment for our services, which indicates a large degree of cooperation.”
The gas price hike has resulted in a major rift between Gaslink and MAN.MAN accused Gaslink of disregarding the Gas Sales and Purchase Agreement (GSPA) signed between the gas company and members of MAN.Explaining the GSPA, the Director-General of MAN, Mr. Jide Mike, said it was stated explicitly in article 10.2 of the agreement that the price of gas would be benchmarked against the price of LPFO as determined and published by the Pipeline Product and Marketing Company (PPMC).
“Logically therefore, the price of gas can and will only change if the price of LPFO changes. To date, the price of LPFO has remained N25.40 per mscf and we have proof that the PPMC has not published or declared any increase in the price of LPFO,” Source: Thisday Newspaper
MAN said yesterday in Lagos that Gaslink, a subsidiary of Oando Plc, was “set to put the last nail on the coffin of the dying Nigerian manufacturing sector by increasing the price of industrial gas from N21.05 per scm to N63.27 per scm”.
But in response to MAN’s allegations, Oando’s spokesperson, Mr. Niyi Olowola, told THISDAY yesterday that Gaslink was still negotiating with its customers on the issue and was positive that they would come to a common ground.
“Gaslink’s management understands the challenges our customers face and is positive that the issues on ground will be resolved in a matter of days. Already, another meeting is scheduled for tomorrow (today) towards achieving an amicable resolution,” Olowola said. “Only nine of our over 80 customers are yet to make any form of payment for our services, which indicates a large degree of cooperation.”
The gas price hike has resulted in a major rift between Gaslink and MAN.MAN accused Gaslink of disregarding the Gas Sales and Purchase Agreement (GSPA) signed between the gas company and members of MAN.Explaining the GSPA, the Director-General of MAN, Mr. Jide Mike, said it was stated explicitly in article 10.2 of the agreement that the price of gas would be benchmarked against the price of LPFO as determined and published by the Pipeline Product and Marketing Company (PPMC).
“Logically therefore, the price of gas can and will only change if the price of LPFO changes. To date, the price of LPFO has remained N25.40 per mscf and we have proof that the PPMC has not published or declared any increase in the price of LPFO,” Source: Thisday Newspaper
ADENUGA BUYING TELKOM SA?
LAGOS, Sept 2 (Reuters) - Nigerian tycoon Mike Adenuga wants to buy South African fixed-line operator Telkom so he can merge his cellphone company Globacom with Telkom's stake in Vodacom, a Nigerian newspaper said on Tuesday.
Business Day said Adenuga had met with Telkom Chief Executive Reuben September after proposing the deal, which would allow Adenuga to merge Globacom with Telkom's 50 percent stake in Vodacom, South Africa's biggest mobile operator.
Globacom could not bid for Telkom's stake in Vodacom directly because Britain's Vodafone, which owns the other 50 percent, had the first right of refusal, the Nigerian newspaper said.
"My chairman was in South Africa ... and I am aware that he met with Telkom officials but I have not been briefed on what they discussed," a Globacom official told Reuters, asking not to be named.
Officials from Telkom, which said last week it had not entered into talks with Globacom but would evaluate any proposal it received, were not immediately available to comment.
South African newspaper Business Day reported last week that Adenuga wanted to create a pan-African telecoms firm "Vodaglo" worth $18 billion.
A Globacom official told Reuters on Friday there were discussions about "building a business partnership" between Globacom and Vodacom, but a Vodacom spokeswoman said she was not aware of any such talks.
A deal with Globacom could derail plans by Vodafone to win control of Vodacom by buying part of Telkom's stake.
The Nigerian Business Day report said Adenuga's plan would leave Telkom's fixed line operations as a listed entity. (For full Reuters Africa coverage and to have your say on the top issues, visit: http://africa.reuters.com/ ) (Reporting by Tume Ahemba;
Business Day said Adenuga had met with Telkom Chief Executive Reuben September after proposing the deal, which would allow Adenuga to merge Globacom with Telkom's 50 percent stake in Vodacom, South Africa's biggest mobile operator.
Globacom could not bid for Telkom's stake in Vodacom directly because Britain's Vodafone
"My chairman was in South Africa ... and I am aware that he met with Telkom officials but I have not been briefed on what they discussed," a Globacom official told Reuters, asking not to be named.
Officials from Telkom, which said last week it had not entered into talks with Globacom but would evaluate any proposal it received, were not immediately available to comment.
South African newspaper Business Day reported last week that Adenuga wanted to create a pan-African telecoms firm "Vodaglo" worth $18 billion.
A Globacom official told Reuters on Friday there were discussions about "building a business partnership" between Globacom and Vodacom, but a Vodacom spokeswoman said she was not aware of any such talks.
A deal with Globacom could derail plans by Vodafone to win control of Vodacom by buying part of Telkom's stake.
The Nigerian Business Day report said Adenuga's plan would leave Telkom's fixed line operations as a listed entity. (For full Reuters Africa coverage and to have your say on the top issues, visit: http://africa.reuters.com/ ) (Reporting by Tume Ahemba;
FEAR STILL REIGNS AT THE NSE
Investors still apprehensive over stock market
Friday Ekeoba, Lagos, with Agency Reports - 11.09.2008
NIGERIAN investors are yet to regain confidence in the stock market despite measures taken by the Federal Government last month to stem its decline, brokers said on Wednesday.
Major performance indicators in the market receded at the close of last week’s activities and continued their decline for two consecutive trading days.
For instance, the total market capitalisation of all listed companies declined last Friday to N10.37 trillion from N10.42 trillion recorded the previous day, representing N36 billion or 0.34 per cent loss.
They reason that despite government’s intervention in the capital market slide two weeks ago, the problem facing the market may be far from being over if the banks continue to shun the Central Bank of Nigeria (CBN) directive that waiver be extended to expired margin accounts to allow the market recover fully.
Most banks in the country continued to be adamant about adhering to the CBN directives to restructure loan facilities advanced to operators in the capital market and some stockbrokers have threatened legal actions against such banks.
The grouse of the stockbrokers is the alleged insistence of the financial institutions on selling investors’ shares on their margin account portfolio.
Querying the new regime of the downturn in the market, the stockbrokers attributed the new wave of meltdown trend in the market, which started last Friday, to the resolve of banks to trade off on investors’ accounts, who could not repay loans obtained through margin facilities to purchase shares in the market.
The brokers insist that emerging signs in the market are an indication that investors do not have a grip of the market, as, according them, the pattern of activities is that huge divestment is still ongoing despite government’s intervention.
Meanwhile, a fresh bearish trend which began last weekend has seen the stock market losing another N111 billion in four days.
Another regime of bearish trend has commenced, in spite of the government intervention barely two week ago, which constituted a Presidential Advisory Committee on Capital Market to find solutions to the depreciation of share prices.
Specifically, sources said the credit management units of the banks had persistently put pressure on their assets management units to recover loans given through margin accounts, thereby making the market to witness more divestment than purchase briefs from investors.
The sources also said that the banks had continued to discountenance the CBN agreement, forcing investors to forfeit their investments.
“One would have expected the market to have rebounded by now, but this is because not all the measures announced have been implemented,” Eugene Ezenwa, chief operating officer of Lagos-based brokerage, Spring Capital Ltd, told Reuters.
“Investors have to regain lost confidence in the market after their experience in the recent past,” he said.
“Most investors are now risk averse,” said Olusola Dada, President of Nigeria’s Institute of Directors and chief executive of Lagos-based Anchoria Securities and Investment.
“It will definitely take some time for investors to regain confidence in the market and for the measures to have major impact,” he told Reuters, adding that institutional investors, including pension funds, had been moving money into the money markets because of perceived higher returns.
Some analysts had warned that the stability measures could be counter-productive, saying that the one per cent minimum decline rule could slow market activity to a crawl.
Sodiq Wasiri, head of research at a brokerage firm, Lead Capital Ltd., said allowing companies to buy back shares was a more complicated procedure than might have been expected.
“The process of getting approval from the SEC is so cumbersome that by the time a company gets such approval to buy back its stock to save it from sliding, it would have gone haywire in terms of a price slide,” he said.
He said the initial upturn in the market after the measures were announced was caused by investors minimising losses rather than because of renewed confidence. Those investors were now taking profits after a slight rebound
Friday Ekeoba, Lagos, with Agency Reports - 11.09.2008
NIGERIAN investors are yet to regain confidence in the stock market despite measures taken by the Federal Government last month to stem its decline, brokers said on Wednesday.
Major performance indicators in the market receded at the close of last week’s activities and continued their decline for two consecutive trading days.
For instance, the total market capitalisation of all listed companies declined last Friday to N10.37 trillion from N10.42 trillion recorded the previous day, representing N36 billion or 0.34 per cent loss.
They reason that despite government’s intervention in the capital market slide two weeks ago, the problem facing the market may be far from being over if the banks continue to shun the Central Bank of Nigeria (CBN) directive that waiver be extended to expired margin accounts to allow the market recover fully.
Most banks in the country continued to be adamant about adhering to the CBN directives to restructure loan facilities advanced to operators in the capital market and some stockbrokers have threatened legal actions against such banks.
The grouse of the stockbrokers is the alleged insistence of the financial institutions on selling investors’ shares on their margin account portfolio.
Querying the new regime of the downturn in the market, the stockbrokers attributed the new wave of meltdown trend in the market, which started last Friday, to the resolve of banks to trade off on investors’ accounts, who could not repay loans obtained through margin facilities to purchase shares in the market.
The brokers insist that emerging signs in the market are an indication that investors do not have a grip of the market, as, according them, the pattern of activities is that huge divestment is still ongoing despite government’s intervention.
Meanwhile, a fresh bearish trend which began last weekend has seen the stock market losing another N111 billion in four days.
Another regime of bearish trend has commenced, in spite of the government intervention barely two week ago, which constituted a Presidential Advisory Committee on Capital Market to find solutions to the depreciation of share prices.
Specifically, sources said the credit management units of the banks had persistently put pressure on their assets management units to recover loans given through margin accounts, thereby making the market to witness more divestment than purchase briefs from investors.
The sources also said that the banks had continued to discountenance the CBN agreement, forcing investors to forfeit their investments.
“One would have expected the market to have rebounded by now, but this is because not all the measures announced have been implemented,” Eugene Ezenwa, chief operating officer of Lagos-based brokerage, Spring Capital Ltd, told Reuters.
“Investors have to regain lost confidence in the market after their experience in the recent past,” he said.
“Most investors are now risk averse,” said Olusola Dada, President of Nigeria’s Institute of Directors and chief executive of Lagos-based Anchoria Securities and Investment.
“It will definitely take some time for investors to regain confidence in the market and for the measures to have major impact,” he told Reuters, adding that institutional investors, including pension funds, had been moving money into the money markets because of perceived higher returns.
Some analysts had warned that the stability measures could be counter-productive, saying that the one per cent minimum decline rule could slow market activity to a crawl.
Sodiq Wasiri, head of research at a brokerage firm, Lead Capital Ltd., said allowing companies to buy back shares was a more complicated procedure than might have been expected.
