recapitalizing microfinance banks in nigeria: the … presentation at namb agm_2012.pdf ·...

RECAPITALIZING MICROFINANCE

BANKS IN NIGERIA: THE CAPITAL

MARKET OPTION Presented by

Taba Peterside

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

At the

2nd AGM of the National Association of Microfinance Banks

The Women Development Centre, Central Business Area

Opposite The Central Bank of Nigeria, Abuja

May 12, 2012

5/12/2012 1 The Nigerian Stock Exchange

SESSION ON RECAPITALIZING MFBs THROUGH THE NSE -

RECAPITALIZATION &

UNLOCKING

INTRINSIC VALUE

THROUGH

THE NIGERIAN STOCK

EXCHANGE

OUTLINE

• Financial Inclusion through

Microfinance;

• The Journey by The Federal

Government on Microfinance

Provision;

• Snapshot of Current Regulatory

Requirements for MFBs;

• Overview of Nigeria's Capital Market

• Capital Market Instruments;

• Benefits of Listing;

• Steps to Actualization.

Financial Inclusion through Microfinance

5/12/2012 The Nigerian Stock Exchange 3

• Microfinance is usually understood to entail the provision of financial services to micro-entrepreneurs and small businesses, which lack access to banking and related services due to the high transaction costs associated with serving these client categories (Wikipedia). By extension, Microfinance is the provision of financial services, which include savings, insurance and loans to poor and low-income earners in the society.

What is Microfinance?

• The Central Bank of Nigeria recently developed an exposure draft on its strategy towards financial inclusion in Nigeria, which is aimed at reducing the percentage of adult Nigerians who are excluded from financial services from 46.3% (recorded in 2010) to 20% by 2020. (Microfinance Africa).

• This is expected to create a wider access to financial services at reasonable cost by households and enterprises currently excluded.

Financial Inclusion

Journey by The Federal Government on

Microfinance Provision Initiative


Lending as a % of savings (rural areas for rural

people)

Rural Banking Programme

/ Concessionary interest rate

Agric. Credit Guarantee Scheme

Fund (ACGSF)/ Nigerian Agric. Co-

op. & Rural Dev. Bank Ltd

Nigerian Agric. Insurance Corp./ National Poverty Eradication Prog.

(NAPEP) Family Economic

Advancement Prog. (FEAP)/

Peoples Bank of Nigeria (PBN)/

Community Banks

Microfinance Banks

1970 - Date

The Microfinance Policy, Regulatory and Supervisory Framework was launched on December 15, 2005, amended April 29, 2011.

Sectoral allocation of

credits

Snapshot of Current Regulatory Requirements for MFBs in Nigeria


Capitalization Requirement

A.Unit Microfinance Bank

Authorized to operate in one location with

minimum paid up share capital of N20 million.

B. State Microfinance Bank

Authorized to operate and open branches in only one State or the Federal Capital

Territory (FCT), with minimum paid up share capital of N100 million.

C. National Microfinance Bank

Authorized to operate and open branches in more than one State

including the Federal Capital Territory (FCT), with minimum paid up share

capital of N2 billion.

• Currently, over 900 MFBs at different stages of approval with the CBN;

• Only one listing (NPF Microfinance Bank Plc) and a prospective listing.

MFBs in Nigeria: Diagnostics


Reasons for Past Failures

• Lack of adequate skills set

by operators for effective service delivery;

• Lack of proper corporate governance and management structure, inefficient internal controls and poor credit administration;

• Lack of adequate capital base leading to insufficient loanable funds.

Implication of New Licensing Requirement

• Unit MFBs: Exposed to risk

factors associated with its single location; Need for integration with other MFBs or Commercial Banks;

• State MFBs: Wider coverage and attendant opportunities across a State, although exposed to state-specific policies and risk factors;

• National MFBs: No restrictions on operating network and business model across the entire country. However increased cost and capital requirement

Opportunities/ Gaps in Micro financing

• Available statistics reveal that

over 80 million Nigerians (about 65% of the active population) do not have access to formal financial institutions;

• Microfinance Solutions are required to address the gap in terms of savings, credit and other associated financial services;

• Micro funding is expected to increase employment opportunities, enhance household income and create wealth.

7 The Nigerian Stock Exchange 5/12/2012

NSE Vision and Goal


NSE All Share Index

22,511.30

Equity Market Capitalization

N7.18 tn

• Total Market Cap = N12.68tn

• 22.65% 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 N7.18tn.

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 10, 2012

Overview of Nigeria’s Capital Market

8.9% (YTD)

10.21% (YTD)

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 N7.18tn equity market capitalisation as at 10/05/12

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 10/05/12

NSE – Home to 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

Destination

Segmentation

of MFBs


Agriculture

Construction/Real Estate

Consumer Goods Financial

Services

Healthcare Industrial Goods

ICT

Natural Resources

Oil & Gas Services

Utilities

Conglomerates

Subsectors

• Banking; • Insurance Carriers,

Brokers and Services

• Mortgage Carriers, Brokers and Services

• Non-Depository Credit Institutions;

• Other Financial Institutions

Currently, NPF Microfinance Bank Plc is the only listed Microfinance Bank in the Banking Subsector of Financial Services Sector (On the Main Board)

NSE Sector Classification

“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


Transforming Company Listings


• Introduced quantitative elements for equities to make it flexible and competitive in line with global best practice

Listings Requirements

• Ensuring all our companies realize the value of listing on the Exchange through value added services such as:

Value Added Services

1. Corporate Governance 2. Investor Relations 3. Institutional Services 4. Analyst Coverage 5. Corporate Access

Benefits of Listing to a Microfinance Bank


Microfinance Bank Co.

Access to Capital for

Recapitalization/ 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

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 the most

recent year. N600 million for the latest 1 or 2yrs

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

Short term forecast (1 year) and 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 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


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.

The 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 the recapitalization of

Microfinance Banks in Nigeria, in accordance

with the Licensing Requirements as set by

the Central Bank of Nigeria.

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.


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

Issuing House

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

QUOTATION

LISTING IS PART OF A COMPANY’S STRATEGIC BUSINESS PLAN

True Success Comes After Listing


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)

Listed companies must work to maintain credibility using these resources

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/

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