Investors groan over SEC’s 80 per cent underwriting order

Friday Ekeoba, Lagos
Oba Otudeko, President, NSE

The travails of investors in the nation’s capital market, rather than being abated even with the resolve of the regulatory body, the Securities and Exchange Commission (SEC), to wade its big hammer on fraudulent operators, appears to be worsening. The Nigerian Stock Exchange (NSE), also a self-regulatory body who provides the floors from which the operators transact their businesses, cannot be said to be winning the battle with the operators who, findings have shown, are devising various means to stay afloat in the market.

Meanwhile, the fate of investors in the market continue to hang purely on the confidence reposed in the drivers of the market. The regulators though are not relenting in their desire to bring the market to international standard, the activities of the operators in the market (stockbrokers, Issuing houses) are not helping the market to achieve its goals. Investors, in recent past, have complained of delay in issue of shares certificate, poor facilities by registrar, non- receipt of dividend warrant, fraudulent use of preferential treatment in offers and non-mandated sales of investors’ shares among others.

The resolve of SEC to make the market be alive to its responsibilities to investors both on the individual and on the corporate level occasioned the body’s decision, last year, to make issuing houses to underwrite offers coming to the market to the tune of 80 per cent. In simple terms, the apex regulatory body of the capital market said every offer must be underwritten by issuing houses to the tune of 80 per cent, except for mutual funds which are not subjected to underwriting in the rules and regulation of the commission. Experts have advanced that this new directive of SEC will help revolutionalise operations in the market as it will bring about further increased confidence by investors who are actually the bedrock of the market if their investment are put into perspective.

The 80 per cent underwriting order when applied will cause interest rate to shoot up, thereby preventing any corporate body from keeping people’s bond at a relatively high rate. The experts explained that, when government begins to pay something at a very high level, it would actually have negative implication on the corporate body. “So, if the underwriting is higher like 80 per cent, it’s going to have terrible implication on the investors”, they added. The set out objectives of underwriting as enunciated by SEC was to reinforce confidence. It is an indication of confidence on the part of the issuers. “If the issuing house were not confident of what they will be offering to the public, they won’t underwrite. “So, the liability of underwriting an offer to as much as 80 per cent is that they are sure and are ready to put their efforts where their money is. I think it is a good signal, a positive development for investors”, Mr. Daisi Omidiji, a financial expert, has explained.

The directive by SEC on the 80 per cent underwriting of offers has, no doubt, taken its solid footing in the market, even as investors await the advantages they are likely to derive from its operations. It will be recalled that right from the first day of the directive, investors have expressed misgiving that if operators were having problems with the recapitalisation exercise in the industry, it would be difficult for them to have the means to underwrite offers to the tune of several billions of naira. Another area of the underwriting of offer that appears not to be in the interest of investors are the share valuation that would not be given appropriate pricing, since the issuing house would have bargained for the cost of the shares to be offered to the public at a low discount, while the cost it will give for subscription will be at a high rate.

Nigerian Tribune Investment Guide gathered from recent scenario in the market that issuing houses have since been using the 80 per cent share underwriting directive to manipulate prices of shares in the market against investors’ interest. How would one explain the cases of some companies who have been selling their offers to the public at a price which experts are not too comfortable with, owing to some indicators which are not favourable to those companies. It will be recalled that the commission said the directive to issuers was done in pursuance of Investment and Securities Act (ISA) of 1999 in respect of 80 percent firm commitment of all issues. According to Rule 76 of the SEC Rules (as amended), "the amount of per cent of the issue underwritten by any underwriter or syndicated underwriters shall not be less than 80 per cent of the number of units issued for subscription.

The Securities and Exchange Commission (SEC), as the apex regulatory body overseeing operations in the nation’s capital market must enhance its market surveillance and enforcement processes to be able to effectively deal with tendencies that will undermine investors’ confidence in the market. SEC’s Director General, Mallam Musa Al-Faki, at a forum recently, assuring that everything would be done not only to consolidate on the modest gains but to also sustain the growth rate recorded. Also, the Commission claims that it is closely monitoring the activities of certain stock broking firms with regards to movement of prices of certain stocks. The sensitivity of the body, it assures, will be a continous exercise whshould not be swept under the carpet.