“The process of getting approval from the SEC is so cumbersome that by the time a company gets such approval to buy back its stock to save it from sliding, it would have gone haywire in terms of a price slide,” he said.
He said the initial upturn in the market after the measures were announced was caused by investors minimising losses rather than because of renewed confidence. Those investors were now taking profits after a slight rebound
THE FACE OF MUTUAL FUNDS IN NIGERIA.
Report on Mutual Funds Operations in Nigeria
Posted Wednesday, September 10, 2008
1. The Basic Nature of Mutual Funds
Mutual funds are collective investments that join various individual contributions of investment capital to create a large pool of funds. It spreads the pool of funds across dozens of investment instruments in the stock market and other predetermined investment targets.
The investment target where the fund will be invested is clearly stated, which enables investors select the funds that meet their own desired investing characteristics. The stock market is the most popular target for mutual funds but there are funds that focus completely outside the stock market.
Stock market-based funds provide an alternative window for people who are not highly knowledgeable or confident enough to select stocks by themselves. Even for those who can pick stocks on their own but have limited equity portfolio, some blend of mutual funds is still needed to reduce the risk balance of the share portfolio.
A mutual fund invests the pool of funds contributed by individual subscribers in a number of blue chips or high grade investment options spread across the target market. Subscribers to the fund become unit holders, part owners of the fund proportionate to the volume of the fund units outstanding.
All rights and privileges of shareholders accrue to subscribers in respect of the funds they have bought their units. They will be invited to annual general meetings, take part in electing directors and receive dividend from profit made from the fund’s investments.
Individual subscriptions made to a mutual fund are not identifiable within the investment assets of the fund itself. They do not attach directly to the underlying investments which the fund’s management has made. The fund may have invested in dozens of shares in different companies, including government bonds and treasury bills. There is however no direct link between the funds contributed by subscribers to the shares and any other investments where the pool of resources has been invested.
Most mutual funds are open ended, which means there is no limit to the volume of units the managers can issue. Applications can be made to the fund managers any time for any volume of units the intending subscriber wants to buy on a continuing basis. Likewise, unit holders are free sell any volume of their holdings back to the fund managers any time they wish.
Mutual funds carry two price quotes – the selling or the offer price and the buying or the bid price. The offer price is the current price the fund managers will sell a unit of the fund to subscribers. The bid price is the price they will buy a unit of the fund from those intending to sell their holding. The quotes carry a spread of 3 to 5 per cent in between them, which covers fund manager’s dealing expenses and commission.
The offer and bid prices change on a continuing basis just as share prices do. The price changes can create capital gains over and above the initial price quotation if the fund is doing well. They will create capital losses when the price declines below previous levels.
The rise and fall of the price of the units reflects changes in the net asset value of the fund’s portfolio of investments, which mirror the overall quality of investments. Net asset value is the current market value of the portfolio less outstanding liabilities. The net value is divided by the volume of units outstanding to arrive at net asset value per unit. Generally, the bid and offer prices of mutual funds follow a long-term uptrend and tend to build huge capital gains over time.
Mutual funds come under the regulation of the Securities and Exchange Commission (SEC). In Nigeria, mutual funds are regulated under section 8(g) of the Investment and Securities Act No. 45 of 1999. They have to be registered as a trust or a trust company in accordance with the provisions of the Trustees Act, Investment and Securities Act and the Companies and Allied Matters Act 1990 as amended.
The Investment and Securities Act contains some provisions made to protect the interest of the investing public, including disclosure requirements, operating modalities that ensure transparency and other prudential norms that govern investments by mutual funds. The investments of a mutual fund should be managed by an asset management company registered under the companies act in accordance with the regulations of SEC.
A code of conduct is specified for mutual funds that governs advertisement of the funds. The regulatory objective here is to prevent mutual funds from making unfounded claims and use same to attract investments from the public. Fund managers are required to file a monthly return with SEC in a format specified to permit regular off-site surveillance.
Mutual funds are also required to submit their audited accounts to SEC every year and make full disclosures of their investment assets. SEC undertakes inspection and audit of their operations as well as valuation of their assets.
2. Mutual Funds: A Good Way To Start Investing
One major challenge that faces beginners in the field of investing is the fear of taking the wrong step in the choice of securities. A beginner usually buys one or two stocks and expects to make the good profit he has been made to believe that comes from stock market investing. Often short-term disappointments happen in place of the profit expected.
This leaves the beginner agonizing over the investments, regretting he has not chosen the more rewarding investment options. He may end up selling the investment and moving into another stock expected to do better than the earlier choices. Soon the stocks he thought were going to do better also begin to go down.
Mutual funds represent one major vehicle to get share investing right from the start and avoid possible initial disappointments killing the investment enthusiasm. Mutual funds create a balance between the expectations of returns in a rising market and possibilities of losses when the market falls.
The investment portfolio for a beginner requires being constructed around a diversified group of securities, spread broadly across the market. This will create a low portfolio risk advantage and thus guarantee the level of returns required to transform investments into great wealth over the years.
The financial capacity needed to achieve the standard portfolio diversification is clearly not within the reach of the small investors. Recent market developments have also tended to place new hurdles for the small investor in direct stock market investing. The main restrictive factor is the general increase in the minimum account opening amounts required by stock broking firms. This has spurred fresh attempts to establish mutual funds to create an alternative investing window for the small investor.
The investing activity requires the involvement of experts in deciding what to buy and when to buy or sell. Mutual funds provide a remedy for limited knowledge about stock market investing and inability to select good investments.
They create investing expertise through the appointment of professional managers and make it available to the general investing public. The fund managers are knowledgeable about the market and are in a better position than individual investors to build a portfolio of stocks and other securities and turn them over to take advantage of market developments.
Mutual funds therefore offer a big window of opportunity for beginners and it is available to both big and small investors. A mutual fund is a financial intermediary that creates instruments for a group of investors to pool their funds for investment in predetermined markets, usually equities, bond and money markets. The funds offer six key advantages to investors.
The first is the wide access to professional skills employed to invest and manage the funds. Beginners do not usually have the skills to analyse the prospects for individual companies and choose those that present the best investment options. A mutual fund appoints and pays a professional fund manager to do this job for its investors. What this means is that no matter the size of the investment in a mutual fund, it has the opportunity of sound professional management.
The second advantage is that mutual funds provide a device for the management of investment risk. The best way to manage risk in investment is to spread it by diversifying the portfolio. Investment in mutual funds gets instant diversification to achieve market-wide coverage, no matter its size. Since a mutual fund is a collection of stocks, bonds and money market securities held in a pool but then sliced into units sold to individual investors, any unit of the fund receives the diversification advantage of this large collection of different types of securities.
This makes it possible to share in the prosperity generated from any part of the market and minimize the net effect of losses from any market segment on the value of investment and the rate of return. Even if you invest only N100 in a mutual fund, you get an equivalent proportion of the diversification effect. This means it is better, for risk management purpose, to invest N100 in a mutual fund than hold equivalent amount of stocks in a single company.
Thirdly, there are usually quite a number of funds available in the market to choose from, especially in the advanced financial markets. In Nigeria, development of mutual funds has been slow but a growing number of new funds have been springing up since the past few years. There are 21 mutual funds presently quoted in the Nigerian Stock Exchange while a number of others are not quoted. A good number of new funds are also in various floatation and setting up processes.
The fourth advantage of mutual funds is the liquidity or flexibility that they offer. Selling the mutual fund investment is easy and they can also be bought back any time. The prices to buy and sell are quoted in the open market but dealing is exclusively with the fund managers. Not all mutual funds are normally quoted in the stock exchange.
Another advantage of mutual funds is in terms of comparatively lower transactions cost. Some statutory charges are fixed irrespective of the volume of transactions and mutual funds have an advantage of dealing in volume. With their large pool of investment capital, they are in a position to negotiate stockbroker’s commission. They are therefore able to achieve a lower average cost of investment than people buying a couple of shares.
The ultimate advantage of mutual funds is the expectedly high rate of return, which reflects the favourable effects of diversification and economy of scale effect on cost. The funds are expected to show returns ahead of average stock or bond markets’ returns. The ability to take up excellent investment opportunities should enable mutual funds to maximize returns while effective portfolio diversification permits them to minimize the risk.
3. Mutual Funds Operations in Nigeria
Mutual funds operations in Nigeria came to the limelight for the first time during the early 1990s, as a result of the rapid growth in the financial sector induced by the deregulation policy of the mid 1980s. They emerged as part of the financial markets innovations that followed the policy of deregulation. Banks engaged in competitive floatation and management of mutual funds then as is happening again presently.
A good number of them closed shop during the financial turmoil that followed. Banks were mainly the fund managers and the funds went down with the banks that were hit by financial distress.
Mutual funds began to re-emerge as from the mid 1990s but remained relatively insignificant with limited impact in the capital market until the recent banking consolidation reinforced the sector once again. Presently there are 21 mutual funds listed in the Nigerian Stock Exchange and another 16 not listed. A growing number of others are still in the process of being set up.
IBTC Nigerian Equity Fund is the biggest mutual fund in Nigeria with a net asset value in excess of N30 billion as at the end of 2007. The fund, which is managed by IBTC Asset Management Limited, commenced operations in 1997. The units of the fund were issued at an initial price of N1,000 per unit and the offer price is presently in excess of N11,000.
The equity fund is mainly capital market-based and requires a minimum subscription of N50,000. The principal investment is guaranteed for a minimum of three months.
The fund has a minimum target allocation of 75 per cent in stocks quoted in the Nigerian Stock Exchange and 25 per cent in money market instruments. A return on investment of 62.14 per cent was realized in 2007 and annual growth is estimated at an average of 53 per cent.
The primary objective of the fund is to achieve long-term capital appreciation by investing in high quality securities quoted on the Nigerian Stock Exchange and in other instruments approved by SEC.
IBTC Asset Management Limited also manages two other funds – Stanbic IBTC Bank’s Ethical Fund and Stanbic IBTC Bank’s Guaranteed Investment Fund. The ethical fund was floated in 2005 at a par value of N1.0 per unit. It has a minimum target allocation of 75% in stocks quoted in the Nigerian Stock Exchange and a maximum of 25% in money market assets.
Its choice of investments excludes stocks of companies that operate in the brewery and tobacco sectors or involved in the production of arms and ammunition, gambling or any other businesses considered harmful to society. The fund’s focus is to permit a clear moral conscience by investing with the interest of society in mind. It is designed for those who do not want to make profit at the expense of their religious believes and principles
The minimum requirement for investing in the fund is N50,000 and the principal investment is guaranteed against diminution in value provided the investment is held for a minimum of three months.
The Stanbic IBTC Guaranteed Investment was launched in December 2007 at a nominal value of N100 per unit. The fund builds its assets around fixed income securities such as government bonds, money market securities and other securities approved by SEC. It has a minimum target allocation of 75 per cent in fixed income securities and a maximum of 25 per cent in securities, essentially blue chip companies listed on the Nigerian Stock Exchange.
Investment in fixed income securities is biased in favour of tax exempt assets and those that offer the best post-tax return. The principal investment is guaranteed against diminution subject to funds kept for a minimum of three months. The fund is designed to provide regular income and long-term capital appreciation.
