funding for smes: the capital market option presentation at... · 5/17/2012 the nigerian stock...

FUNDING FOR SMEs:

THE CAPITAL MARKET OPTION

Presented by

Taba Peterside

GM/ Head, Listings Sales & Retention, The Nigerian Stock Exchange

At the

One-Day Workshop for SME Owners and Stakeholders, Organised by

The Nigerian Association of Small Scale Industrialists (NASSI)

Oranmiyan Hall, Lagos Airport Hotel, Obafemi Awolowo Way, Ikeja, Lagos

May 17, 2012

5/17/2012 1 The Nigerian Stock Exchange

SESSION ON CAPITAL MARKET AS

SOURCE OF FUNDING FOR SMEs -

UNLOCKING

INTRINSIC VALUE

THROUGH

THE NIGERIAN STOCK

EXCHANGE

OUTLINE

• Small & Medium Enterprises in

Nigeria

• SMEs in Nigeria: Diagnostics

• Overview of The Nigerian Stock

Exchange

• Capital Market Instruments

• Listing on The Nigerian Stock

Exchange (ASeM Board)

• Steps to Actualization

Small & Medium Enterprises in Nigeria

Despite the widely acclaimed vital role of Small and Medium Enterprises (SMEs) in economic growth and development of a nation, SMEs in Nigeria face a range of challenges that undermine full economic benefits.

“Micro, Small and Medium Enterprises remain the backbone of the development of any economy and the driving force of national growth. In Nigeria, there are currently over 17 million Micro, Small and Medium Enterprises in the country, employing over 31 million Nigerians. They account for over 80 per cent of the total number of enterprises in Nigeria and employ 75 per cent of the total workforce,” – Mr. Olusegun Aganga, Minister of Trade & Investment, 2012.

• SMEs are expected to act as catalysts for the socio-economic transformation of Nigeria;

• SMEs represent the avenue through which the Federal Government of Nigeria can achieve poverty reduction and employment generation;

• Export and foreign exchange earnings can be boosted through support for indigenous manufacturing capabilities;

• SMEs can build capacity to provide inputs for the industrial sector of the economy on a sustainable basis.

History of SME Support in Nigeria

Government Initiatives in Developing SMEs in Nigeria

Late 1950s: Nigerian Industrial Development Bank

1970 – 1976: Indigenization Decree (1972) & Nigeria Enterprises Promotion Act (1977)

1980 – 1989: Incentives to maximize exploitation of natural resources.

1990 – 1999: SME development strategies through NDE and PBN

Dec. 21, 1999: SMIEIS Scheme approved at 246th Bankers’ Committee of the CBN

May 2012: Partnership being proposed between FGN and Commercial Banks

2nd Tier Market Characterized by inferiority perception

Emerging Market No clear definition and purpose

Alternative Securities Market (ASeM) Tailor-made board for SMEs

Clearly defined for SMEs with high growth potential who are able to meet our listing standards.

SMEs in Nigeria: Diagnostics

5/17/2012 The Nigerian Stock Exchange 5

Challenges of SMEs in Nigeria

• Difficulty in accessing low cost, long term capital due to high cost of funds as a result of perceived high risk and high interest rates;

• Increased cost of operations due to inadequate basic public infrastructure, including access roads, power, security, etc;

• Inability to build capacity required to deliver results due to high turnover;

• Informal nature of operations, which undermines strategies, policies, processes and corporate governance;

• Lack of proper accounting standards, controls and management of financial resources;

• SMEs are highly volume driven due to high cost of operations, which results in thin margins on products or services offered.

6 The Nigerian Stock Exchange 5/17/2012

NSE Vision and Goal

“21st” Century

Technology Strategies

Target-Based Business

Development Efforts

Strong Regulation

and Supporting Regulatory Programs

First-Rate Investor

Protection Strategies

Growth-Enabling Market

Structure

$1T Market Capitalization

NSE – Positioning for the Future


TERM

2011 2012 R

EF

OR

MS

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



NSE All Share Index

22,422.43

Equity Market Capitalization

N7.15 tn

• Total Market Cap = N12.65tn

• 22.60% of GDP 2012

Fixed Income

Market cap: N5.50tn

Two key indices

All Share Index (NSE ASI)

Bloomberg NSE 30 Index

(NGSE30:IND)

Equity Products

Market cap N7.15tn.

