Dormant companies and investment decision

Friday Ekeoba, Lagos

Garba Bichi, Minister of State for
CommerceIndividuals and corporate organisations lever age on investment to increase their income so as to take care of both immediate and future demands. This appears to be one sure avenue around the globe for corporate entities and individuals that want to ensure their continued existence.

On the other hand, should they refuse to put something aside for investment purpose, the only possibility that may be available to them is either they would record stagnant growth or go out of existence as the case may be.

This reality has continued to dawn on investors on the Nigerian Stock Exchange (NSE), who now swoop on the market for huge returns on investments. While investment in securities of companies listed on the Exchange seems a very wise thing to do , investment in companies which are dormant has always taken the front burner of every investment discussion in the market.

A perusal of the daily official list of the NSE would readily show to even the lay man who is not knowledgeable on investment matters that some companies have had their last trading as far back as three years ago. Ignorant investors, however, have continued to stake their money on such stocks, especially as they have not been de-listed by the NSE.

Equity investments, put differently, could be investing one’s money in company’s shares, bonds (both government and corporate organisation), mutual funds and derivatives.
However, many companies which were hitherto believed to have gone under, have, on many occasions, bounced back, to command high share prices while very few others have other form of investments that have kept the hope of resuscitating the company alive.

The General Manager and Chief Operating Officer of Centre Point Investment, Mr. Jire Oyewale, said that it was not ideal to de-list a quoted company from the official list of the Nigerian Stock exchange just because the machines of the company are grounded.
He said delisting the company from the official list means foreclosing other means of injecting funds into the company, this being one of the benefits quoted companies have over unquoted companies.

Oyewale said, “the fact that accompany has closed is not an evidence that the company is no longer viable. A company may have closed up, but may still have quoted and unquoted investments and because of their various assets this warrants people to be trading on their shares. Oyewale said that many companies that have bounced back after being closed for a while to the delight of the shareholders have had their shares prices appreciating overwhelmingly.

Indeed, while many people are shying away from the shares of dormant companies, others are seeing it as an opportunity for investment while having in mind that company must surely bounce back. To these blend of investors, they keep amassing the shares of the company even when there is no visible activity going on in the company’s premises. Such investors maintain that for any company to be quoted on the exchange means that the company will not perpetuallybe kept grounded.

Speaking on the issue, Mr. Tunde Oyediran of Chart Well Securities noted that shares of dormant companies provide investors with the opportunity to take position in the companies before they bounce back. “Take Nigerian Wire and Cable for instance. The company was out of active business for a long period until new investors came and turned the company around”

However the Director General of NSE, Prof Ndi Okereke-Onyiuke, has always described the shares of such companies as goldmines, even as she maintains in various statements that it is not in the character of the Exchange to de-list quoted companies or announce that a company is dormant as they could later bounce back into reckoning. Onyiuke said “some core investors may buy the company and turn it around, like Costain West Africa Plc that Kola Kari bought 51 per cent and has turned the company around. There are some investors who bought penny stocks of companies that have gone down. A lot of people play the market for one reason or the other while many others speculate on the fortunes of companies and many occasions, thing tend to work in their favour”

Onyiuke said that the listing process of the NSE demands that if the Exchange does not receive any response from a quoted company for a period of two years, then it will start the process of de-listing the company. “According to our listing process, if we don’t have any response from the company for two years, we start the process of delisting, but any time we go to the company, we always have response from them. She maintained that some companies are placed on technical suspension not because they are coming to the market to raise funds, but because they have failed to submit quarterly reports or hold Annual General Meetings (AGM).

The NSE DG stated that the department of the NSE involved in visiting the “dormant” companies have always met with promising reports that the companies will soon become operational, adding “you don’t just get up and de-list a company. RT Brisco, Pharmadeko, Champion Breweries, International Breweries and many other companies have been revived and they are doing well” Onyiuke maintained that even as the so called dormant companies command good share prices, it is not the duty of the Exchange to investigate the companies for the high share prices they command in the market, but the onus lies on the brokers who trade on the shares. “We are not investigating the company, it is the brokers that we investigate and if they show us their reasons and mandate to buy, we can’t stop them from executing the mandate of their clients to buy”

According to her, core investors, both foreign and local, do not see such companies as dormant but rather as an opportunity waiting to be tapped. “Those companies that you see as dormant, investors see them as opportunities. They buy into these companies, turn them round manage them properly and make good money for themselves and the shareholder. Because if those companies could bounce back, investors see them as opportunities to make good money”, she added. Like it has been argued, the market is information- driven, that is the major thing that drives the market, apart from that, the returns on investment, coupled with giving feed backs to investors on what a company is doing helps in no small measure in guiding against dormancy in stocks.

