Attendant problems of huge volume of issued shares

Friday Ekeoba, Lagos

Musa Al-Faki, DG, SECThis is certainly not the best of time for investors on the stock market across the globe as they wit ness on a daily basis the decline on their hard earned resources. While many experts have raised the optimism that the market would, in no distance time, correct itself and go ahead to record positive indices, the situation on ground as it relates to the Nigerian capital market which is said to be an emerging market still leaves investors wondering. Worse still, majority of investors in the market are still ignorant of the workings of the market and what they are used to had always been the market rallying and not the other way round as it is today.

Several factors have been adduced as the likely cause of the downturn of events in the market, this ranging from the aborted moves of the Central Bank of Nigeria (CBN) to fix a uniform financial for banks to the decision of the Securities and Exchange Commission (SEC) to suspend the recapitalisation of operators in the market. However, why all these appear to have been addressed, visible results from the market showed that what is really affecting the market is still yet to be unidentified, because investors believe that as the CBN and SEC have reversed their plans, the market ought to have responded in like manner.

This necessitated some companies long before now to begin to appraise the numbers of their issued shares to the public while some have begun to clamour for share buy back as the case may be so as to, at least, sustain the prices of their stocks. The Nigerian Stock Exchange (NSE) management recently in an interaction with market reporters and other stakeholders informed that the current trend in the fall of the market indicators could be attributed to drop in prices of blue chip companies and that any thing that affect them always have a rippling effect on the market. It will recalled that equities in the stock market, especially the ones commonly described as highly capitalised, have in recent times been witnessing huge transaction volume which market observers have readily said to be investors offloading their holdings so as to check losses.

At the close of the consolidation exercise in the banking subsector of the economy, investors in the country were made to understand that not until they allow their money to be accessed by the financial institutions, the entire exercise would have been a failure. The directives by the Central Bank of Nigeria (CBN) on July 6, 2005 that banks in the country must shore up their capital base to the tune of N25 billion really caused a stir among the strugglers in the banking subsector, notwithstanding the policy formulations leverage that was created in the economic policy minted out by the man at the helms of affairs in the CBN, Mr. Charles Soludo that the ailing banks had a way out; to either merge or integrate. This option by the CBN resulted at the end of the day in helping to prune down 89 banking which later metamorphosised into 25 banks whose capital base have been oscilating between N25 billion and an average of N100 billion by the mid 2007.

This singular moves by the banks and lately the insurance companies and other companies listed in the market have no doubt resulted in large volume in issued share capitals and which both short and long time effect has resulted in the witling down of share prices. This may explain the rolling out of different products which the banks are using to out do one another, all in a bid to increase their deposit fund which in the longrun will reflect in their bottomline. The new drive of the banks have made them to even have offshore partners, that would help further garner the much needed fund and moreso help attain the $1billion US dollars mark that will necessitate them particularly in the managing of the Nigeria’s external fund. These attempts to have a cemented platform that would navigate any storm that could easily pose challenge to the banking industry have further resulted in some banking innovations by way of share reconstruction.

Now that some banks are contemplating reconstruction, and as Spring Bank and Ecobank Transnational Incorporated (ETI) have since completed their share reconstructions, what awaits investors in the market? As an economic principle, share reconstruction is a process whereby a company decides to reduce the quantity of its shares, so as to firm up its price, which in the longrun would translate into good dividend yield for shareholders. But as sound as this economic principles is, which some banks have resulted to in order to properly position themselves for better transactions, some stakeholders have been at variance with the banks position.

National Chairman of the Progressive Shareholders Association of Nigeria, Mr. Boniface Okezie, said as far as he and his member were concerned, share reconstruction has not been helpful to investors. He said, in most cases, organisations would tell investors that share price would move up after the exercise, but at the end of the day, their prices would still be stagnant, sighting FirstInland Bank as an example, “when they came for listing, they told us that the price would move to N10, but today, it is about N3, the same thing with Sterling Bank which is about N7 or N6 and I told their management to release the share certificates so that we can trade on our shares. If the price will remain at that level we will know that the bank is doing well” He explained that by the time investors started flooding the market with their equities, the price would definitely fall. Okozie added that the price of a company’s stock could move after the reconstruction if the organisation performs well, by giving good bonuses and dividends, stressing that with the few banks that have embarked on the exercise, a lot of money has been lost in the short term by investors.