Approx. 200 listed companies

Powered by over 200,000 Institutional Investors and

about 5 million retail investor accounts * CSCS Report 2010 Statistics as at May 15, 2012

Overview of The Nigerian Stock Exchange

8.47% (YTD)

9.78% (YTD)

The NSE ASI was at an 8- Month high on May 04, 2012 indicating a market rebound.

Our Markets Cover Blue Chip & Growth Companies


Board Segmentations aligned with the Nigerian economy which is growing at over 7% per year

Agriculture 0%

Conglomerates 1%

Construction/ Real ESTATE

2% Consumer Goods

31%

Financial Services

31%

Healthcare 1%

ICT 1%

INDUSTRIAL GOODS

29%

Natural Resources

0%

Oil & Gas 3%

Services 1% Construction/

Real Estate 1%

Consumer Goods 6%

Healthcare 0%

Industrial Goods 5%

Natural Resources

0%

Oil & Gas 74%

Services 14%

Main Board • The Main Board of The Nigerian Stock Exchange is

designated for large sized blue chip companies. • It is a platform for connecting issuers and investors for

investments and long term capital raising • Currently has 187 Quoted Companies spanning

multiple sectors of the economy with N7.15tn equity market capitalisation as at 15/05/12

ASeM Board • The Alternative Securities Market is a specialized board

for small and mid-sized companies, with high growth potential.

• It is a platform to drive growth and development of SMEs through long term capital injection and sound corporate governance.

• Currently has 12 Quoted Companies spanning multiple sectors of the economy with N4.10bn equity market capitalisation as at 15/05/12

Subject Main Board ASeM Board

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

a pre-tax profit of at least N100mn in 2 of those

years. N600mn within 1 or 2 years

Medium term (at least 2 years) comprehensive business

plan

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

initial public offering, based on the issue price and

issued share capital.

NA

Operating Record 0 – 3yrs operating track record of company and/

or core investor.

2 years

Financials 3 years financials and the date of last audited

accounts must not be more than 9 months

Date of last audited accounts must not be more than 9

months

Public Float Minimum of 20% of share capital must be offered

to the public.

Minimum of 15% of share capital must be offered to the

public

Public Shareholders At least 300 for equity shares At least 51 for equity shareholders

Continuing Obligations Promoters to retain 50% of shares held at IPO for

first 12 months. Submission of quarterly, semi –

annual and annual statements.

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.

Listing Requirement Summary


The Alternative Securities Market (ASeM)


The Alternative Securities Market (ASeM) is a specialized board for small and mid-sized companies with high growth

potential. It creates the platform for these companies to access low cost,

long term capital.

Dedicated to SMEs

Challenges of SMEs in Nigeria


• Difficulty in accessing low cost, long term capital due to high cost of funds as a result of perceived high risk and high interest rates;

• Increased cost of operations due to inadequate basic public infrastructure, including access roads, power, security, etc;

• Inability to build capacity required to deliver results due to high turnover;

• Informal nature of operations, which undermines strategies, policies, processes and corporate governance;

• Lack of proper accounting standards, controls and management of financial resources;

• SMEs are highly volume driven due to high cost of operations, which results in thin margins on products or services offered.

Leveraging the Capital Market through The NSE


• The ASeM Board of The NSE provides a platform for raising low cost, long term capital for SMEs in Nigeria;

• Reduction of financial burden and spreading of risk amongst shareholders in raising capital to embark on developmental projects;

• Post listing requirements ensure proper accounting standards and controls for proper management of financial resources and corporate governance;

• Membership of a global platform that affords brand visibility and credibility enhancement;

• Capacity building through access to a bouquet of discounted value added services that enhance operational effectiveness;

• Professional guidance (Designated Adviser) to ensure organisation benefits from and maintains its listing status.


Agriculture

Construction/Real Estate

Consumer Goods Financial

Services

Healthcare Industrial Goods

ICT

Natural Resources

Oil & Gas Services

Utilities

Conglomerates

Sector Classification on the ASeM

A company seeking to list on the Alternative Securities Market (ASeM) will be grouped in one of the 12 sectors shown above.

Capital Market Instruments

L I S T I N G

The Capital Market is the preferred option for

raising low cost, long term capital for Small

and Medium Scale Companies in Nigeria, looking to grow and

develop into sustainable institutions.

Routes to Listing

Initial Public Offering (IPO)

A company offers

shares to the public

for the first time.

Money paid by

investors for the newly

issued shares goes

directly to the

company to provide

capital for future

growth, or to refinance

debt.

By Way Of Introduction

A company’s shares

are "introduced" to the

market with a pre-

agreed insider sale for

public float, having

complied with the

Exchange’s Listing

Requirements.

