Beneficiaries of Nigeria’s N22bn Stock Exchange largesse unknown

Nigerian Stock Exchange Trading floor [Photo: blogs.cfr.org]
Nigerian Stock Exchange Trading floor [Photo: blogs.cfr.org]

Nigeria’s finance ministry and stock exchange are ignorant of the beneficiaries.
One month after the Federal Government announced a N22 billion package for 84 selected stockbrokers, the government is yet to name the beneficiaries.

The Minister of Finance, Ngozi Okonjo-Iweala, announced the forbearance package to 84 of Nigeria’s 200 stockbrokers on December 3, 2012.

Efforts by PREMIUM TIMES to confirm the beneficiaries of the largesse from relevant agencies failed as some ignored our enquiries while others claimed ignorance of the lucky stockbrokers.

None of the Ministry of Finance; Securities and Exchange Commission (SEC); the Nigerian Stock Exchange, NSE; and the Asset Management Company, AMCON; could provide information on the beneficiaries and basis of their selection.

The Head of Media Relations of the Nigerian Stock Exchange, Wole Tokede, said the list of beneficiaries cannot be obtained at the Stock Exchange but from the Asset Management Company.

At the AMCON office, the female receptionist said the list of the beneficiaries was yet to be released.

“I don’t think the list is out yet, because if it was, it would be in the papers. People have been calling to ask for the list,” she said, adding that the list would be available in the papers when they are out.

Enquiries at SEC yielded a similar result. The Head of Communications for the agency, Obi Abindu, said he doesn’t have the list as well.

“I don’t have that list (of the beneficiaries),” he said, referring us to the finance minister “since the Minister made the announcement.”

Efforts to reach the finance minister failed as her spokesperson, Paul  Nwabuikwu, did not pick his calls or reply to text messages sent to him.

While the Federal Government keeps mum on the beneficiaries of the forbearance funds, some stock brokers say the fund is of immense benefit to the revitalisation of the nation’s capital market, while others raised questions on the basis of the decision.

The stock market

Activities in Nigeria’s Capital Market, particularly the Stock Exchange, has been very slow since the global financial meltdown and the Nigerian banking crisis.

The NSE All Share Index (ASI) plummeted from a peak of about 66,000 points in March 2008 to less than 22,000 points by January 2009, wiping out over N8 trillion (or around 70 per cent) of the total capitalization of the stock exchange within this period. Since then, activity on the stock market has remained sluggish even though there are some signs of recovery, with the index now at about 26,494.

Some Nigerian stockbrokers were indicted of manipulating the stock market alongside some banks, thereby contributing to the crisis. It is not clear if the finance ministry put this into consideration before selecting the 84 beneficiaries.

This fear was expressed by a stockbroker who raised some concerns about the package.

“There are two sides to it. Shareholders are complaining, especially shareholders of the nationalised banks. They are saying, after all, it is these same stockbrokers that directly or indirectly made us lose our investments, and now, the government is bailing them out,” Kanyidi Onunka of Melborne Capital Limited said.

Stock brokers are regulated professional individuals or group of people who buy and sell shares and other securities for individuals, retail and corporate or institutional clients, usually through a stock exchange. They also provide valuable service and information of the market and companies to their clients, which can influence their investment decision.

The largesse

A vibrant capital market is essential to the government’s Economic Transformation Agenda, especially in terms of raising much-needed long-term financing for critical infrastructure and the housing sector, according to Ms. Okonjo-Iweala. Research (by the IMF and the World Bank) has shown that solid economic growth in any country is closely linked to the joint development of the banking sector and the capital markets.

“A couple of months ago, I set up a committee chaired by Dr. Kingsley Moghalu, Deputy Governor of the Central Bank of Nigeria, to make recommendations on measures to resuscitate the capital market” the finance minister said, adding that as part of the recommendations of the Moghalu committee, two measures aimed at giving life to our capital markets have been reached.

The first measure was a forbearance of about N22.6 billion on the margin loans of 84 stock brokers, in accordance with Section 6(5) of the AMCON Act.

Ms. Okonjo-Iweala said AMCON had purchased these margin loans from banks for about N42.6 billion, but the value of the underlying assets or collateral is worth only N19.96 billion today. In furtherance of AMCON’s clean-up of the banking sector, it is necessary to wipe off the debt overhang in the capital market, as this is dampening market activity.

The forbearance will be accompanied with sanctions to discourage excessive borrowing behaviour by capital market operators in the future, she said.

The second measure was the elimination of stamp duties and VAT on stock market transaction fees.

Taxes on stock exchange transactions fees are as high as 12 per cent (5 per cent in VAT and up to 7 per cent in stamp duties) – much higher than in other jurisdictions, and these constitute a major disincentive to invest in the Nigerian capital market, according to Ms. Okonjo-Iweala.

She said the Federal Government has consented to waive of 0.075 per cent stamp duties payable on stock exchange transaction fees; and an exempt from VAT and commissions earned on traded values of shares payable to the SEC, NSE, and the Central Securities Clearing System, CSCS.