In the same light, the General Manager of Lambeth Trust and Investment Company Limited, David Adonri said, to the best of his knowledge, the reconstruction of shares was unnecessary because it does not change the situation of things but all the companies were doing was to reduce the number of shares and then increase the price in the market with same proportion. According to him, “the investors have nothing to lose in the process of share reconstruction; it is just the company that is bearing the cost of embarking on such exercise. It will just reduce their profits marginally, but I do not see any advantage in it. “Although some of them think that if you have share capital above a certain number then your dividend payout may be very low and would not be competitive, but the price, the dividend yield become the principal factors. You can have stocks that have few shares in the market but are highly priced. If you compare the dividend they are paying to the price, you discover that the dividend yield is insignificant, whereas you have some lonely stocks with higher dividend yield. So that is why I think there is no compelling reason for this exercise”.

Conversely, the Group Managing Director of Wema Bank Plc, Mr. Adebisi Omoyemi had said that share reconstruction in the banking industry was a welcome development. He said the innovation embarked on by banks was not to short change any investors, but rather to reposition the banks for a good price in their shares, which investors would share from at the end of the day. Also, a stockbroker, Prince Okafor of the Truthhouse Investment Limited reasoned that as a new innovation in the market which do not happen often, it would enable the banks’ shares to get price appreciation. He said as a principle of finance, companies go into it in order to project their earnings and none especially cause high pricing of their shares.

Although, it is not a market driver or neither a market tool, the essence, according to Okafor, was to make price appreciation in share and increase in dividend to investors. Another method a section of shareholders in the market are calling for to help check the market downturn is the “Share buy back” scheme. Capital market analysts who expressed their mind to the issue said the shareholders associations pushing for the introduction of the share buy back should exercise caution in order to avoid back lash. They said in the alternative shareholders in the country should still abide with the share reconstruction which does not encourage monopoly.

It will be recalled that, Share buy back is a process that allows the company to buy back its stocks on the floor of the Nigerian Stock Exchange, so that the value of the stocks does not drop. That is, to increase the volume of the stock. They also canvassed that share buy back which was being called for in some quarters entailed dangling the carrot to the investors which would ultimately lead to monopoly of the market and which would definitely bring about the death of the capital market. “It is a survival strategy employed by companies to have full control over their investment. They want to have controlling shares and control of the management. They can even make it a kind of carrot offer trying to buy back at a premium” they added.

The concept is not new as companies in Europe and United States (US) have engaged in it for various reasons, one of which is to give shareholders value for their investment. As laudable as the advocates of shares buy-back want us to believe, market observers still believe that the idea is still new in the country and as a result, it would take shareholders some time to fully embrace it.

African circle boosts govt’s pollution-reduction efforts with N2.4bn plant

Dele Aderibigbe and Folashade Alli, Lagos

Federal Government’s strategic aim of achieving a cleaner marine environment in Nigeria may have got the desired boost as a N2. 4 billion marine pollution control plant is installed on the Snake Island in Lagos, purposefully to rid the territorial waters of pollution.

Coming under the initiatives of the African Circle Pollution Control group, the plant, which is presently sited in a choice location within the newly constituted ‘Free Trade Zone’ (FTZ) where it pays $19.5 per square meter of every space occupied, the plant is expected to collect sludge and other oily wastes from ships arriving in the country, and processing same in line with the specifications of the International Maritime Organisation (IMO) on safe and clean marine environment, especially to ensure compliance in respect of IMO Annexes 1 and 5.

Specifically, barges drawn by tug boats from the African Circle would pull alongside ships entering the nation’s territorial waters, and have solid and liquid wastes from such vessels discharged into the barges rather into our waters thereby eliminating possibility of harming the country’s eco or aquatic lives.

The plant managers, the Nigerian Tribune further learnt, would also collaborate with both the Nigerian Maritime Administration and Safety Agency (NIMASA) and the Nigerian Ports Authority (NPA) to guarantee vessels in emergency situations and deserving of Search and Rescue (SAR) attentions, or similar vessels in distress, adequate coverage in case they were under the fear of spilling petroleum or other hazardous products into the country’s waters.

When the Nigerian Tribune visited the site at the weekend, it observed a few expatriates and several Nigerians working round the clock in a bid to meet what the group’s image-maker, Ahmadu Fidi Ahmadu, described as an end of the month deadline target.

“At the moment, we have four vessels built in turkey by Marfidenis; next month we are commissioning two, with officers from NIMASA and NPA, especially the surveyors. “They have fire fighting capabilities. And in the event of hazardous product spill, they also have fuel booms. We intend using our base at Tin Can for speedy response so as to begin to run a 24-hour service,” Mr. Ahmadu explained further.

There were indications that the group as a part of its social responsibility would assist the Lagos state government ssto rid some streets of solid wastes aside from also providing potable drinking water at the end of their installations.