the stock exchange as a financing option for long-term ... stock exchange... · • the stock...

The Stock Exchange As A Financing Option

For Long-Term Business Expansion

Presented by

Oscar N. Onyema

CEO, The Nigerian Stock Exchange

for

Academy for Entrepreneurial Studies (AES) Excellence Club

Lekki Oxford Hotel, Lekki, Lagos

05 April, 2012

Capital

Opportunity to fund development and growth through tradable securities

Price Discovery

Determination of prices of tradable securities

Access

Facilitation of buyer and seller interaction

Liquidity

Mechanism for issuers and investors to convert securities to cash

Risk Transfer

Risks borne by those willing to bear them

Wealth Creation

Vehicle for generating wealth

Basic Functions of a Capital Market

The Nigerian Stock Exchange05/04/2012 2The Nigerian Stock Exchange

What We Know

Capital markets play several key roles

• Lower the cost of equity capital

• Stimulate investment and growth by spreading the risks of long-term investment projects

• Contribute to more efficient investment

• Enhance the supply of investable funds by attracting foreign portfolio capital

• Contribute to the mobilization of domestic resources and provision of fresh equity capital to the corporate sector

05/04/2012 3The Nigerian Stock Exchange

Equity Market Performance2002 - 2011

-

10,000

20,000

30,000

40,000

50,000

60,000

70,000

-

5

10

15

20

25

30

35

2-Jan-02 2-Jan-03 2-Jan-04 2-Jan-05 2-Jan-06 2-Jan-07 2-Jan-08 2-Jan-09 2-Jan-10 2-Jan-11

ASI

(D

aily

)

Tota

l Val

ue

of

Shar

es

Trad

ed

(B

illio

ns)

Share Value ASI

A N1,000 investment in 1996 would have been worth N13,029.26.

Peak:March 5, 2008ASI 66,371.20

-17.07

-20.39


Understanding the ‘Bust’ Years2008 - 2011

• Global Financial Crisis

– Triggered by the sub-prime mortgage crash

– The Myth of “Too Big to Fail Banks” was broken

• Nigerian banking crisis

– N30b ($119.13m) market cap erased in one day; Banking Index down 34.69%

• Low broker-dealer participation rates

– Margin loan debt overhang and lack of access to financing (CBN prudential

guidelines)

• Unfavorable interest rates

• Eroded investor confidence

– Preference for government paper

Flight to Safety is Prime


2011 - A Tough Year All Around

Global Indices Performance

ASI -17.42%(NSE Nigeria)

IBOVESPA -18.88%(BM&F Bovespa)

FTSE/JSE ASI -0.99%(JSE)

FTSE 100 -5.55%(LSE)

MASI -12.37%(Casablanca SE)

WIG -21.68%(Warsaw SE)

EGX 100 -46.08%(Egyptian Exchange)

NASDAQ Composite -2.67%(NASDAQ OMX US)

NASI -31.11%(NSE Nairobi)

S&P 500 -1.12%(US – NYSE Euronext & NASDAQ)

SEMDEX -4.67%(SE Mauritius)

S&P CNX Nifty -25.14%(NSE India)

Ghana Composite -2.34%(GSE)

HANG SENG -20.32%(Hong Kong Exchanges)


NSE’s Focus

• Revitalize the capital market for mobilization of funds

required to finance business, development and wealth

creation

– Efficient mobilization of domestic and international savings

– Channeling of savings to productive sectors


Capital Market Truths

• Markets are cyclical and/or secular

– Cyclical bull/bear markets are based on economic cycles

– Secular bull/bear markets are also cyclical in nature


Why List? The Benefits

Improved Brand Equity

Visibility --Inclusion in

indices, portfolios

Growth –Access to capital ; lower cost

of borrowing

Transparency –Greater public

confidence through listing disciplines Continuity – A basis

for company valuation and

surviving beyond founders

Sustainability –Spreads risk of

long-term investment projects


3 Ways to be Admitted

Offer by Introduction

Entry into The Nigerian Stock Exchange by

introduction is possible where the public already holds at least 20% of the

company’s securities.

Offer for Subscription (IPO)

This is an offer to sell new shares of the

company to investors.