ARM Discovery Fund was established in 1995 and was initially named equity growth fund. The open-ended fund is managed by Asset and Resources Management Company Limited [ARM]. The fund’s investment targets are equities, fixed income securities and real estate.
The investment mix is designed to provide capital growth while achieving an optimum balance between risk and return. The fund’s investments have allocated targets of a minimum of 40 per cent in equities and a maximum of 65 per cent. The fund achieved a return of 56 per cent in 2007. Minimum investment amount is N10,000 with minimum additional investment amount of N5,000.
ARM Aggressive Growth Fund is the second mutual fund managed by ARM and was established in 2004. It has a targeted allocation of 80 per cent of its investments in equities quoted in the Nigerian Stock Exchange and 20 per cent allocation to money market and other fixed income investments.
The fund is designed for investors with the primary goal of achieving capital appreciation and having above average appetite for risk for the possibility of higher returns in the long-term. The fund achieved an 86 per cent return in 2007 and an annual average of 41.4 per cent over the four years of its operations. Minimum investment in the fund is N50,000.
Coral Growth Fund was set up in 2001 and managed by FSDH Asset Management Limited [FAML]. The fund invests 65 per cent of its resources in equities quoted on the Nigerian Stock Exchange and the balance of 35 per cent on investment grade fixed income securities.
The minimum investment amount in the fund is N50,000 with a minimum additional investment of N10,000. The investment objective is to grow capital value over the long-term. It is designed to meet the needs of private pension/retirement plan, savings and investment plans and educational and contingency plans. The fund has recorded an annual average growth of 33.98 per cent by the end of 2006.
Coral Income Fund is the second of the three funds managed by FAML. The funds focus mainly on fixed income securities in both the money and capital markets. As much as 70 per cent of its investments constitute fixed income securities while the remaining 30 per cent is targeted at equities quoted on the Nigerian Stock Exchange.
The objective of the fund is to enable investors preserve the value of their capital and achieve a stable stream of income. It is designed for the less aggressive investors who are desirous of preserving their stock of capital.
Coral Ethical Fund is the third mutual fund managed by FAML and focuses on investing in equities quoted in the Nigerian Stock Exchange but which have been screened to meet specified ethical values. Qualifying equities exclude companies whose principal business is deriving interest income and those engaged in the production of alcoholic beverages.
Interest bearing securities are also excluded from the fund’s investing focus. The objective of the fund is to provide investors with capital growth over the long-term through investment choices that do not offend their ethical and social values.
Intercontinental Integrity Fund emerged is the former A-Z Mutual Fund that was managed by Gateway Bank Plc. After the merger of the bank with Intercontinental Bank, the fund came under the management of Intercontinental Capital Markets Limited in 2006.
The fund’s investment targets are company stocks quoted on the Nigerian Stock Exchange, government bonds, money market investments and real estate. Investing in the fund requires a minimum of 10,000 units at prevailing market price and multiples of 1,000 units thereafter. Investors can realize part or all of their investments in the fund subject to five working days notice and a minimum investment period of 90 days.
Oceanic Vintage Fund was launched in 2007 and is managed by Oceanic Bank International [Nigeria] Plc. The investment targets of the fund are mainly blue chip equities quoted on the Nigerian Stock Exchange and supported with moderate interests in real estate and fixed income investments.
The fund’s objective is to optimize returns for investors from a portfolio of investments diversified into the main high growth sectors of the economy. The minimum qualifying investment in the fund is N50,000.
Legacy Fund was floated in February 2006 and is managed by CSL Stockbrokers Limited. The fund’s objective is to achieve regular income for investors as well as capital gains in the long-term through a diversified portfolio of high quality assets. Its investment portfolio is structured to contain a maximum of 50 per cent of blue chip equities quoted on the Nigerian Stock Exchange and the balance mostly of money market assets with moderate interest in government bonds.
At the end of its first one year in operations, its net asset value stood at N1.37 billion with annualized total return of 55 per cent and a growth of 15 per cent. Minimum investment in the fund is N10,000.
UBA Equity Fund was set up in September 2006 and listed on the Nigerian Stock Exchange Memorandum quotations in December 2006. The fund’s investment objective is to achieve high returns on investment and thus provide a hedge against inflation. It is managed by UBA Asset Management Limited.
Investment allocation targets are 80 per cent equities quoted on the Nigerian Stock Exchange and 20 per cent money market investments. It is ideal for high return seeking investors with above average appetite for investment risk.
UBA Balanced Fund is another mutual fund managed by UBA Asset Management Limited and was established in September 2006. The investment objective is to achieve competitive returns through a diversified portfolio of investments.
Investment portfolio components are allocated to equities listed on the Nigerian Stock Exchange - 40 per cent, money market instruments – 40 per cent and other securities – 20 per cent. The minimum investment in the fund is N50,000.
The third mutual fund managed by UBA Asset Management Limited is UBA Bond Fund, which was also set up in September 2006. The fund’s investing objective is to concentrate on risk free assets to provide regular income on a long-term basis.
The fund’s investment portfolio is structured to contain 80 per cent of bonds and 20 per cent of other securities. The minimum investment in the fund is N50,000. The fund is ideal for low risk oriented investors desiring to preserve the value of their capital and obtain a stream of regular income.
Fidelity Nigfund was established in 2002 and managed by Fidelity Bank Plc. Its investment objective is to achieve maximum return on investment capital through a balanced portfolio of investments. The fund’s investment portfolio is structured to comprise 60 per cent of capital market assets, 35 per cent of money market instruments and 5.0 per cent real estate.
The fund had a net asset value of N2.0 billion as at February 2007 and accumulated yield of 248.74 per cent since inception. The minimum investment in the fund is 10,000 units at prevailing market price.
ICON
Paramount Equity Fund formerly known as ICON Unit Trust Scheme is one of the oldest mutual funds in Nigeria. It commenced operations in April 1991 and changed to its present name in June 2004. The fund, which is comprised of 500 million units of N1.0 par value each, is managed by Denham Asset Management Limited. The minimum investment is N20,000 and a minimum additional investment of N10,000.
The fund carries an aggressive equity portfolio aimed at fully exploiting growth opportunities in the stock market. It focuses on blue chip equities supplemented by opportunistic short-term trading activities.
Denham Asset Management Limited also manages two other funds not listed on the Nigerian Stock Exchange. These are the Nigerian Global Investment Fund and Denham Management Millennium Fund. The Nigerian Global Investment Fund is designed to achieve a balanced portfolio of equities, fixed income securities and money market instruments. The highly liquid fund has the objective of providing total security of funds and long-term capital growth.
Denham Management Millennium Fund carries an investment portfolio designed to defend the value of capital. The fund is invested largely in fixed income securities with the objective providing investors with capital preservation and steady growth.
The other members of the first generation of mutual funds in Nigeria are First Interstate Unit Fund registered in 1991 with an initial floatation of 40 million units of 50 kobo each and Continental Unit Trust also registered in 1991 with an initial floatation of 100 million units of N1.00 each. Other mutual funds registered in 1991 are Devcom Mutual Fund and Indo Nigeria Trust Scheme. The capital market is the main investment targets of the funds with a secondary interest in the money market.
Frontier fund was under the management of NAL Bank Plc and First Trustees Nigeria Limited before the amalgamation that formed Sterling Bank Plc. It was floated in 2003 with its main focus on equities market investing and limited interest in the money market.
A number of new mutual funds are presently in various stages of establishment. Zenith Bank floated three mutual funds in May 2008, which will be managed by Zenith Capital Limited. These are 500 million units of Zenith Equity Fund, 200 million units of Zenith Income Fund and 100 million units of Zenith Ethical Fund all of which are issued at N10 per unit. The funds have the usual distinct features that create varying risk and return preferences for investors.
Cashcraft Asset Management Limited floated two mutual funds in 2007 named Anchor Fund and Bedrock Fund. Each of the funds had an initial closing of 500 million units at N1.0 each. The Anchor Fund is a balanced fund with investment portfolio built around equities, mortgage instruments, real estate and opportunistic investments. Bedrock fund is essentially equity based with investment targets of 75 per cent equities and not more than 25 per cent money market assets. The fund is not listed in the Nigerian Stock Exchange.
Afrinvest [West Africa] Limited, formerly Securities Transactions & Trust Company [Nigeria] Limited [Sectrust], has floated Afrinvest Equity Fund. It is raising N5 billion through 50 million units at N100 each. The fund seeks to maximize returns from the equities market. It is forecast to achieve return on investment of 34.86 per cent in 2009, 30.43 per cent in 2010 and 27.22 per cent in 2011.
DVCF Oil & Gas Limited, a subsidiary of Deep Capital Plc is in the process of establishing DVCF Oil & Gas Fund. It is offering to the public one billion units of the fund at N1.0 each. The minimum subscription is N3,000.
Chapel Hill Denham recently launched Nigeria’s first gender specific N2.5 billion mutual fund (Women’s Investment Fund) through an initial public offer (IPO) at N100 per unit.
With the Women’s Investment Fund (WIF), it is believed that a bridge has been crossed in addressing female investors and entrepreneurs alike. The WIF will invest in a diverse portfolio of assets including quoted equities and fixed income securities, real estate and private equity investments.
PHB Asset Management is the fund manager for the Diaspora fund launched by Nigerians in Diaspora Europe (NIDOE) with the support of all NIDO organizations worldwide which should debut in October 2008. This fund has the unique appeal of attracting the highly informed Nigerians in the Diaspora and ensuring that returns match the average rate of return of the Mutual fund market, at a minimum.
4. Returns Prospects of Mutual Funds in Nigeria
The merit of investing in mutual funds depends on the ability of fund managers to produce the superior returns they normally claim. Research findings in Nigeria have not supported the claim that mutual funds can consistently produce superior returns that beat market average yield.
The ability to consistently produce superior returns is tested by comparing annual average yields of mutual funds over the years with the all-share index that represents average performance of a portfolio not so managed.
A five-year annual yield computation by Mr. M. Ibrahim of the research department of SEC between 1993 and 1997 [see table 1] shows a disappointing performance of mutual funds relative to the all-share index. None of the 9 mutual funds then in operation was able to match the 48.51 per cent five-year average stock market return. Besides there was no consistency in the year by year rates of return achieved by the mutual funds during the period.
This was the period when mutual funds operations just began and two factors are identified to have accounted for the disappointing performance. The first is lack of adequate skills in stock selection and trading. Financial analysis expertise and market intelligence skills were quite low at that time.
The second is the long period of depression the stock market experienced during the period. The experience is that average portfolio performances tend to fall below general market average when the stock market faces a decline and tends to rise above market average in bullish markets.
Table I: First 5 Years Annual Yield Rankings [1993-1997]
S/No.
Mutual Fund
5-year Average Annual Yield %
1
ICON Unit Trust Scheme
35
2
Continental Unit Trust
11
3
First Interstate Unit Trust
4
4
Denham Mgt Millennium fund
4
5
Gloria Unit Trust Scheme
1
6
Lead Unit Trust
1
7
MBA Mutual Trust Fund
[1]
8
Posted Wednesday, September 10, 2008
1. The Basic Nature of Mutual Funds
Mutual funds are collective investments that join various individual contributions of investment capital to create a large pool of funds. It spreads the pool of funds across dozens of investment instruments in the stock market and other predetermined investment targets.