It will be recalled that the commission, between January and June last year, received, according to Nigerian Tribune findings, a total of 254 complaints from investors out of which 22 cases were fully resolved while others are at various stages of investigations and renegotiated settlement. Speaking on the development, a stockbroker Mr. Mathew Ogagavworia of Tower Assets Management Limited said, “there must be firm modernising when the issuing houses says to the company, for instance, ’until the day the offer closes, we will hand in your check and pick it instead of the offer, whether it is successful or not’. “The issuing house is forced to warehouse some of those shares as at when due and if you have given the issuing houses, ordinarily it should be on stand by, and whereby if the offers are not fully subscribed to or paid, that is when the issuing house will ordinarily issue the shares to the issuer.

“It means that it is the issuing houses that have to take the value to which is 80 per cent offer to the company. The issuing houses are supposed to warehouse some of the stocks, and in the issuing market, if you want to warehouse some of the stocks, there is no way the issuing company will not want the stock price to move in the way it has been warehoused and we could do that in several ways either by creating activity that is in it or get it transferred to the stocks. “Stock price goes up when we are able to sell those stocks that we have or bring some good stories about the company. You find out that even we must be cautious of what we hear as some information may not be real. If we believe that all the rumour about a company is true, its stock price begins to rise. It may not necessarily be because somebody is manipulating it.

“Today, we are aware of Nigerian Ropes, and there is nothing new about Nigerian Ropes apart from the fact that we heard that the same set of people that acquired Costain have equally acquired Nigerian Ropes. Investors want to take a position today before the impact of that acquisition will manifest. So people are taking position, people are just buying since they believe that the corporate body will perform well. It may not necessarily mean that it is manipulation”. According to him, if an issuing house has warehoused stocks because it has underwritten an offer, “we can only create story that the market will just believe and the believe will decide whether people will want to buy the stock or not. So, it does not necessarily mean that somebody is going to manipulate”, he added.

A member of an issuing house who would not want his name mentioned in print said that, the relationship between price manipulation and what SEC has directed was quite different and noted that, the underwriting rule is to ensure that all offers are brought to the market. “They are the largest and successful because if an offer is 80 per cent less in the success rate, it has to be cancelled. So, underwriting 80 per cent ensures maximum success. It ensures that the offer is appropriately priced because if you are going to put your money down, you would have been assured that you are not buying what is too much expensive to prevent you from recording gains. “So, price manipulation has nothing to do with underwriting, it is a global practice which is acceptable; there is no problem in it. So, if there is price manipulation, it is something that has to be tackled, it’s not something that should be married away,” he added.

Expectations from new contributory pension scheme

Ayeleso Oladele reviews the failure of the past contributory pension schemes in the country and charges new operators to live up to expectations.

When the Federal Government, during the regime of the immediate past president, Chief Olusegun Obasanjo, came up with the idea of contributory pension scheme, fully funded and privately third party custody of funds and assets to replace the old defined pension scheme, it was obvious that the idea was borne out of passion for the aged citizens of the country. Ever before now, the retired workers, most especially in government parastatals had suffered a lot when it comes to the payment of their pension allowance. It has always been tug of war for the government to release the meagre due them in due time thereby subjecting them to agony.

In fact, during the regime of President Obasanjo, the federal government admitted that it owed the pensioners as much as N3 trillion, which up till the moment, it is not yet clear if the federal government will pay off what its owing the pensioners. Rest, it is said, is sweet after work. It seems as if this is not applicable to the Nigerian pensioners as their struggles continue after serving their fatherland meritoriously. After they have spent the better part of their life to serve the nation, they are still subjected to carrying of placard in demonstration to show their grievances against the non payment of what the government owed them. Unfortunately, investigation by the Nigerian Tribune revealed that most of these pensioners are not subjected to this woe directly by the government, but some government agencies, individuals in government circle who have seen the avenue as a means to enrich their pocket on the bases of flimsy excuses

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During the Obasanjo regime, it came to a level that the Federal Government would inform the general public that it had released the pension allowance to the State government for it to disburse, while the state government would, in turn, decline it, further compounding the problems of these aged men and women. Investigation revealed that the pensioners in a particular state in the south west visited the parents of the state governor several times to plead with them to appeal to their son to pay them what belong to them. In Ekiti State recently, one of the pensioners (name withheld) who lost her husband early this year had her allowance seized for no reason. She told the Nigerian Tribune that when she got to where she suppose to submit her clearance form usually preceding the payment, she was told that her name was omitted out rightly and that she would need to see them at the helms of affairs before she could know the source of the problem.