Offer for Sale

This is an offer to sell part of the equity of

the existing shareholders of a company to new

investors


Listing Rules Summary – Main BoardSubject Current Proposed

Pre Tax Profits NA Profit of at least N300mn for the last 3 years,

with a pre-tax profit of at least N100mn in the

most recent year. N600 million for the latest 1 or

2yrs

Market Cap NA 4bn - option 3 for main board at the time of the

initial public offering, based on the issue price

and issued share capital.

Operating Record The company must submit financial

statements/ business records for the 5

years prior

0 – 3yrs operating track record of company and/

or core investor.

Financials 5 years financials and the date of the

company’s last audited accounts must not

exceed 9 months

3 years financials and the date of last audited

accounts must not be more than 9 months

Public Float At least 25% of share capital must be

offered to the public.

20% of share capital must be offered to the

public.

Public Shareholders The number of shareholders must not be

less than 300

300 for equity shares

Continuing Obligations After listing, the company must submit

quarterly, half-yearly and annual accounts

(financial statements)

Promoters to retain 50% of shares held at IPO

for first 12 months. Submission of quarterly,

semi – annual and annual statements.


Listing Rules Summary – ASeM

0

Subject ASeM Previous Proposal ASeM New Proposal

Pre Tax Profits NA Medium term (at least 2 years) comprehensive

business plan

Market Cap NA NA

Operating Record The company must submit financial

statements/business records for the 3 years

prior

2 years

Financials The date of the company’s last audited

accounts must not exceed 9 months.

Short term forecast (1 year) and date of last

audited accounts must not be more than 9

months

Public Float There are no restrictions (minimum) on the

amount of share capital that must be offered

to the public.

Minimum of 15% to public

Public Shareholders There are no restrictions on the number of

shareholders

at least 51 shareholders

Continuing Obligations After listing, the company must submit half-

yearly and annual accounts (financial

statements). Securities must be fully paid up

at the time of allotment and un-allotted

securities must be sold on the trading floor

Promoters to retain 50% of shares held at IPO

for first 12 months. Submission of quarterly,

semi – annual and annual statements.

Companies must retain a Designated Adviser to

assist with regulatory compliance.


Established in 1960

Approx. 5 million investors:Foreign – 81% of market activityLocal – 19% of market activity

234 active Broker-Dealer firms28 member Issuing Houses

Equities: 199 listed coys. N6.55t ($41.98b) mktcap

Bonds: 52 bonds N5.38t ($34.48b) mkt capETFs: 1 ETF N1.03b ($6.58m) AUM

14 Electronic Trading Floors around Nigeria

Figures as at 02-Apr-2012

Why Choose the NSE?


First-Rate Market, First-Rate Companies


http://www.ubagroup.com/web/homepage

http://www.pzcussons.com/pzc/

http://www.julius-berger.com/index.php

http://www.ng.total.com/index.htm

The NSE’s Vision and Goal


NSE’s Reform-Driven 5-Year Outlook

Targeted Business

Development Efforts

Strong Regulatory

Environment

“21st” Century

Technology Strategies

Growth-Enabling Market

Structure

First-Rate Investor

Protection Programs

$1t Market

Cap Target


2012 Outlook - Global

• Global recovery underway, surrounded by risks

• Eurozone debt crisis remains a key risk to the world economy

• Concerns surrounding sovereign debt sustainability

• Volatility in certain regions (and sectors) driven by prolonged unrest

• Slower growth projected in OECD countries*

– 2.1% (2011), 2.6% (2012), 2.5% (2013)

• US 2.9%, Eurozone 1.8%, Japan 2.6%

• Non-OECD countries to sustain world growth*

– East Asia & Pacific 8.1%, South Asia 7.7%; Sub-Saharan Africa 5.7%

• Nigeria 7.5%

* Figures reported by World Bank


2012 Outlook - NigeriaNigeria’s Comparative Advantage

• Economy growing at 7.5%+

• Large population (largely under 30)

• Strong profitable growth businesses (Food & Beverages, Manufacturing)

• Relaxed labour and investment laws

• Short term outlook in oil prices positive

• Huge mineral reserves

• Under-exploited manufacturing base

• Entrepreneurship “Can do, Will do” Attitude

• Possibly strongest banking sector in the world in terms of capital ratio

* Figures reported by World Bank

Nigeria must seize the opportunity!