The investment target where the fund will be invested is clearly stated, which enables investors select the funds that meet their own desired investing characteristics. The stock market is the most popular target for mutual funds but there are funds that focus completely outside the stock market.
Stock market-based funds provide an alternative window for people who are not highly knowledgeable or confident enough to select stocks by themselves. Even for those who can pick stocks on their own but have limited equity portfolio, some blend of mutual funds is still needed to reduce the risk balance of the share portfolio.
A mutual fund invests the pool of funds contributed by individual subscribers in a number of blue chips or high grade investment options spread across the target market. Subscribers to the fund become unit holders, part owners of the fund proportionate to the volume of the fund units outstanding.
All rights and privileges of shareholders accrue to subscribers in respect of the funds they have bought their units. They will be invited to annual general meetings, take part in electing directors and receive dividend from profit made from the fund’s investments.
Individual subscriptions made to a mutual fund are not identifiable within the investment assets of the fund itself. They do not attach directly to the underlying investments which the fund’s management has made. The fund may have invested in dozens of shares in different companies, including government bonds and treasury bills. There is however no direct link between the funds contributed by subscribers to the shares and any other investments where the pool of resources has been invested.
Most mutual funds are open ended, which means there is no limit to the volume of units the managers can issue. Applications can be made to the fund managers any time for any volume of units the intending subscriber wants to buy on a continuing basis. Likewise, unit holders are free sell any volume of their holdings back to the fund managers any time they wish.
Mutual funds carry two price quotes – the selling or the offer price and the buying or the bid price. The offer price is the current price the fund managers will sell a unit of the fund to subscribers. The bid price is the price they will buy a unit of the fund from those intending to sell their holding. The quotes carry a spread of 3 to 5 per cent in between them, which covers fund manager’s dealing expenses and commission.
The offer and bid prices change on a continuing basis just as share prices do. The price changes can create capital gains over and above the initial price quotation if the fund is doing well. They will create capital losses when the price declines below previous levels.
The rise and fall of the price of the units reflects changes in the net asset value of the fund’s portfolio of investments, which mirror the overall quality of investments. Net asset value is the current market value of the portfolio less outstanding liabilities. The net value is divided by the volume of units outstanding to arrive at net asset value per unit. Generally, the bid and offer prices of mutual funds follow a long-term uptrend and tend to build huge capital gains over time.
Mutual funds come under the regulation of the Securities and Exchange Commission (SEC). In Nigeria, mutual funds are regulated under section 8(g) of the Investment and Securities Act No. 45 of 1999. They have to be registered as a trust or a trust company in accordance with the provisions of the Trustees Act, Investment and Securities Act and the Companies and Allied Matters Act 1990 as amended.
The Investment and Securities Act contains some provisions made to protect the interest of the investing public, including disclosure requirements, operating modalities that ensure transparency and other prudential norms that govern investments by mutual funds. The investments of a mutual fund should be managed by an asset management company registered under the companies act in accordance with the regulations of SEC.
A code of conduct is specified for mutual funds that governs advertisement of the funds. The regulatory objective here is to prevent mutual funds from making unfounded claims and use same to attract investments from the public. Fund managers are required to file a monthly return with SEC in a format specified to permit regular off-site surveillance.
Mutual funds are also required to submit their audited accounts to SEC every year and make full disclosures of their investment assets. SEC undertakes inspection and audit of their operations as well as valuation of their assets.
2. Mutual Funds: A Good Way To Start Investing
One major challenge that faces beginners in the field of investing is the fear of taking the wrong step in the choice of securities. A beginner usually buys one or two stocks and expects to make the good profit he has been made to believe that comes from stock market investing. Often short-term disappointments happen in place of the profit expected.
This leaves the beginner agonizing over the investments, regretting he has not chosen the more rewarding investment options. He may end up selling the investment and moving into another stock expected to do better than the earlier choices. Soon the stocks he thought were going to do better also begin to go down.
Mutual funds represent one major vehicle to get share investing right from the start and avoid possible initial disappointments killing the investment enthusiasm. Mutual funds create a balance between the expectations of returns in a rising market and possibilities of losses when the market falls.
The investment portfolio for a beginner requires being constructed around a diversified group of securities, spread broadly across the market. This will create a low portfolio risk advantage and thus guarantee the level of returns required to transform investments into great wealth over the years.
The financial capacity needed to achieve the standard portfolio diversification is clearly not within the reach of the small investors. Recent market developments have also tended to place new hurdles for the small investor in direct stock market investing. The main restrictive factor is the general increase in the minimum account opening amounts required by stock broking firms. This has spurred fresh attempts to establish mutual funds to create an alternative investing window for the small investor.
The investing activity requires the involvement of experts in deciding what to buy and when to buy or sell. Mutual funds provide a remedy for limited knowledge about stock market investing and inability to select good investments.
They create investing expertise through the appointment of professional managers and make it available to the general investing public. The fund managers are knowledgeable about the market and are in a better position than individual investors to build a portfolio of stocks and other securities and turn them over to take advantage of market developments.
Mutual funds therefore offer a big window of opportunity for beginners and it is available to both big and small investors. A mutual fund is a financial intermediary that creates instruments for a group of investors to pool their funds for investment in predetermined markets, usually equities, bond and money markets. The funds offer six key advantages to investors.
The first is the wide access to professional skills employed to invest and manage the funds. Beginners do not usually have the skills to analyse the prospects for individual companies and choose those that present the best investment options. A mutual fund appoints and pays a professional fund manager to do this job for its investors. What this means is that no matter the size of the investment in a mutual fund, it has the opportunity of sound professional management.
The second advantage is that mutual funds provide a device for the management of investment risk. The best way to manage risk in investment is to spread it by diversifying the portfolio. Investment in mutual funds gets instant diversification to achieve market-wide coverage, no matter its size. Since a mutual fund is a collection of stocks, bonds and money market securities held in a pool but then sliced into units sold to individual investors, any unit of the fund receives the diversification advantage of this large collection of different types of securities.
This makes it possible to share in the prosperity generated from any part of the market and minimize the net effect of losses from any market segment on the value of investment and the rate of return. Even if you invest only N100 in a mutual fund, you get an equivalent proportion of the diversification effect. This means it is better, for risk management purpose, to invest N100 in a mutual fund than hold equivalent amount of stocks in a single company.
Thirdly, there are usually quite a number of funds available in the market to choose from, especially in the advanced financial markets. In Nigeria, development of mutual funds has been slow but a growing number of new funds have been springing up since the past few years. There are 21 mutual funds presently quoted in the Nigerian Stock Exchange while a number of others are not quoted. A good number of new funds are also in various floatation and setting up processes.
The fourth advantage of mutual funds is the liquidity or flexibility that they offer. Selling the mutual fund investment is easy and they can also be bought back any time. The prices to buy and sell are quoted in the open market but dealing is exclusively with the fund managers. Not all mutual funds are normally quoted in the stock exchange.
Another advantage of mutual funds is in terms of comparatively lower transactions cost. Some statutory charges are fixed irrespective of the volume of transactions and mutual funds have an advantage of dealing in volume. With their large pool of investment capital, they are in a position to negotiate stockbroker’s commission. They are therefore able to achieve a lower average cost of investment than people buying a couple of shares.
The ultimate advantage of mutual funds is the expectedly high rate of return, which reflects the favourable effects of diversification and economy of scale effect on cost. The funds are expected to show returns ahead of average stock or bond markets’ returns. The ability to take up excellent investment opportunities should enable mutual funds to maximize returns while effective portfolio diversification permits them to minimize the risk.
3. Mutual Funds Operations in Nigeria
Mutual funds operations in Nigeria came to the limelight for the first time during the early 1990s, as a result of the rapid growth in the financial sector induced by the deregulation policy of the mid 1980s. They emerged as part of the financial markets innovations that followed the policy of deregulation. Banks engaged in competitive floatation and management of mutual funds then as is happening again presently.
A good number of them closed shop during the financial turmoil that followed. Banks were mainly the fund managers and the funds went down with the banks that were hit by financial distress.
Mutual funds began to re-emerge as from the mid 1990s but remained relatively insignificant with limited impact in the capital market until the recent banking consolidation reinforced the sector once again. Presently there are 21 mutual funds listed in the Nigerian Stock Exchange and another 16 not listed. A growing number of others are still in the process of being set up.
IBTC Nigerian Equity Fund is the biggest mutual fund in Nigeria with a net asset value in excess of N30 billion as at the end of 2007. The fund, which is managed by IBTC Asset Management Limited, commenced operations in 1997. The units of the fund were issued at an initial price of N1,000 per unit and the offer price is presently in excess of N11,000.
The equity fund is mainly capital market-based and requires a minimum subscription of N50,000. The principal investment is guaranteed for a minimum of three months.
The fund has a minimum target allocation of 75 per cent in stocks quoted in the Nigerian Stock Exchange and 25 per cent in money market instruments. A return on investment of 62.14 per cent was realized in 2007 and annual growth is estimated at an average of 53 per cent.
The primary objective of the fund is to achieve long-term capital appreciation by investing in high quality securities quoted on the Nigerian Stock Exchange and in other instruments approved by SEC.
IBTC Asset Management Limited also manages two other funds – Stanbic IBTC Bank’s Ethical Fund and Stanbic IBTC Bank’s Guaranteed Investment Fund. The ethical fund was floated in 2005 at a par value of N1.0 per unit. It has a minimum target allocation of 75% in stocks quoted in the Nigerian Stock Exchange and a maximum of 25% in money market assets.
Its choice of investments excludes stocks of companies that operate in the brewery and tobacco sectors or involved in the production of arms and ammunition, gambling or any other businesses considered harmful to society. The fund’s focus is to permit a clear moral conscience by investing with the interest of society in mind. It is designed for those who do not want to make profit at the expense of their religious believes and principles
The minimum requirement for investing in the fund is N50,000 and the principal investment is guaranteed against diminution in value provided the investment is held for a minimum of three months.
The Stanbic IBTC Guaranteed Investment was launched in December 2007 at a nominal value of N100 per unit. The fund builds its assets around fixed income securities such as government bonds, money market securities and other securities approved by SEC. It has a minimum target allocation of 75 per cent in fixed income securities and a maximum of 25 per cent in securities, essentially blue chip companies listed on the Nigerian Stock Exchange.
Investment in fixed income securities is biased in favour of tax exempt assets and those that offer the best post-tax return. The principal investment is guaranteed against diminution subject to funds kept for a minimum of three months. The fund is designed to provide regular income and long-term capital appreciation.
ARM Discovery Fund was established in 1995 and was initially named equity growth fund. The open-ended fund is managed by Asset and Resources Management Company Limited [ARM]. The fund’s investment targets are equities, fixed income securities and real estate.
The investment mix is designed to provide capital growth while achieving an optimum balance between risk and return. The fund’s investments have allocated targets of a minimum of 40 per cent in equities and a maximum of 65 per cent. The fund achieved a return of 56 per cent in 2007. Minimum investment amount is N10,000 with minimum additional investment amount of N5,000.