“When I got to their office in Ado (the State capital), I was told that they had the information that I have died, so they had to remove my name immediately. But a source from that office informed me that my name was internally. I met with the person directly incharge, he apologised and promised that it would be rectified before the second month, but up till now, I have not received my pension allowance” she narrated. The last major verification exercise during the regime of President Obasanjo was an eye-opener to the agony of the Nigerian pensioners. Some of the aged pensioners that were interviewed at the site of the exercise could not hold back the tears as they pleaded with the government to just try and pay them part of the money so they can at least enjoy what they laboured for in their life time. It was also gathered that a good number of them had died without been paid their package.

These and other issues related to the unending agony of these pensioners could have been the rationale behind the call of the Campaign for Democratic and Workers Rights (CDWR), a non-governmental organisation, who had saddled itself with the responsibility to fight the cause of the pensioners in Nigeria, calling for immediate cancellation of the new pension scheme asking the government to allow trade union take over. In his argument, during one of their lectures in Lagos, Comrade Abiodun Aremu, Executive Director, Kolagbodi Memorial Foundation (KMF) in his own submission said that living pension that is accrued to pensioners can only come from a living wage.
Giving past experiences, he argued that pension matter in Nigeria has gone beyond the question of just setting up an Act, rather he said it should be a challenge to all Nigerians, including the government, on how to take care of the aged. “I align myself with the provision of the constitution particularly the one that relates to the economy objective of government that government shall be responsible in terms of old age care and pension.

“What that means is that beyond the right of everybody who has made economic contribution in one work force or the other are being paid their entitlement as at when due. “There is a need for us to institute a social security system that can take care of not only the aged but also the disable in the society in terms of their access to health care, and some other basic needs that are required at old age”. However, Comrade Aremu said that the government should earmark 10 per cent of the national and the state budget which should be dedicated to resolving some of the problems accrued to old aged people, particularly, he said, when the government had admitted of owing arrears of pension of over N3 trillion. This group also believed that those companies that have registered as Pension Fund Administrators (PFA) and Pension Fund Custodian (PFC) anchoring the scheme are rather owned by the politicians in the nation who are only out to make money at the expense of anything. They also claimed that they could fold up at any time and if such happen, what would the contributors do?

Nevertheless, in the midst of several criticisms, the National Pension Commission has continued to discharge its responsibility. Recently, the commission commenced the payment of pension allowance to its first beneficiaries. In his own argument, the representative of Penman Pension in the public lecture encouraged Nigerians to give the new pension scheme a trial, earlier on, it had observed that Pencom, the PFA and the PFC need to embark on massive means of creating awareness. Meanwhile, the Director General, Pencom, Mr. Mallam Kabir Ahmed in an interview said that the commission has plans to embark on awareness campaign for Nigerians to know what the commission is doing and the benefit of the scheme to individuals.

According to him, the commission would embark on a number of media strategies, inform of documentary which he said would run through electronics media forces similar to what other institutions are doing, just to educate people. “In newspaper, we going to explain to Nigeria what this scheme is all about properly. Nigerians will be better educated. This is the second seminar we are holding for pension desk officers in the public sector, trying to introduce them to the exit guideline, for your information, since July 2007 those that retired under the new scheme are now collecting their retirement benefits as at when due” he explained. In section 2 of the pension reform Act 2004, it stipulates that the scheme is to ensure that every person who worked in either public service of the federation, federal capital territory or private sector receives his retirement benefits as and when due, and to assist improvident individuals by ensuring that the save in order to cater for their livelihood during old age.