*A company may include an offer for sale element in its IPO, where funds will go to divesting

shareholders – this helps to increase the public float.

Benefits of Listing


XYZ Co. Plc

Access to Capital for Growth &

Expansion

Transparency and Credibility in Operation

Perpetuity of Operations

Code of Corporate

Governance as a competitive

tool

Risk Sharing amongst

Shareholders

Visibility: Inclusion in

major Performance

Indices

Platform for attracting additional

investment and investors

Value Creation & Price

Discovery

First Steps to Listing on the ASeM


•Appointment of a Designated

Adviser and discussions to develop roadmap and milestones to listing;

•Appointment of other parties to listing;

•Conversion to a PLC with amendment in MEMART to reflect transferability of shares.


1. Consultation & Discussion

2. Preparation & Reorganization

3. Phase I Marketing (Analysts)

4. Packaging of Offer &

Application

5. Phase II Marketing (Fund

Managers)

6. NSE Approval & SEC Registration

7. Investor Education

8. Phase III Marketing & Bookbuilding

9. Listing

Steps to Actualization – Summary

The Listing Sales & Retention Department is available to provide guidance through the whole process

Designated Adviser

Overall co-ordination of IPO process

Co-ordination of due diligence and application document

Ensure compliance with applicable rules

Develop investment case, valuation and offer structure

Manage communication with SEC

Stock Broker

Prepare company for roadshow

Facilitate research

Build the book pre-float

Manage communication with NSE

Marketing and distribution

Pricing and allocation/advice

Reporting Accountant

Review financials – assess company’s readiness for IPO

Tax structuring

Financial due diligence - long term, short term and working capital reports

Solicitors

Legal due diligence

Draft and verification of application document

Corporate restructuring

Provide legal opinions

Other Advisers

Registrars

Receiving Bank/s

Trustees/ Underwriter

Investor Relations


Pre IPO Guide – Parties & Responsibilities

The NSE Listings Sales & Retention Department is available to provide guidance through the whole process

LISTING

Common Concerns About Listing


Fear of loss of control by entrepreneurs

Owners may retain up to 85% of total shareholdings of the company; requirement is for at least 15% minimum public ownership.

Fear of sharing profits Discipline is king as profits are shared per shareholding at specific intervals; planning is key to growing business and profits

Fear of associated cost of being listed

Benefits far outweigh cost. Total cost capped at 4.3% . Responsive cost reduction by principal stakeholders, NSE fees 0.3% of market capitalization for IPOs and 0.3% of nominal value of listing by introduction plus professional fees.

Fear of much enhanced disclosure Disclosures are statutory and reflect the discipline of the company to transparency, which improves confidence and brand integrity.

Fear of losing value due to poor market depth and liquidity

Market is being restructured; introduction of market making; DFI is on the rise post 08/09 global crisis; national commitment to facilitating market development

Fear of additional regulatory requirements (especially if already

listed elsewhere) Waiver from having to comply with continuing listing obligations if listed on another foreign exchange with World Federation of Exchanges (WFE) status.

PARTNERING FOR LISTING SUCCESS

Listing Mindset


Discipline The most important competency a listed company should possess Enables good corporate governance practices Ensures proper management of the business and a higher return on investment (ROI)

Disclosure With proper corporate governance, disclosure is easy Required for maintaining “street” credibility--investor and market interest and confidence Key to liquidity

Market Analysts Possibly the most important resource, post-listing Responsible for ‘buy-sell’ recommendations Relied upon by institutional, and international investors Indirectly market a company’s stock

Public relations consultants Advertise and market companies and their brands Enforce the brand/image a company wants to project Augment the value of the company’s market performance

Strategic Planning No plan, no success Accountability is a stipulation of raising money from the public

Stock Exchange Delivers information about company’s performance to local and international investors and market operators Relies on timely submission of forecasts and quarterly/ yearly

performance (accounts)

LISTING IS A PART OF A COMPANY’S STRATEGIC BUSINESS PLAN

Q&A


Thank You

The Nigerian Stock Exchange Stock Exchange House

2-4 Customs Street

P.O. Box 2457, Marina

Lagos Island

Lagos, Nigeria

Direct Lines: 01- 4489363, 4489373

[email protected]

www.nse.com.ng

mailto:[email protected]

http://www.nse.com.ng/

funding for smes: the capital market option presentation at... · 5/17/2012 the nigerian stock...

Documents