ARM Aggressive Growth Fund is the second mutual fund managed by ARM and was established in 2004. It has a targeted allocation of 80 per cent of its investments in equities quoted in the Nigerian Stock Exchange and 20 per cent allocation to money market and other fixed income investments.
The fund is designed for investors with the primary goal of achieving capital appreciation and having above average appetite for risk for the possibility of higher returns in the long-term. The fund achieved an 86 per cent return in 2007 and an annual average of 41.4 per cent over the four years of its operations. Minimum investment in the fund is N50,000.
Coral Growth Fund was set up in 2001 and managed by FSDH Asset Management Limited [FAML]. The fund invests 65 per cent of its resources in equities quoted on the Nigerian Stock Exchange and the balance of 35 per cent on investment grade fixed income securities.
The minimum investment amount in the fund is N50,000 with a minimum additional investment of N10,000. The investment objective is to grow capital value over the long-term. It is designed to meet the needs of private pension/retirement plan, savings and investment plans and educational and contingency plans. The fund has recorded an annual average growth of 33.98 per cent by the end of 2006.
Coral Income Fund is the second of the three funds managed by FAML. The funds focus mainly on fixed income securities in both the money and capital markets. As much as 70 per cent of its investments constitute fixed income securities while the remaining 30 per cent is targeted at equities quoted on the Nigerian Stock Exchange.
The objective of the fund is to enable investors preserve the value of their capital and achieve a stable stream of income. It is designed for the less aggressive investors who are desirous of preserving their stock of capital.
Coral Ethical Fund is the third mutual fund managed by FAML and focuses on investing in equities quoted in the Nigerian Stock Exchange but which have been screened to meet specified ethical values. Qualifying equities exclude companies whose principal business is deriving interest income and those engaged in the production of alcoholic beverages.
Interest bearing securities are also excluded from the fund’s investing focus. The objective of the fund is to provide investors with capital growth over the long-term through investment choices that do not offend their ethical and social values.
Intercontinental Integrity Fund emerged is the former A-Z Mutual Fund that was managed by Gateway Bank Plc. After the merger of the bank with Intercontinental Bank, the fund came under the management of Intercontinental Capital Markets Limited in 2006.
The fund’s investment targets are company stocks quoted on the Nigerian Stock Exchange, government bonds, money market investments and real estate. Investing in the fund requires a minimum of 10,000 units at prevailing market price and multiples of 1,000 units thereafter. Investors can realize part or all of their investments in the fund subject to five working days notice and a minimum investment period of 90 days.
Oceanic Vintage Fund was launched in 2007 and is managed by Oceanic Bank International [Nigeria] Plc. The investment targets of the fund are mainly blue chip equities quoted on the Nigerian Stock Exchange and supported with moderate interests in real estate and fixed income investments.
The fund’s objective is to optimize returns for investors from a portfolio of investments diversified into the main high growth sectors of the economy. The minimum qualifying investment in the fund is N50,000.
Legacy Fund was floated in February 2006 and is managed by CSL Stockbrokers Limited. The fund’s objective is to achieve regular income for investors as well as capital gains in the long-term through a diversified portfolio of high quality assets. Its investment portfolio is structured to contain a maximum of 50 per cent of blue chip equities quoted on the Nigerian Stock Exchange and the balance mostly of money market assets with moderate interest in government bonds.
At the end of its first one year in operations, its net asset value stood at N1.37 billion with annualized total return of 55 per cent and a growth of 15 per cent. Minimum investment in the fund is N10,000.
UBA Equity Fund was set up in September 2006 and listed on the Nigerian Stock Exchange Memorandum quotations in December 2006. The fund’s investment objective is to achieve high returns on investment and thus provide a hedge against inflation. It is managed by UBA Asset Management Limited.
Investment allocation targets are 80 per cent equities quoted on the Nigerian Stock Exchange and 20 per cent money market investments. It is ideal for high return seeking investors with above average appetite for investment risk.
UBA Balanced Fund is another mutual fund managed by UBA Asset Management Limited and was established in September 2006. The investment objective is to achieve competitive returns through a diversified portfolio of investments.
Investment portfolio components are allocated to equities listed on the Nigerian Stock Exchange - 40 per cent, money market instruments – 40 per cent and other securities – 20 per cent. The minimum investment in the fund is N50,000.
The third mutual fund managed by UBA Asset Management Limited is UBA Bond Fund, which was also set up in September 2006. The fund’s investing objective is to concentrate on risk free assets to provide regular income on a long-term basis.
The fund’s investment portfolio is structured to contain 80 per cent of bonds and 20 per cent of other securities. The minimum investment in the fund is N50,000. The fund is ideal for low risk oriented investors desiring to preserve the value of their capital and obtain a stream of regular income.
Fidelity Nigfund was established in 2002 and managed by Fidelity Bank Plc. Its investment objective is to achieve maximum return on investment capital through a balanced portfolio of investments. The fund’s investment portfolio is structured to comprise 60 per cent of capital market assets, 35 per cent of money market instruments and 5.0 per cent real estate.
The fund had a net asset value of N2.0 billion as at February 2007 and accumulated yield of 248.74 per cent since inception. The minimum investment in the fund is 10,000 units at prevailing market price.
ICON
Paramount Equity Fund formerly known as ICON Unit Trust Scheme is one of the oldest mutual funds in Nigeria. It commenced operations in April 1991 and changed to its present name in June 2004. The fund, which is comprised of 500 million units of N1.0 par value each, is managed by Denham Asset Management Limited. The minimum investment is N20,000 and a minimum additional investment of N10,000.
The fund carries an aggressive equity portfolio aimed at fully exploiting growth opportunities in the stock market. It focuses on blue chip equities supplemented by opportunistic short-term trading activities.
Denham Asset Management Limited also manages two other funds not listed on the Nigerian Stock Exchange. These are the Nigerian Global Investment Fund and Denham Management Millennium Fund. The Nigerian Global Investment Fund is designed to achieve a balanced portfolio of equities, fixed income securities and money market instruments. The highly liquid fund has the objective of providing total security of funds and long-term capital growth.
Denham Management Millennium Fund carries an investment portfolio designed to defend the value of capital. The fund is invested largely in fixed income securities with the objective providing investors with capital preservation and steady growth.
The other members of the first generation of mutual funds in Nigeria are First Interstate Unit Fund registered in 1991 with an initial floatation of 40 million units of 50 kobo each and Continental Unit Trust also registered in 1991 with an initial floatation of 100 million units of N1.00 each. Other mutual funds registered in 1991 are Devcom Mutual Fund and Indo Nigeria Trust Scheme. The capital market is the main investment targets of the funds with a secondary interest in the money market.
Frontier fund was under the management of NAL Bank Plc and First Trustees Nigeria Limited before the amalgamation that formed Sterling Bank Plc. It was floated in 2003 with its main focus on equities market investing and limited interest in the money market.
A number of new mutual funds are presently in various stages of establishment. Zenith Bank floated three mutual funds in May 2008, which will be managed by Zenith Capital Limited. These are 500 million units of Zenith Equity Fund, 200 million units of Zenith Income Fund and 100 million units of Zenith Ethical Fund all of which are issued at N10 per unit. The funds have the usual distinct features that create varying risk and return preferences for investors.
Cashcraft Asset Management Limited floated two mutual funds in 2007 named Anchor Fund and Bedrock Fund. Each of the funds had an initial closing of 500 million units at N1.0 each. The Anchor Fund is a balanced fund with investment portfolio built around equities, mortgage instruments, real estate and opportunistic investments. Bedrock fund is essentially equity based with investment targets of 75 per cent equities and not more than 25 per cent money market assets. The fund is not listed in the Nigerian Stock Exchange.
Afrinvest [West Africa] Limited, formerly Securities Transactions & Trust Company [Nigeria] Limited [Sectrust], has floated Afrinvest Equity Fund. It is raising N5 billion through 50 million units at N100 each. The fund seeks to maximize returns from the equities market. It is forecast to achieve return on investment of 34.86 per cent in 2009, 30.43 per cent in 2010 and 27.22 per cent in 2011.
DVCF Oil & Gas Limited, a subsidiary of Deep Capital Plc is in the process of establishing DVCF Oil & Gas Fund. It is offering to the public one billion units of the fund at N1.0 each. The minimum subscription is N3,000.
Chapel Hill Denham recently launched Nigeria’s first gender specific N2.5 billion mutual fund (Women’s Investment Fund) through an initial public offer (IPO) at N100 per unit.
With the Women’s Investment Fund (WIF), it is believed that a bridge has been crossed in addressing female investors and entrepreneurs alike. The WIF will invest in a diverse portfolio of assets including quoted equities and fixed income securities, real estate and private equity investments.
PHB Asset Management is the fund manager for the Diaspora fund launched by Nigerians in Diaspora Europe (NIDOE) with the support of all NIDO organizations worldwide which should debut in October 2008. This fund has the unique appeal of attracting the highly informed Nigerians in the Diaspora and ensuring that returns match the average rate of return of the Mutual fund market, at a minimum.
4. Returns Prospects of Mutual Funds in Nigeria
The merit of investing in mutual funds depends on the ability of fund managers to produce the superior returns they normally claim. Research findings in Nigeria have not supported the claim that mutual funds can consistently produce superior returns that beat market average yield.
The ability to consistently produce superior returns is tested by comparing annual average yields of mutual funds over the years with the all-share index that represents average performance of a portfolio not so managed.
A five-year annual yield computation by Mr. M. Ibrahim of the research department of SEC between 1993 and 1997 [see table 1] shows a disappointing performance of mutual funds relative to the all-share index. None of the 9 mutual funds then in operation was able to match the 48.51 per cent five-year average stock market return. Besides there was no consistency in the year by year rates of return achieved by the mutual funds during the period.
This was the period when mutual funds operations just began and two factors are identified to have accounted for the disappointing performance. The first is lack of adequate skills in stock selection and trading. Financial analysis expertise and market intelligence skills were quite low at that time.
The second is the long period of depression the stock market experienced during the period. The experience is that average portfolio performances tend to fall below general market average when the stock market faces a decline and tends to rise above market average in bullish markets.
Table I: First 5 Years Annual Yield Rankings [1993-1997]
S/No.
Mutual Fund
5-year Average Annual Yield %
1
ICON Unit Trust Scheme
35
2
Continental Unit Trust
11
3
First Interstate Unit Trust
4
4
Denham Mgt Millennium fund
4
5
Gloria Unit Trust Scheme
1
6
Lead Unit Trust
1
7
MBA Mutual Trust Fund
[1]
8
3RD QTR RESULT JOHN HOLT PLC
3RD QTR JUNE 2008
JOHN HOLT PLC, UNAUDITED RESULT FOR 3RD QUARTER ENDED 30-06-2008
TURNOVER 08 N16.808m, 07 N12.533m
EXCEPTIONAL ITEMS 08 N494m, 07 NIL
PBTXATION 08 N302m, 07 N55m
TAXATION 08 (N91m) 07(N43m)
PATTAXATION 08 N705m, 07 N12m
----------------------------------------
JOHN HOLT PLC, UNAUDITED RESULT FOR 3RD QUARTER ENDED 30-06-2008
TURNOVER 08 N16.808m, 07 N12.533m
EXCEPTIONAL ITEMS 08 N494m, 07 NIL
PBTXATION 08 N302m, 07 N55m
TAXATION 08 (N91m) 07(N43m)
PATTAXATION 08 N705m, 07 N12m
----------------------------------------
NO INSURANCE STOCK GAINED TODAY
The number of insurance stocks that gained in price today is 0. A full round zero! We need to pray that this is one big joke by a mischevious computer operator at the NSE. Maybe he had too much to drink last night, and after a splitting hangover all morning, decided to paste this pricelist and leave the office in a hurry.
