Binus Yaroe, Onyewuchi Asinobi and Emmanuel Ikazoboh
Mr. Emmanuel Ikazoboh, Interim Administrator of the Exchange, Mr. Onyewuchi Asinobi, Managing Di-rector, CSCS Limited and Binus Yaro, General Manager, Listing and Quotation Department of the NSE, in an interactive session with journalists, x-ray the performance of the capital market in 2010 and the future expectations of the Exchange.Ikazoboh warned that the NSE will not allow capital market operators with negative shareholders’ funds to be in the market as the use of investors’ funds to run their businesses will not be allowed.
Excerpts
You said that during the time that the NSE carried out its inspection on dealing members, it was discovered that some stock-broking firms had a negative shareholders’ funds and were asked to recapitalise or face being expunged from the market. What is the situation now?
I want to say that we are taking actions here because it is the only way we can protect investors and we are also protecting the brokers themselves. We have a situation where as a result of margin loans, some of them have had their hands burnt and therefore their capital was completely eroded, we cannot because of that, fold our arms and allow them continue to operate because they are going to use their investors’ funds to continue to operate as they have no funds of their own anymore.
We at the Exchange are here to protect the investors. So what we are saying is that they have to introduce more capital, that is, cash capital, they shouldn’t use investors’ money to run their business.
They must make sure that investors’ money, that is, clients’ fund, is kept separate from business fund. What we discovered during inspection was that the stockbrokers were mixing up both funds for obvious reasons, so we cannot fold our arms and allow our investors’ funds to be used as working capital.
Again, we want to gain back investors’ confidence into the capital market therefore we must ensure that all rules are put in place and seriously respected.
I will also like to let you know that nowhere in the world is capital inadequacy tolerated. In fact, in some of the Exchanges, once your capital inadequacy is getting close to a point, they step in immediately, in this case, we have cases where the capital has been eroded. Though, it is no fault of theirs as they claimed but blamed it on the global meltdown.
I wouldn’t say it is no fault of theirs, it is their fault, but it was mainly because of the merging loans and not properly managing their finances. So we need to work with them, we acknowledged their challenges, we want to work with them, but we need to also protect investors in our market
Nigerians’ expectations of the economy by 2020 can only be achieved through our capital market. So for any foreign investor or any other investor who wants to invest in our capital market, they want to look at the Nigerian Stock Exchange (NSE) whether it is recognised by World Federation of Exchanges or not.
Right now, our Exchange is not strong, and this is because we are not too strict with our rules and regulations, therefore our rules and regulations going forward will be strictly adhered to in accordance with global standards. It is therefore the only way we’ll ensure that investors – both local and foreign – are protected. And by that, our economy will grow, and create employment for our people.
It was gathered that only few stockbroking firms are moving the stock market, where we have more than 200 stockbroking firms that trade in the market, we want to know the percentage of those shares that were mopped up by the Assets Management Company of Nigeria (AMCON)?
Well, as at December 31, a total of N1.04 trillion non-performing loans were purchased from banks with a three-year initial consideration zero coupon bond which will subsequently be registered with Securities and Exchange Commission (SEC) and become discountable at the Central Bank of Nigeria (CBN). AMCON had valued Non-Performing Loan (NPL) backed by shares of listed companies at an implied premium of approximately 60 per cent on the 60-day average of recent prices, ending November 15, 2010.
Additional purchase of Non-Performing Loan (NPL) from all banks would have been purchased. It is not only banks that would submit their toxic assets for purchase by AMCON. The Nigeria Deposit Insurance Corporation (NDIC) will also benefit from the initiative. It is believed that NDIC is carrying huge NPL, presumably from the banks for which NDIC continues to serve as undertaker, among which are the 14 banks that failed to meet the December 31, 2005 deadline for recapitalisation.
It was gathered that the stockbrokers insisted that the Exchange should give them a bailout option like what the Central Bank of Nigeria (CBN) did to the troubled banks. So what is your view?
I’m not sure CBN really bailed out the banks, what CBN did was to take over the banks, unless you are saying that we should go in and take over those stockbroking entities and then put money there to rebuild it, but this is not what we want to do.
We cannot pump in money into the stockbroking firms because we do not intend to run the companies.
What is the position of the new Chief Executive Officer (CEO) or Director-General (DG) designate of the NSE? Who is the person that has been selected and when is the person going to assume office?