Nigeria’s Global Competitiveness

• The Global Competitive Index (2011-2012) places Nigeria on the 127th position out of 142 countries in terms of conducive business environment. Some other indicators are:

Infrastructure – 135 Ease of Access to loans – 125 Soundness of Banks – 136 Regulation of securities exchanges – 81 Business Sophistication – 64 Capacity for innovation - 54

• This clearly shows that there is a need to build infrastructure and the preferredsource is via the capital market as long term projects will be appropriatelymatched with long term funds. The country’s performance on capacity forbusiness innovation and business sophistication are indications of our peoplesingenuity which must be encouraged by an enabling business environment withbetter access to loans.

(source: WEF, Global Competiveness Report 2011-2012)


The Nigerian Bull Re-Emerges? 2012 to ?The Nigerian Bull Emerges?

2012 - ?


Reform-Based Key InitiativesTerm

Short (2011) Medium (2012)

Key

Init

iati

ves

Wit

hin

NSE

Co

ntr

ol

- Market Segmentation

- Company Share Buy-Back

- Introduction of ETFs

- Investor Clinics

- New Web Site

- Revised Listing Rules - Market Making (rules approved)

- Securities Lending (rules approved)

- Short Selling (rules approved)

- Develop Product Liquidity and Depth- Attract and Retain More Listings- E2E Trading Automation- Continued Enhancement of Regulatory

Programs- Financial Literacy Program- IFRS Compliance- Demutualization- Market Data Services- Advocacy- Dematerialization

Ou

tsid

e N

SE C

on

tro

l - AMCON Debt Resolution- Advocacy

- Review PFA Investment Guidelines- Tax Breaks on Transaction Fees- Policy on Large Cap Firms to Deepen Market- Access to SWF Funds- Exit Strategy for Privatized Entities- Reduce Focus on Dividends- Capacity of Local Institutional Investors- Broker Margin Debt Resolution- Broker Access to Funding


• Technology infrastructure• X-Net (virtual private network) for

brokers

• Development of NASDAQ OMX X-streamtrading platform

• New corporate database

• Market data services• New data policy

• Feeds, subscriptions and reports for market participants

• NSE Web site• Access and market information for

investors and all stakeholders

• Value-added services• Corporate Governance, Investor

Relations, Institutional Services, Equity Research Coverage, and Corporate Access for listed companies

New Products and Services

Equities

Bonds

ETFs (Launched 2011)

Options (2013)

Futures (2015)


• Nigerian economy has been characterized with short and medium term borrowing which mayhave contributed to limited growth potentials because of the nature of funding widely used.

• Main source of funding has been the money market which mainly facilitates trading in short-term debt instruments to meet short-term needs of users of funds. Short term funds can bequickly liquidated to satisfy short-term needs. Examples of instruments traded in the moneymarket include: Government treasury bills and similar securities, as well as companycommercial bills.

• The Capital Market facilitates the mobilization of long-term investment capital for thefinancing of business enterprises as well as government long term investment projects.

• The Stock Exchange is the platform that provides a channel for the borrowers and lenders oflong-term funds. It offers private sector businesses and government the opportunity tomobilize huge amounts of financial resources from the general public through the sale offinancial securities.

• The capital market also provides other non-financial benefits such as better corporategovernance, strengthening corporate structures for continuity, making the company a goodinvesting option for the individual and corporate investors.

Conclusion


NSE – “The Gateway to African Markets”

We offer some of the highest yields available at maturity, and the potential for capital appreciation.

Growing per capita income as a result of an economy that is growing over 7% annually.


The Nigerian Stock ExchangeStock Exchange House

2-4 Customs Street

P.O. Box 2457, Marina

Lagos Island

Lagos, Nigeria

[email protected]

www.nse.com.ng

Thank You


mailto:[email protected]

the stock exchange as a financing option for long-term ... stock exchange... · • the stock...

Documents