Many of the stockbrokers have applauded the federal government’s intervention.

Brokers support move

The Chief Executive Officer of Lambeth Trust and Investments Company Limited, David Imafidon, said with this forbearance, the problem of the crippling debt has been addressed.

“As a result of the measure (forbearance package), the outstanding liabilities of several market operators on the Non-performing Loans acquired by AMCON have extinguished” he said. “Finally, the problem of the crippling debt overhang in the Capital Market has been resolved.”

He said several stock broking firms that were suspended from the Capital Market for under-capitalization can now meet the minimum capital requirement due to removal of their liabilities to AMCON.

“Several underwriters similarly affected can resume their underwriting activities. Consequently, the benefits of the forbearance will spread across the entire spectrum of the Primary and Secondary Markets.

“As a result of the positive impact of the Forbearance package on the entire Capital Market, it has received wide endorsement from all stakeholders” he said.

Mr. Onunka of Melborne Capital Limited also said the forbearance has some upside to it.

“It’s just like the bank bailout,” he said. “With this, brokers can have money to trade in the market. Margin loans really affected the Capital Market. Stock brokers really lost lots of money, a case of when you guess and you don’t guess right.”

“Instead of having to persistently pay interest on the borrowed funds, AMCON has taken over the debt so now there is capital to continue the business,” he added.

Just a pronouncement

A source at Renaissance Capital said at this stage, the forbearance announcement is just a pronouncement.

“We need to understand that this is a mere ministerial pronouncement at this stage,” he said. “On tax waiver, we spoke with the Executive Director, IT & Operations at the NSE. He said the NSE, SEC and FIRS will have to work out the fine details and follow some administrative and legal processes before this can be implemented. He also said some further changes would have to be made before implementation. This will take several weeks.”

“Therefore,” the source assed, “at this point there is no official implementation date yet.”

The source said the implementation may take effect sometime in the first quarter of 2013.

“However, implementation of this tax waiver will reduce total statutory charges on NSE from current 1.206 per cent to 1.02 per cent,” he said.

On bailout for stockbrokers, he said AMCON, SEC and Ministry of Finance will have to issue further details on exactly how and when the forbearance will be implemented.

“Some brokers have alluded to the fact that they would not be taking the bail out from government as the conditions are stringent.

“Though we do not have implementation timelines yet, there is palpable excitement about the fact that government is finally responding positively to proposals on strengthening the Nigerian capital market,” he said.

More questions

A source at Afrinvest West Africa Limited said commenting on the whole forbearance package issue was a bit challenging.

“I don’t really know any of the 84 companies who partook or benefitted from the forbearance package. I know our firm didn’t benefit from it, so it’s difficult for me to comment on it,” he said. “I can’t say stock brokers are happy or not, because I don’t know the stock broking firm that benefitted from it.”

The stockbroker described the forbearance package as leaving many in-answered questions.

“It is believed that stock broking firms were indebted to the banks; funds close to the tune of N300 billion. With his N22.6 billion forbearance, a number of questions arise, like, how many brokers were indebted? There are so many issues that one can’t even tell” he said.

Insider trading, fictitious numbers in year books, speculations, and the global economic meltdown that led to withdrawals of funds by foreign investors from the capital market are some of the factors that resulted into the dwindling of Nigeria’s stock exchange market in 2009.

Nigeria’s stock market rallied in the third quarter of the year, after two dull quarters, and market capitalisation is now at its highest since 2008, Bismarck Rewane, the Managing Director of Financial Derivative Company, a diversified financial institution, said.

“Since the global financial meltdown and the bust of the Nigerian capital market, many brokers have remained insolvent and illiquid.

“Margin loans, excessive risk-taking and lax regulation left many stockbrokers with a debt overhang. Numerous proposals on how to revive the market have been bandied around especially the idea of a market bailout,” Mr. Rewane said.

According to him, with a 32 per cent return Year to Date, YTD, the equity market has shown signs of recovery in 2012.

“The All share index is one of the best performing frontier markets with returns inclusive of dividend above 40 per cent YTD. However, market is still over 50 per cent shy of the 2008 peak.

“Nigeria market is the only market yet to recover. Steps being taken by the regulators in the past have contributed to the slow recovery,” he said.

Mr. Rewane said questions have been raised whether the current trend can continue or whether another bear market lies just ahead.

He said accurately predicting the direction of the Stock market is a hopeless task. Long term case for stocks is simple: In the crash of 2008/2009, stocks lost over 70 per cent of their value. Despite the increase in share prices this year, it remains over 50 per cent short of 2008 peak.

Mr. Rewane expressed hope that the forbearance package would help the stock exchange.

“A fiscal intervention is a recipe for a long term market recovery. Forbearance for stockbrokers might bring back dead stock brokers,” he said.

  • Philemon Adjekuko

    If there was ever an original list, it would continue to mutate until we see it. And then, there would be a controversy about its original content. That is the tradition. Let us give three happy cheers to our fresh air team.

    • Enemona

      Hurray! hurray!! hurray!!! Hearty cheers to the fresh air team and the sleeping Nigerian public.