We have forwarded the name of the new CEO, the recommended new CEO that the council of the NSE has approved but we need the endorsement of SEC before announcing it. The Council of the Exchange met to pick the best from the last three shortlisted for final screening This process of selecting the new CEO started since September, and we want to ensure that we have a thorough auditable, efficient and transparent process in determining who will be the next CEO.
We have the selection committee that reviewed all the applications, over 1,600 applications for the four positions and that was properly reviewed by the selection committee, and the selection committee was made up of people from outside the Exchange. We choose people from the Lagos Business School, the Institute of Chartered Accountants of Nigeria (ICAN), Institute of Personnel Management, External Consultants, Accenture, etc.
They reviewed the list out of which they selected people they thought are good enough to be the CEO or Directors of the Exchange. A selection committee was then put in place by Council and that selection committee interviewed all these candidates and came out with the list of three persons, for the CEO’s position, and for the other positions not yet completed.
However, we are not able to get sufficient numbers for two of the Executive Director’s positions now, but for the CEO’s position, three people had to face the Council of the Exchange and made their presentation to the Council. It was based on that presentation that one out of the three was then selected and in accordance with the rules agreed with SEC, it was agreed that when you agree on the candidate, you have to send that name with the Curriculum Vitae and all the processes you took and why you think that person is the right person and I must say the NSE Council unanimously selected one, out of the three and that name was sent to SEC.
What SEC is waiting for is that they want us to complete the other positions, so that they could approve all at the same time, unfortunately because of the weather situation in the United Kingdom and the United States in December, some of the candidates who are based in the United States and the United Kingdom could not fly in, fortunately for the CEO position, all three candidates shortlisted were available in the country before the bad weather started and that is why we completed that position.
In the other oppositions left, we are going to continue this month, they all are going to fly in, we are even calling people both locally and globally, Nigerians wherever they are, we want the best for the Exchange, and we are going to continue that process this month. Therefore, I am not in a position to give you the name of the CEO-designate like you requested. So SEC needs to come back to us to say it is approved, the person that the Council has selected. It is only after that is done that we can reveal the name.
How is the Exchange enlightenment programme going to look like in 2011?
For the enlightenment, one of the strategies we are going to adopt is to go out and start selling to companies, especially private companies who are not yet listed, about the benefits of listing, and we will let them know that the benefits they will derive will be far higher than the cost of listing on the Exchange.
Also, another issue that will attract them is when the cost of transactions in the stock market is reduced. So we will try to see how the cost of transaction can be reduced. That’s an area, right from the very first day I came to this exchange, I’ve always talked to my colleagues about. We need to find a way of bringing down our cost of operating because that is the only way we can encourage companies to come in. Some of the companies I’ve spoken to before I came to this Exchange, one of the reasons why they are not thinking of coming to list their shares is this cost of listing, but probably because they do not know the benefits.
I know that the benefits outweigh some of these costs they are referring to. We have to let them know the benefits of listing on the Exchange and that is one part of our enlightenment processes.
What of the forensic audit of the NSE that the SEC has mandated you carry out. What action has been taken?
The forensic audit, I think that has been concluded and given to SEC already. The reason why SEC cannot publish it or give it out is because the people involved have gone to court and filed an injunction that the report must not be released and we have to respect the court. We have also gone to court to say look, these fellows have no right to say we should not release what they did to our Exchange. The report is ready, but we have a court injunction not to release it, so that is why you have not gotten the report.
Do you have the machinery in place to monitor compliance of post-listing requirements for quoted companies?
I believe we do, we are strengthening our monitoring and compliance unit. We are trying to ensure that we have the right calibre of people in there and therefore we are ensuring that we are also developing software that will help us to track the operation of our brokers and ensure that we do not allow them get to a point where we start reacting, we have to be proactive. All these are being put in place.
What is the local ratio of share value traded to GDP?
I will say in Africa today, the average is 42 per cent, in the very developed Exchanges, it goes to about 80 per cent, you can see that we have not even started, that is about 3.2 per cent and this is why all these measures we are putting in place are very essential to rebuild our stock exchange.
Why is it that Nigerian Bottling Company is considering de-listing from the Exchange? Do you think it is in good faith?
Based on the letter or the report they sent to us, we are assuming it is in good faith, but we have agreed on slating a meeting with them on the 17th of January between their Chief Executive and the Chairman.
They are going to meet with the Exchange and SEC to discuss the de-listing request, and I believe it is only after this is done that one will be in a position to know whether it is in good faith or not.
