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TRANSCRIPT
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
05/04/2012 4The Nigerian Stock Exchange
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
05/04/2012 5The Nigerian Stock Exchange
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)
05/04/2012 6The Nigerian Stock Exchange
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
05/04/2012 7The Nigerian Stock Exchange
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
05/04/2012 8The Nigerian Stock Exchange
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
05/04/2012 9The Nigerian Stock Exchange
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
05/04/2012 10The Nigerian Stock Exchange
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.
05/04/2012 11The Nigerian Stock Exchange
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.
05/04/2012 12The Nigerian Stock Exchange
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?
05/04/2012 13The Nigerian Stock Exchange
First-Rate Market, First-Rate Companies
05/04/2012 14The Nigerian Stock Exchange
The NSE’s Vision and Goal
05/04/2012 15The Nigerian Stock Exchange
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
05/04/2012 16The Nigerian Stock Exchange
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
05/04/2012 17The Nigerian Stock Exchange
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!
05/04/2012 18The Nigerian Stock Exchange
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)
05/04/2012 19The Nigerian Stock Exchange
The Nigerian Bull Re-Emerges? 2012 to ?The Nigerian Bull Emerges?
2012 - ?
05/04/2012 20The Nigerian Stock Exchange
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
05/04/2012 21The Nigerian Stock Exchange
• 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)
05/04/2012 22The Nigerian Stock Exchange
• 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
05/04/2012 23The Nigerian Stock Exchange
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.
05/04/2012 24The Nigerian Stock Exchange
The Nigerian Stock ExchangeStock Exchange House
2-4 Customs Street
P.O. Box 2457, Marina
Lagos Island
Lagos, Nigeria
www.nse.com.ng
Thank You
05/04/2012 25The Nigerian Stock Exchange