THE BOA CONSTRICTOR STRATEGY
Okay here we go......
To make money from this present situation, you will need some huge dough and hard balls. I have been studying the Boa constrictor! Don’t ask me what I was looking for in the zoo, but to me, some answers lie in the animal kingdom, since its humans thinking like that who make rules for the market and expect sane people to understand same.
The Boa Constrictor strategy.
I watched in horror as the Boa constrictor was fed one live goat. It entwined itself on the poor goat and started to squeeze... As the goat tries to breathe, the Boa squeezes more...and more, and more until the goat died, that’s when the Boa slowly started 'eating'
With some fairly large amount of money, discipline and patience (this could take some time) you can strike the perfect ambush for this market.
Choose one 'sound' stock e.g. DSR, FBN, NB, Unic etc and start buying down. Buy the first small tranche (break the money into hundred and buy only 1%. As these prices are falling (breathing) you will be constricting (buying) more. This should continue for as long as the fall continues. It looks like NCA, but its different cause you will be ready to get off if the fall reverses and sell to hold cash and wait for another period of madness.
This strategy works for both short and long terms. While short timers can sell as soon as they see 20% or more after commisions, long timers can stop buying immediately the price starts to move up. Take your rest and keep the money resting until the market gets crazy again, then you can step right in and resume the squeeze.
To make money from this present situation, you will need some huge dough and hard balls. I have been studying the Boa constrictor! Don’t ask me what I was looking for in the zoo, but to me, some answers lie in the animal kingdom, since its humans thinking like that who make rules for the market and expect sane people to understand same.
The Boa Constrictor strategy.
I watched in horror as the Boa constrictor was fed one live goat. It entwined itself on the poor goat and started to squeeze... As the goat tries to breathe, the Boa squeezes more...and more, and more until the goat died, that’s when the Boa slowly started 'eating'
With some fairly large amount of money, discipline and patience (this could take some time) you can strike the perfect ambush for this market.
Choose one 'sound' stock e.g. DSR, FBN, NB, Unic etc and start buying down. Buy the first small tranche (break the money into hundred and buy only 1%. As these prices are falling (breathing) you will be constricting (buying) more. This should continue for as long as the fall continues. It looks like NCA, but its different cause you will be ready to get off if the fall reverses and sell to hold cash and wait for another period of madness.
This strategy works for both short and long terms. While short timers can sell as soon as they see 20% or more after commisions, long timers can stop buying immediately the price starts to move up. Take your rest and keep the money resting until the market gets crazy again, then you can step right in and resume the squeeze.
Monday, 8 September 2008
NEW M.D. FOR MOBIL PLC.
The Executive Direc tor, Retail Sales, of Mobil Oil Nigeria, Mr. Adetunji Oyebanji, has been appointed as the Chairman/Managing Director of the company.
He takes over from Mr. Olu Onakoya who is retiring from the company.
The Board of Mobil Oil Nigeria, an ExxonMobil affiliate company, has announced the voluntary retirement of its Chairman/Managing Director, Mr. Olu Onakoya.
Mr. Onakoya, a chemical engineer, who is the firm’s first Nigerian Chairman/Managing Director, will retire on October 21 after 31 years in Exxon Mobil.
Mr. Oyebanji, according to a statement by its External Affairs Manager, Mr. Akin Fatunke, holds a Bachelor of Science Degree in Economics from the University of Lagos and a Masters in Business Administration (MBA) from City University, London.
Since joining Mobil in 1980, he has had a varied career in sales, marketing and planning in Exxon Mobil affiliates in Africa, Europe and United States of America.
The retiring Onakoya was at various times General Manager, Mobil Oil Ethiopia, Chairman/Managing Director of Mobil Oil Ghana and Mobil Oil Zimbabwe before his appointment in April 2004 to lead the downstream subsidiary of Exxon Mobil in Nigeria. - Tribune
He takes over from Mr. Olu Onakoya who is retiring from the company.
The Board of Mobil Oil Nigeria, an ExxonMobil affiliate company, has announced the voluntary retirement of its Chairman/Managing Director, Mr. Olu Onakoya.
Mr. Onakoya, a chemical engineer, who is the firm’s first Nigerian Chairman/Managing Director, will retire on October 21 after 31 years in Exxon Mobil.
Mr. Oyebanji, according to a statement by its External Affairs Manager, Mr. Akin Fatunke, holds a Bachelor of Science Degree in Economics from the University of Lagos and a Masters in Business Administration (MBA) from City University, London.
Since joining Mobil in 1980, he has had a varied career in sales, marketing and planning in Exxon Mobil affiliates in Africa, Europe and United States of America.
The retiring Onakoya was at various times General Manager, Mobil Oil Ethiopia, Chairman/Managing Director of Mobil Oil Ghana and Mobil Oil Zimbabwe before his appointment in April 2004 to lead the downstream subsidiary of Exxon Mobil in Nigeria. - Tribune
THE MARKET TODAY 08/09/2008
The Nigerian equities market declined today on the first trading day in the week; causing major indicators to depreciate by 41 basis points. At the end of the trading session, the ratio of advancers to decliners was 1: 3.41; the ASI lost 203.34 points to close at 49,412.21, whilst the market capitalization decreased by US$0.37billion to close at US$88.75 billion. In addition, volumes and values were down by 34.75% and 57.84% respectively.
The share price of Thomas Wyatt Plc was adjusted for a bonus of 1 for 1; the price was frozen at 4.95 kobo during the trading session. However, there were no volumes traded on the shares today.
FCMB released its un-audited account for the first quarter ended 31st July, 2008. Turnover plummeted by 85.19% to N18.5 billion; PBT also increased by 84.04% to N6.11 billion while PAT jumped by 82.26% to N4.83 billion. In line with recent tradition in the market, this result failed to excite the investors as the stock closed on net offer and lost full 1% price depreciation.
The southward movements of major indicators may not be unconnected with the delay in the implementation of policy measures earlier announced by market stakeholders. The investors lethargy in the market may also be linked with recent high volatility of Nigerian equity market, causing the investors (especially investors with mid-term to long term perspective) to be cautious and seek for alternative investment vehicle, such as fixed income instruments. Generally, investors are still cautious, having suffered a sustained bear run while market stability remaining elusive. Implementations of other palliative measures; such as stabilization fund, finalizing the market maker take off, restructuring of margin loan by banks amongst other will be a positive signal to boost confidence and persuade prospective investors to enter the market rather than watch from the sidelines.
Index was down by 41 basis pts on 8,464 trades. Average size of trade was US$3,431 with total value of US$29.04m. Market cap closed at US$88.75billion.
Overall, there were 17 gainers, 58 losers and 53 unchanged.
The Banking sector led the volume chart followed by the Insurance sector and both accounted for 80.11% of total volume traded.
Spring Bank Plc traded 105.411 million shares to top the overall volume chart. Other stocks that closed in the top echelon were, Investment and Allied Insurance, Universal Insurance Plc, International Energy Insurance and Sterling Bank.
Net bid: Continental Insurance and Oando.
Net Offer: Access Bank, Lasaco, Platinum, Aso Savings and NSL Tech.
Top Gainers: Oando, Inter. Breweries, Longman, Cornerstone and Continental Insurance.
Top Losers: Skye Bank, Costain, Dangote Flour, Mobil and Chevron.
The share price of Thomas Wyatt Plc was adjusted for a bonus of 1 for 1; the price was frozen at 4.95 kobo during the trading session. However, there were no volumes traded on the shares today.
FCMB released its un-audited account for the first quarter ended 31st July, 2008. Turnover plummeted by 85.19% to N18.5 billion; PBT also increased by 84.04% to N6.11 billion while PAT jumped by 82.26% to N4.83 billion. In line with recent tradition in the market, this result failed to excite the investors as the stock closed on net offer and lost full 1% price depreciation.
The southward movements of major indicators may not be unconnected with the delay in the implementation of policy measures earlier announced by market stakeholders. The investors lethargy in the market may also be linked with recent high volatility of Nigerian equity market, causing the investors (especially investors with mid-term to long term perspective) to be cautious and seek for alternative investment vehicle, such as fixed income instruments. Generally, investors are still cautious, having suffered a sustained bear run while market stability remaining elusive. Implementations of other palliative measures; such as stabilization fund, finalizing the market maker take off, restructuring of margin loan by banks amongst other will be a positive signal to boost confidence and persuade prospective investors to enter the market rather than watch from the sidelines.
Index was down by 41 basis pts on 8,464 trades. Average size of trade was US$3,431 with total value of US$29.04m. Market cap closed at US$88.75billion.
Overall, there were 17 gainers, 58 losers and 53 unchanged.
The Banking sector led the volume chart followed by the Insurance sector and both accounted for 80.11% of total volume traded.
Spring Bank Plc traded 105.411 million shares to top the overall volume chart. Other stocks that closed in the top echelon were, Investment and Allied Insurance, Universal Insurance Plc, International Energy Insurance and Sterling Bank.
Net bid: Continental Insurance and Oando.
Net Offer: Access Bank, Lasaco, Platinum, Aso Savings and NSL Tech.
Top Gainers: Oando, Inter. Breweries, Longman, Cornerstone and Continental Insurance.
Top Losers: Skye Bank, Costain, Dangote Flour, Mobil and Chevron.
2009 BUDGET MAY COME OUT EARLY
With the return of President Umaru Yar' Adua from his trip to Saudi Arabia, there are strong indications that work on the 2009 Appropriation Bill will resume in earnest, to ensure presentation to the National Assembly in October. Already, the House of Representatives has expressed its readiness to ensure quick passage of the 2008 Appropriation Amendment Bill as soon as it resumes sitting this week, to clear the way for the new budget. Chairman, House of Representatives Committee on Rules and Business, Honorable Ita Enang, said the House will expedite action on the Supplementary Budget, and ensure that it adequately addresses issue of excess crude funds.Enang, while briefing newsmen over the weekend, disclosed that the House had received assurances that preparation of the 2009 Appropriation Bill had reached an advanced stage. He said presentation of the bill to the National Assembly in October would be an added advantage and guarrantee its quick passage. Asked why the National Assembly was still working on a supplementary budget when the new budget was almost ready, Enang said the 2008 Supplementary Budget became imperative, following the phenomenal rise in international price of crude oil, the main stay of the Nigerian economy. The National Assembly, he explained, used $59 per barrel as benchmark for the budget, while oil had been selling at between $105 and $150 per barrel at the international market. Enang said despite the controversy trailing passage of the 2008 Appropriation Amendment Bill, the House will pass the bill on Wednesday, September 10. The Senate and the House had been trading blames over who should be held responsible for delay in the passage the bill.
