Barring any formal change in government decision, the recent intervention in the capital market by the Asset Management Company of Nigeria (AMCON), may result in another round of collapse of the equities market, the House of Representatives has said.

The Lower House said that AMCON’s acquisition of troubled banks in the domestic economy done in collaboration with other regulatory agencies was fraught with lots of irregularities and manipulation, which has continued to dampened investors’ interest in the market.   

According to the House of Representatives’ Ad-Hoc Committee on the investigation into the near collapse of the Nigerian capital market report resolution no. (HR70/2012) made available to the Tribune Business, which noted that the AMCON phenomena as is currently being run is a mistake, and therefore, a major disaster waiting to happen.

The report stated that “We observed that AMCON is further concerned with accumulation of bubbles that would explode to magnitudes that had never been imagined. As at date, AMCON claimed to have issued bonds worth N4.5 trillion, but only about N1.7 trillion is guaranteed by the Federal Government.

“The real challenge of the AMCON bond is the bond’s ability of being converted into liquid cash. A good number of the AMCON Series bond is yet to be registered at the CSCS.”

The report said that “Investors are currently scared that the first tranche of AMCON bonds which would mature in three years, and some Serials may mature in seven years, making a total of 10 years. The scooping of shareholders by making them cough out 0.3 per cent of their balance sheet, though constraining corporate growth, does not guarantee funds availability despite the CBN’s contribution of N50 billion, which, in itself, is without parliamentary approval. There are material concerns with the Serial 5 bonds issued by AMCON.

“Investors worry more that the trading formula is yet to be standardised, and also that the prospectus that could attract foreign investors is not yet in place, thus limiting the prospects of external source of finance. The size of issuance is currently very large; this raises considerable systems questions regarding the modalities for redemption.

“There are many more issues that question the modus operandi of AMCON. If these are not transparently addressed, AMCON would yet remain the source of the eventual collapse of the capital market and the banking sector in the near future.

“There is also, the dangerous threat that the funding of the maturities may be through quantitative easing, or ways and means.

The following revelations are serious, and show why the AMCON phenomena remains a time-bomb”, it added.

On the valuation of the Non-performing Loan (NPL) issue raised before the banks were taken over, the report explained that the Committee was shocked at the way and manner that ‘non-performing loans’ were being manipulated by AMCON. “The Managing Director of AMCON, Mr Mustafa Chike-Obi was unable to explain the basis and rationale for valuing the book value of loans to the realisable value. While some balances were marked at market at very ridiculous values, others were stated at values higher than their book values.

“This committee observed that the basis for the valuation of NPL by AMCON is not tied to any known good practice: there is no reliable independent verification of the terms, conditions, process, and methods used in taking over NPLs.

“The statutory life of AMCON makes it difficult to believe that it is actually providing any solution to the issue of bad loans in the financial system. Rather, AMCON appear to be a vehicle for wealth maximisation for individuals connected to it, rather than an institution with the entire economy at heart.”