Also, if one has regular returns on investment which come in form of dividend, that is capital appreciation; companies stocks will not be dormant. On the other hand, may be because of the nature of their industry, they have a lot of statutory requirement, to meet, it really affect their stock price, that is, the company concerned don’t really give much profit at the end of the day. A female stockbroker, who prefers to be anonymous had said, like the banks, their profit is always small compared to their counterpart in the business world. “So if you are not declaring bonus, what is going to drive your stocks; nothing”, she added As much as investors would want to put their money aside for investment, so as to have a solid ground for future demands are concerned, caution should be employed in deciding on what companies stocks to invest in.

An x-ray of the 32 sub sectors on The Exchange will readily explain in fact and figure which company is actually alife to its responsibilities or which is just swimming along with the crowd” Taking the emerging markets for instances, except for Cutix Plc, Juli Plc, and, to some extent, Adswitch Plc, every other company in this sub-sector are not thriving. Business done in the shares of those companies’ dates back to 1998, 2001, 2003 and 2005 respectively.

In the Agriculture/Agro Allied sub-sector, the company whose shares is still been actually traded on is Presco Plc, while that of Livestock, Okitipupa Oil Palm Plc and Okomu Oil Palm Plc seems to be epileptic in nature. The automobile and tyre sub-sector have Dunlop Nigeria Plc doing a little bit well; RT Briscoe Plc seems to dominate here, while others are just existing. Banking sub sector appears the most favoured by investors, wherein on a daily basis, several millions in volume of shares exchange hands. Virtually all the sub sector players are alive.

The Breweries sub-sector only have Guinness Nigeria Plc, Nigerian Breweries and just recently, the Champion Breweries, having their shares being traded on while others investors can only hope things should be turned around in the soonest future. The Conglomerates sub sector, Construction sub sector, Food/Beverages and Tobacco sub sector, Healthcare, Industrial/ Domestic products sub sectors, Insurance Industry sub sector, Maritime sub sectors, Real Estate sub sectors, Printing and Publishing and the Petroleum (Marketing) sub sectors, all have players in their various sub sectors still very active except for a handful of them, whose future is very bleak for investors.

Fitch rating on Kwara: Positive omen for Nigeria’s economic development

By Sulaiman Adesina

Bukola Saraki, Governor, Kwrara StateTo say that the corruptive tendency of an average Nigerian public office holder has hindered the progress of many cities in the country is to say the obvious. The country’s image battles daily for recognition by the international community and economic and social quagmire. However, the recent positive rating of Kwara State by the world-renowned rating agency, Fitch, represents a ray of hope, a measure of landscale resurgence which the country is currently witnessing. The rating becomes more sanification considering the fact that budgetary and financial information, institutional framework, socio-economic institution, administration, legal requirements, politics, debt management, which were assessed by the agency are the core areas to which is tied the development of any society.

Fitch, in its rating exercise between November 2007 and March this year, gave a clean bill of health to Kwara State Government in the areas mentioned, and finance and economic experts have applanded the result as a vindication of the genuineness of purpose of the Bukola Saraki-led government its effort to totally transform the state. That a state governor in Nigeria is globally acknowledged to have presided over a financially and economically healthy administration, is worthy of commendation and the aftermaths of such performance are, indeed, expected.

First, Alhaji Abdul Fatah Ahmed, the state’s commissioner for Finance and Economic Development observed, is the large investment of low from local international, areas. By they clean bill of health granted the state by Fitch as well as the impressive rating, no doubt, Kwara state has become the toast of both foreign investors and international donor agencies. The state also stands the benefit of enjoying credit facilities that would and its overall development,” he said.

Thus, it is expected that Kwara state will witness tremendous patronage in terms of opening up of many areas, to facilitate industralisation in all its nooks and crannies. The social infrasture too, is expected to benefit as the intermediary between the people and the investment opportunities. More importantly, the agricultural potentials of the state, which had always provided the bulk of the Gross Domestic Product, are which benefits the entire populace are expecting.

Ahmed also that the rating had “demonstrated high confidence of the international community in the socio-economic policy thrust of the state government. There is a key lesson from the success story Kwara State which Abdulmumin Sidiq Katibi, who is the commissioner for Information and Home Affairs, had linked to the transparency of Governor Olusole Saraki in ensuring free flow of information across the state ministries, departments and agencies. Ability to carry others along remains a key ingredient of success for any leader.

The nation, indeed, has a lot to learn from Kwara State.