Source: ThisDay Newspaper
Source: ThisDay Newspaper
MERGER TALKS BETWEEN FBN AND ECOBANK
The first merger talk was with First Bank which started in 2005. The First Bank transaction was a very interesting transaction because it was meant to give scale to Ecobank in Nigeria and give scale to First Bank in the rest of Africa. So there was something in it for the two institutions. Unfortunately, because of the size of the transaction, and being the first of its kind in this country and the fact that if involved various countries and various governments, it was difficult to complete that transaction as early as you would complete an in-country transaction. The transaction is not over, however as discussions are still on-going. The second one, which was more Ecobank Nigeria than Ecobank Transactional was with Unity Bank. We could not move ahead within the time frame we had determined for ourselves the proposed partner’s accounts were still being approved because of the large number of banks that came together in their merger arrangement. Then we went to Sterling Bank. We did a lot of work in this transaction. But you know that mergers between institutions with diverse share holding could also be complicated. We could not agree on some issues and so that deal was put on hold. Tomorrow, we can go back to them, but I can assure you, the First Bank transaction is still ongoing.
Source: Businessday Newspaper.
Source: Businessday Newspaper.
FCMB FIRST QTR RESULTS
FIRST CITY MONUMENT BANK PLC UNAUDITEDFIRST QUARTER RESULT FOR THE PERIOD ENDED 31 JULY 2008
2008 2007 CHANGE % CHANGE
N'b N'b N'b %
GROSS EARNINGS 18.530 9.990 8.54 85.49%
PROFIT BEFORE TAX 6.110 3.32 2.79 84.04%
TAXATION -1.28 -0.664 0.616 92.77%
PROFIT AFTER TAX 4.83 2.65 2.18 82.26%
2008 2007 CHANGE % CHANGE
N'b N'b N'b %
GROSS EARNINGS 18.530 9.990 8.54 85.49%
PROFIT BEFORE TAX 6.110 3.32 2.79 84.04%
TAXATION -1.28 -0.664 0.616 92.77%
PROFIT AFTER TAX 4.83 2.65 2.18 82.26%
DANGOTE FLOUR CERTIFICATES
Investors who took part into the Dangote Flour Mills 2007 Initial Public Offer (IPO) have renewed their complaints on the non-receipt of share certificates/ return money warrants.
A complaint from one Ukonu Tobechukwu an investor into the Dangote Flour Mill offer reads thus: “I earlier informed that am yet to receive Share Certificates and Return/Money for the stated Dangote Flour Shares.
Well, I received a share certificate against my name Ukonu, Tobechukwu in July 2008 for only 750 units compared to the 3,000 units applied for.
I have not received any Return Money till date.
I have not also received share certificate against the name Ogueri Chimaraoke for the 2,000 units applied for. I have provided all documents involved in this transaction.
The phone lines provided below are not working, and non-response to emails is not a customer friendly attitude. Please direct my request to the appropriate personnel”
Proshare NI sought to clarify the issue with Oceanic Registrars today in Lagos Nigeria, Segun Ogunnoiki; Managing Director/Registrar of the company; in a reaction to the investors complaints, affirmed that Oceanic Registrars have been doing its best to make sure that people get their return money warrants and share certificates.
Ogunnoiki affirmed that Oceanic Registrars has urgently requested all receiving agents, banks and Stockbrokers who participated in the offer to return money warrants and share certificates in their possession for direct posting to shareholders.
Proshare confirmed this through a publication by the company on July 14, 2008 in The Guardian Newspaper.
Ogunnoiki further affirmed that Oceanic Registrars has since dispatch same through Bulk Post Ventures.
“Following this, the complaint has drastically reduced” he said.
He however, advised those who have not received to contact any Oceanic Bank branch for the matter to be resolved.
In the same vein, Ogunnoiki confirmed to Proshare NI that return money warrants are been revalidated by Oceanic Registrars. “For those whose return warrants have expired, we advise them to apply for reissue, we revalidate these warrants and pay them into their accounts” he said.
Dangote Flour Mills had in September, 2007 offered to the investing Nigerian Public 1,250 billion Ordinary Shares of 50 Kobo each at N15.00 per share.
As earlier reported by Proshare NI, Oceanic Registrars had affirmed that they are ready to reissue returned share certificates by hand as regards the Dangote Flour Mills 2007 offer.
WRITTEN BY PETER OBIORA.
A complaint from one Ukonu Tobechukwu an investor into the Dangote Flour Mill offer reads thus: “I earlier informed that am yet to receive Share Certificates and Return/Money for the stated Dangote Flour Shares.
Well, I received a share certificate against my name Ukonu, Tobechukwu in July 2008 for only 750 units compared to the 3,000 units applied for.
I have not received any Return Money till date.
I have not also received share certificate against the name Ogueri Chimaraoke for the 2,000 units applied for. I have provided all documents involved in this transaction.
The phone lines provided below are not working, and non-response to emails is not a customer friendly attitude. Please direct my request to the appropriate personnel”
Proshare NI sought to clarify the issue with Oceanic Registrars today in Lagos Nigeria, Segun Ogunnoiki; Managing Director/Registrar of the company; in a reaction to the investors complaints, affirmed that Oceanic Registrars have been doing its best to make sure that people get their return money warrants and share certificates.
Ogunnoiki affirmed that Oceanic Registrars has urgently requested all receiving agents, banks and Stockbrokers who participated in the offer to return money warrants and share certificates in their possession for direct posting to shareholders.
Proshare confirmed this through a publication by the company on July 14, 2008 in The Guardian Newspaper.
Ogunnoiki further affirmed that Oceanic Registrars has since dispatch same through Bulk Post Ventures.
“Following this, the complaint has drastically reduced” he said.
He however, advised those who have not received to contact any Oceanic Bank branch for the matter to be resolved.
In the same vein, Ogunnoiki confirmed to Proshare NI that return money warrants are been revalidated by Oceanic Registrars. “For those whose return warrants have expired, we advise them to apply for reissue, we revalidate these warrants and pay them into their accounts” he said.
Dangote Flour Mills had in September, 2007 offered to the investing Nigerian Public 1,250 billion Ordinary Shares of 50 Kobo each at N15.00 per share.
As earlier reported by Proshare NI, Oceanic Registrars had affirmed that they are ready to reissue returned share certificates by hand as regards the Dangote Flour Mills 2007 offer.
WRITTEN BY PETER OBIORA.
OF MARKET INTERVENTIONS AND REGULATORY EXUBERANCE
Almost a year ago I wrote an article titled “It’s Irrational Exuberance, Stupid”. In the said article, I forewarned of a stock market bubble and that the Nigerian capital market was headed for an imminent correction. What I couldn’t forecast was whether the correction would take the form of a prolonged bear run or a fast and furious crash. I got several reactions to that article. Of all them, the most interesting one came from the Nigerian Stock Exchange. Before I got to the office that Monday morning, Sola Oni, Head of Media at the exchange, called to express his concerns about my article.
His biggest worry was not my gloomy forecast; rather he was more concerned with the title. By some inexplicable interpretation, he read it to mean that I had referred to the director general of the NSE, Dr Ndi Okereke-Onyiuke, as “stupid”. Oni and I, as a matter of fact, spoke quite a number of times that day arguing vehemently over the phraseology I had used for my headline which I insisted was not insulting or rude, but a play on words. In the end, we agreed to disagree, with him promising to send a rejoinder for publication. I still await his response to date.
However, what I found most intriguing about the NSE’s reaction to my article was its lack of concern for the issues raised in the said piece. Instead its officials were losing sleep over an innocuous word. Even more worrying than the flight of fancy that had beclouded all sense of judgment of the regulator, was that the managers of the market were in denial. For some strange reason, for all their international exposure and so-called in depth knowledge of capital markets, they somehow forgot that all markets must go through cycles of booms and bursts. They honestly believed the Nigerian market would beat the odds and that the bubble would remain afloat till the end of time. How myopic they were. A bubble by its very nature can only remain afloat for so long before it reaches saturation and inevitably pops. Alternatively, the slightest prick or trigger would bring it floating down to earth.
The irony of that incident was that I was not the sole voice concerned about the fate of the capital market. Several analysts such as Bismack Rewane of Financial Derivative Limited and Bimbo Olashore of Lead Capital were certain that the unprecedented stock market bull run which started sometime in 2005 would eventually come to a halt. At every opportunity the likes of Rewane cautioned against the inevitable but no one listened. The regulators ignored the warnings because they were living in La-La Land and told anyone who cared to listen that returns in our capital market were as high as 400 per cent, thus making it an attractive investment destination.
To a great extent, the marketing effort did work. Several international hedge funds plunked billions of dollars into the Nigerian market. But were the first to make a dash for the exit when the same NSE applied an ill-conceived circuit breaker sometime in May this year to stem the downward slide of shares. Three months before that incident, the market had been on a downward spiral, and was charging towards wiping out all the gains made in the last two to three years. Unfortunately, it was a panic measure that scared international investors silly, because if officials of the exchange could intentionally stop share prices from going south, then they would stop at nothing to keep prices afloat; even going as far as creating market imperfections.
Well, the bulls did eventually screech to a grinding halt. And in the last six months, it’s been obvious that the regulators of the Nigerian capital market have been at their wits end as to how to stem the market melt down. Even the Central Bank’s postponement of the harmonised year end for banks, and its denial that it had placed an embargo on margin lending, had little impact on the market. Instead, it took a drastic intervention by the government the week before last to restore some measure of sanity to the market. But even then, the quick fix measures as announced by government should still give cause for concern. As the term ‘quick fix’ suggests, they are only temporary that can only firm up prices for a short period before they start to head south again, because the long term prognosis for the market is anything but healthy.
As it stands, the Nigerian capital market is fundamentally flawed and not structured to operate efficiently. It is for this reason that its regulators previously and continue to introduce all sorts of restrictions and apply circuit breakers certain to drive away discerning hedge funds and institutional investors that are the de facto market makers. Second, by placing a maximum downward limit of one per cent on daily price movement, the volume of trade on shares and market turnover has been unnaturally restricted. What this means is that investors with large volumes of particular shares cannot dispose of their equities in a timely manner because the market has been greatly curtailed to what extent a share price can fall on a daily basis. That is not to say that limits on the upward and downward movement of shares did not exist in the past. They did, but with more flexibility.
Third, the share buy-back scheme is a huge mistake that should be revisited immediately irrespective of the nod given the Attorney General to amend the existing provisions under the Companies and Allied Matters Act. The government must be aware that when companies go to the market to raise funds through public offers, they indicate in their prospectus handed to investors that there are reasons they are raising the necessary capital. In the case of banks and insurers, the most common reasons adduced are to expand their branches networks, invest in new ICT infrastructure, and what have you.
By permitting quoted companies to buy back their shares, those shares will automatically be cancelled and the capital of the company restructured. The bigger evil is that even if the companies are so liquid and in a position to buy back their shares, the biggest losers will be investors who will most likely be selling their shares at prices below which they were bought, be it through the secondary market or during a public offer – and this is tantamount to investor fraud. Companies with nothing better to do with their cash, should be encouraged to pay their shareholders special dividends to shore up confidence, and not permitted to buy back their shares.