Have you been able to find a way of assisting some of these companies, find out what their challenges are, why they will not be able to meet some of the requirement or processes?
Well I want to say here that, we try to build an Exchange where if you come to be listed, you should know that it is a serious business. We do not want to have a listing requirement that is distinct from what is global. If we want to be taken serious globally, our listing requirement and processes must be global, there’s nowhere else in the world that if listing requirement is not followed the culprit will not be punished. The listing and post-listing requirements must be respected by any company that is listed on the Exchange.
We appreciate the Small businesses that are listed on our Exchange. They must obey the rules. We have actually done what we ought to do to encourage them. We had visited them and we asked them what their problems are, to know exactly what the issues are, but in simple issues like submitting financial statement, there is no way you can tolerate that because this market thrives on information and if the investors do not have information about the listed company and you allow their shares to be traded on, then you are not being fair to them.
This is why we are trying to ensure that every company operating here will provide all the information that is required for the market so that investors can take informed decisions.
We are also trying to ensure that we find a way of addressing this issue relating to small Nigerian companies, to encourage them to get listed and that is why we have the Second Tier Market In that case, we are trying to ensure that, instead of quarterly returns, we are saying make it half-year returns, so that it will be easier for them.
We have advised them on accounting software that will make it easy for them to protect their financials by the press of a button. All these are what our Head, in the Second Tier Market, is doing, going round talking to the smaller companies.
Mr. Binus Yaroe ,General Manager /Head of listing and quotation Department of the NSE,
In terms of the NSE trading platform that is being procured, what is the cost?
It is not possible to give you the cost because we have not yet finalised with the vendor. They have to meet our requirements and that is why we are taking time to buy the best platform that can fit our market and as well meet global standard. The Council has mandated management to engage a vendor in negotiating final price; until that negotiation is done, we will not be able to give you the cost of the new platform.
What is the Exchange doing to reactivate the Bond market?
What are we are doing is to ensure that there is a secondary market in the bond market, we all know that for a long time, the bond market was virtually dead, until about eight years ago when the Federal Government through the DMO reactivated that market by coming back to the market.
In doing that, they put in place a system where the bonds by the government are subscribed to by the primary dealer market makers and unfortunately, the secondary market is left behind in the Over-the-Counter (OTC) trading done between the primary dealer and market maker. In other words, it is just the wholesale traders that are operating the securities market over the counter. We have done every thing possible to ensure that the retail end also participates in the securities market by ensuring that our processes are capable of trading Bonds in the secondary market.
In fact, to demonstrate that, you would have noticed that sometime last year, there were a few transactions in the bond market on our market; those transactions were forcefully generated by the staff of the Exchange. Just to demonstrate that our processes can do it.
Going forward, the new trading platform we are going to procure will be endorsed by the market, because we involved all stakeholders in the selection process to ensure that the platform trade all instrument classes including fixed income instrument. So that is what we have done, put processes in place, put system in place and demonstrate that the Bond can be traded in our market.
Why is it that our interim reporting system is different from what obtains in some other jurisdiction?
In our market, for each quarter, the interim report is disclosed. We are reporting year to date. We don’t expect companies to just state the specific result for that quarter. It is cumulative. For instance, in the second quarter, we expect a six-month result.
Every player in our market knows that. So if you have foreign investors, you should advise them that interim report in our market is year to date, we give first quarter, half year, nine months and a full year audited account. If we look at our format again, anybody reading it will understand and improve on it.
Mr. Onyewuchi Asinobi, Managing Director, Central Securities Clearing System (CSCS) Limited.
Shareholders have been complaining that banks do not allow them to pay in their dividend warrant into savings account. What is the CSCS doing in this regard?
Paying dividend into savings account is a decision that was communicated to all the banks for them to accept dividend warrant into savings account and any bank that is not doing that, is not as a result of Central Bank of Nigeria not approving it. It is probably localised within that bank and if it is taken up, I believe they will comply with that.
Why did the use of share certificate as collateral for loans dropped in year 2010?
Using share certificate as collateral for loans in the report I gave went down, that was expected, during the period under review. The banks were no more loaning, the margin account suffered as a result of the global downturn, it was expected that it should be down because the banks were not loaning any more, so the shareholders couldn’t do much with their shares. We expect that with the introduction of AMCOM, we expect that all these things will improve, that is our expectation.
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