Moreover, in the case of banks, which account for 65 per cent of market capitalisation, it has been an open secret that they have been acting in concert with stock brokers that have been used as conduits to extend facilities to investors who in turn purchase the banks’ shares and those of other quoted companies. However, the shares remain in the possession (or are warehoused) of the brokers. Under the share buy back scheme these stock brokers will simply sell the shares back to banks at a gain to the financial institutions (banks), but at a loss to shareholders who borrowed money to invest in the shares.
Essentially, the share buy back scheme completely alienates retail investors who have the most to lose under the arrangement. The very notion that such a bizarre arrangement was even tabled for consideration is symptomatic of the calibre of people managing the market. This in itself is in dire need of an overhaul, starting from the management of the NSE to Securities and Exchange Commission. A lot of these so-called managers, I believe, have outlived their uses and lack the capacity to lead the market on to the next growth phase.
But this does not in any way suggest that market interventions to stem massive losses are not necessary. They are, and have been known to occur in all parts of the world, even in the most mature markets. They must, nonetheless, be orderly and subtle as opposed to being overt, which is what happened two weeks ago. The restriction placed on downward price movements is unnatural and has the potential of making discerning investors, especially foreigners, weary of the Nigerian market. It is obvious that the 16-man presidential advisory panel set up to restore confidence in the market has its work cut out. Fortunately, the opportunity still exists for the panel to introduce measures that can improve the long term prospects of the Nigerian capital market.
For instance, the National Pension Commission (Pencom) can be persuaded to relax the restrictions imposed on the asset portfolios of pension fund administrators which currently places a limit of 25 per cent on investment in equities. In other markets, regulators attempting to stem a systemic fall in asset prices have been known to relax liquidity requirements imposed on pensions and insurers so they are compelled not to dump their shares. When this happens, they scramble to buy up shares; and in the process push up prices and help to spur the herd instinct of retail investors. In the case of Nigeria, since the government still owes Pencom, and by extension, fund administrators trillions of naira in legacy debts, it can simply ask the CBN to lend it (Pencom) funds against future contributions to help lift the market. As unfunded contributions trickle in over time, they can be used to offset the monies lent by the CBN.
Another measure that could be considered is the imposition of a capital gains tax to curb the tendency by investors, especially institutional investors, to dump their shares at the slight increase in prices. Once enthusiasm is dampened, investors will be forced to hold their shares for longer periods before they sell. Even the coffers of government will stand to benefit from such an arrangement.
The big problem with Nigeria is that there has always been a disconnect between the government’s fiscal policies, the Central Bank’s monetary policies and the regulatory regime in the capital market. Each segment prefers to operate independently of each other and only acts in concert after the fact, and not before the fact. In the almighty US markets regulators move instantly to stem systemic crashes by subtly increasing liquidity and persuading brokers to buy up shares in overnight and day trading. Instances have been recorded in US markets, where shares are falling drastically this second, only for them to rally sufficiently hours later to recover the losses made the same day. When that happens, market intervention by the regulators was handled surreptitiously and never openly admitted.
Here we wait for six months for investors’ portfolios to get almost completely wiped out before we start to paw at the surface in a feeble attempt to protect them. Yet we pride ourselves on being an emerging market. But I think it’s high time we faced the truth. Nigeria is nothing more than a frontier market.
THIS PIECE WAS WRITTEN BY IJEOMA NWOGWUGWU.
His biggest worry was not my gloomy forecast; rather he was more concerned with the title. By some inexplicable interpretation, he read it to mean that I had referred to the director general of the NSE, Dr Ndi Okereke-Onyiuke, as “stupid”. Oni and I, as a matter of fact, spoke quite a number of times that day arguing vehemently over the phraseology I had used for my headline which I insisted was not insulting or rude, but a play on words. In the end, we agreed to disagree, with him promising to send a rejoinder for publication. I still await his response to date.
However, what I found most intriguing about the NSE’s reaction to my article was its lack of concern for the issues raised in the said piece. Instead its officials were losing sleep over an innocuous word. Even more worrying than the flight of fancy that had beclouded all sense of judgment of the regulator, was that the managers of the market were in denial. For some strange reason, for all their international exposure and so-called in depth knowledge of capital markets, they somehow forgot that all markets must go through cycles of booms and bursts. They honestly believed the Nigerian market would beat the odds and that the bubble would remain afloat till the end of time. How myopic they were. A bubble by its very nature can only remain afloat for so long before it reaches saturation and inevitably pops. Alternatively, the slightest prick or trigger would bring it floating down to earth.
The irony of that incident was that I was not the sole voice concerned about the fate of the capital market. Several analysts such as Bismack Rewane of Financial Derivative Limited and Bimbo Olashore of Lead Capital were certain that the unprecedented stock market bull run which started sometime in 2005 would eventually come to a halt. At every opportunity the likes of Rewane cautioned against the inevitable but no one listened. The regulators ignored the warnings because they were living in La-La Land and told anyone who cared to listen that returns in our capital market were as high as 400 per cent, thus making it an attractive investment destination.
To a great extent, the marketing effort did work. Several international hedge funds plunked billions of dollars into the Nigerian market. But were the first to make a dash for the exit when the same NSE applied an ill-conceived circuit breaker sometime in May this year to stem the downward slide of shares. Three months before that incident, the market had been on a downward spiral, and was charging towards wiping out all the gains made in the last two to three years. Unfortunately, it was a panic measure that scared international investors silly, because if officials of the exchange could intentionally stop share prices from going south, then they would stop at nothing to keep prices afloat; even going as far as creating market imperfections.
Well, the bulls did eventually screech to a grinding halt. And in the last six months, it’s been obvious that the regulators of the Nigerian capital market have been at their wits end as to how to stem the market melt down. Even the Central Bank’s postponement of the harmonised year end for banks, and its denial that it had placed an embargo on margin lending, had little impact on the market. Instead, it took a drastic intervention by the government the week before last to restore some measure of sanity to the market. But even then, the quick fix measures as announced by government should still give cause for concern. As the term ‘quick fix’ suggests, they are only temporary that can only firm up prices for a short period before they start to head south again, because the long term prognosis for the market is anything but healthy.
As it stands, the Nigerian capital market is fundamentally flawed and not structured to operate efficiently. It is for this reason that its regulators previously and continue to introduce all sorts of restrictions and apply circuit breakers certain to drive away discerning hedge funds and institutional investors that are the de facto market makers. Second, by placing a maximum downward limit of one per cent on daily price movement, the volume of trade on shares and market turnover has been unnaturally restricted. What this means is that investors with large volumes of particular shares cannot dispose of their equities in a timely manner because the market has been greatly curtailed to what extent a share price can fall on a daily basis. That is not to say that limits on the upward and downward movement of shares did not exist in the past. They did, but with more flexibility.
Third, the share buy-back scheme is a huge mistake that should be revisited immediately irrespective of the nod given the Attorney General to amend the existing provisions under the Companies and Allied Matters Act. The government must be aware that when companies go to the market to raise funds through public offers, they indicate in their prospectus handed to investors that there are reasons they are raising the necessary capital. In the case of banks and insurers, the most common reasons adduced are to expand their branches networks, invest in new ICT infrastructure, and what have you.
By permitting quoted companies to buy back their shares, those shares will automatically be cancelled and the capital of the company restructured. The bigger evil is that even if the companies are so liquid and in a position to buy back their shares, the biggest losers will be investors who will most likely be selling their shares at prices below which they were bought, be it through the secondary market or during a public offer – and this is tantamount to investor fraud. Companies with nothing better to do with their cash, should be encouraged to pay their shareholders special dividends to shore up confidence, and not permitted to buy back their shares.
Moreover, in the case of banks, which account for 65 per cent of market capitalisation, it has been an open secret that they have been acting in concert with stock brokers that have been used as conduits to extend facilities to investors who in turn purchase the banks’ shares and those of other quoted companies. However, the shares remain in the possession (or are warehoused) of the brokers. Under the share buy back scheme these stock brokers will simply sell the shares back to banks at a gain to the financial institutions (banks), but at a loss to shareholders who borrowed money to invest in the shares.
Essentially, the share buy back scheme completely alienates retail investors who have the most to lose under the arrangement. The very notion that such a bizarre arrangement was even tabled for consideration is symptomatic of the calibre of people managing the market. This in itself is in dire need of an overhaul, starting from the management of the NSE to Securities and Exchange Commission. A lot of these so-called managers, I believe, have outlived their uses and lack the capacity to lead the market on to the next growth phase.
But this does not in any way suggest that market interventions to stem massive losses are not necessary. They are, and have been known to occur in all parts of the world, even in the most mature markets. They must, nonetheless, be orderly and subtle as opposed to being overt, which is what happened two weeks ago. The restriction placed on downward price movements is unnatural and has the potential of making discerning investors, especially foreigners, weary of the Nigerian market. It is obvious that the 16-man presidential advisory panel set up to restore confidence in the market has its work cut out. Fortunately, the opportunity still exists for the panel to introduce measures that can improve the long term prospects of the Nigerian capital market.
For instance, the National Pension Commission (Pencom) can be persuaded to relax the restrictions imposed on the asset portfolios of pension fund administrators which currently places a limit of 25 per cent on investment in equities. In other markets, regulators attempting to stem a systemic fall in asset prices have been known to relax liquidity requirements imposed on pensions and insurers so they are compelled not to dump their shares. When this happens, they scramble to buy up shares; and in the process push up prices and help to spur the herd instinct of retail investors. In the case of Nigeria, since the government still owes Pencom, and by extension, fund administrators trillions of naira in legacy debts, it can simply ask the CBN to lend it (Pencom) funds against future contributions to help lift the market. As unfunded contributions trickle in over time, they can be used to offset the monies lent by the CBN.
Another measure that could be considered is the imposition of a capital gains tax to curb the tendency by investors, especially institutional investors, to dump their shares at the slight increase in prices. Once enthusiasm is dampened, investors will be forced to hold their shares for longer periods before they sell. Even the coffers of government will stand to benefit from such an arrangement.
The big problem with Nigeria is that there has always been a disconnect between the government’s fiscal policies, the Central Bank’s monetary policies and the regulatory regime in the capital market. Each segment prefers to operate independently of each other and only acts in concert after the fact, and not before the fact. In the almighty US markets regulators move instantly to stem systemic crashes by subtly increasing liquidity and persuading brokers to buy up shares in overnight and day trading. Instances have been recorded in US markets, where shares are falling drastically this second, only for them to rally sufficiently hours later to recover the losses made the same day. When that happens, market intervention by the regulators was handled surreptitiously and never openly admitted.
Here we wait for six months for investors’ portfolios to get almost completely wiped out before we start to paw at the surface in a feeble attempt to protect them. Yet we pride ourselves on being an emerging market. But I think it’s high time we faced the truth. Nigeria is nothing more than a frontier market.
THIS PIECE WAS WRITTEN BY IJEOMA NWOGWUGWU.
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