‘Reasons for falling prices of equities’

Sony Nwosu is the President, Independent Shareholders Association of Nigeria (ISAN). He has been in the forefront in the fight for the rights of retail shareholders in the Nigerian equities’ market. In this interview with GODFREY OKPUGIE, he spoke on a wide range of issues.

The market is always in cycles. The only worrisome aspect of our market is that, in other climes, the market swings but in our own country, the market is always going down. I will like to blame this on the regulatory agencies – the Nigerian Stock Exchange (NSE) and the Securities and Exchange Commission (SEC). I have always been telling them that if you take people into confidence, they will do certain things that ordinarily they wouldn’t have done or liked to do. But because they are taken into confidence, they will view your taking them into confidence as a mark of respect or regard for them. This market (the Nigerian stock market) that we are talking about started around 1961 and it was built by Nigerians because all the companies – Guinness and a few others that were the first set of quoted companies– came up and asked for money from Nigerians to continue in business.

And if SEC and NSE that are run by our own people do not regard us, they too should not expect respect from us.

I have had this argument continuously that NSE and SEC do things arbitrarily without even considering the small shareholders who sustain the market. The fact is, these retail investors may not have much money as the foreign portfolio investors, but without them, there will be no Nigerian Stock Exchange, whereby the foreign portfolio investors will come and invest. That is very obvious and I have told them time without number to introduce measures to protect the interest of this large group of retail investors and that protection is not done by only controlling the market movement. I told them to give the teeming retail investors a sense of belonging.

Now, what is happening in the market is that, if any of the foreign portfolio manger sells off his shares, which of course is in millions of naira, Nigerians too will say, well, because these foreign shareholders are closer to the regulators and they (the foreign shareholders see the regulatory agencies’ officials regularly; and the regulators always tell them what they want to do than telling us (the retail shareholders), since they (the foreign investors) are selling off their shares irrespective of the fact that they may have been selling the shares in order to have money to transfer to their country, the Nigerian investors too will start dumping their own shares. By the time you have more of supplies than people are buying, definitely the prices will continue to go down.

On calls on shareholders to enrol for e-dividend

To simplify the whole exercise, we advised SEC and NSE that since it will be difficult to get the man living in the rural area to come to Lagos or go to the bank to comply with all the requirements for e-dividend, it would be better to request the shareholders to send their account numbers to the registrars.

But one other thing that is hindering the shareholders from embracing the idea is the processing of the mandate form at the bank. When the shareholders go to the bank, the bank will charge them money for signature verification, in addition to other charges. To us, these are too punitive probably for a man who unfortunately invested in a company that has not paid dividend for a very long time.

How can an investor who has not been getting enough income from an investment be asked to spend his money to transport himself from the rural area to the bank to get signature verification and fill in an e-dividend mandate form?

All that SEC is doing now by engaging in road shows, spending money and doing jamboree, going about at the expense of trying to attract shareholders to embrace the e-dividend will not work. The retail shareholders do not have confidence in the regulators. They will say: Why will I waste time and money to go and enrol in e-dividend? Look, the share prices are falling. Let me sell off my own too to recover whatever I can so that I can put it in another business. They do not have confidence in the market any more.
All those who got shares from the privatised companies in the north during the time government privatised its enterprises have not been claiming their dividends and many of them do not even know that they had shares. Not only in the north but all over the six geo-political zones in the country.

The other thing not noted in the e-dividend requirement is that it is not compulsory that you get your dividend through e-dividend. If you do not give your own approval for e-dividend, the company is legally binding to send you your dividend in hard copy.

Some shareholders, because they want to enrol for e-dividend, go and borrow N10,000 and transport themselves from the rural areas to the city, and the banks would say ‘‘we want to verify your signature pay N2,000 or N5,000.” Such shareholders will just say after all, there is no law holding me if I do not do all these things, why bothering myself, how much dividend will they pay me?”

This is the time for government agencies to come in and help the companies to come to profitability. It is the companies that make profits that will pay e-dividends.

Isn’t the poor performance of the quoted companies most responsible for dumping of shares?

I have been in the market for 46 years. My intentions of going into the market were, first, as a savings point. When I went into the market, it was a saving point. I didn’t borrow money to go into the market to start getting shares.

In those days, some companies like Guinness and others used to pay three dividends –interim, mid and final. In all these, the dividends were not more than five kobo.
For the listed companies to be able to operate successfully, government has to intervene. The SEC is a government agency. What they need to do is to reduce the companies’ burden so that they do not continue to use the little capital and profit they are making to establish their own electricity and provide infrastructure.

This is very important because what consumes the companies profits are expenses on energy and other infrastructure which of course government should be able to provide from the taxes that these companies pay. The government does not spare them on taxes and yet they use the little money that is left after paying taxes to provide their own infrastructure.

If the government cannot provide the required infrastructure, it can make taxation to be liberal on the companies. If taxation is liberalised, the companies will genuinely come out to pay their taxes rather than looking for ways to cook up books to avoid paying correct taxes.

Investors’ protection funds

Investors’ protection funds, to us, is non-existent. We have made calls, we have granted interviews, and we have asked them to publish the modalities for accessing the funds because we have not done anything about it, we are only hearing about it. We also heard that the shareholders are represented at the board, but up till now the person representing us at the board has not talked to us and there is nothing to show that he is actually representing us there. We did not give any person mandate to represent us, we did not know how he got there. Whether it was part of Nigerian factor by SEC or so, we don’t know.
On intervention funds
They have been clamouring for N200 billion intervention funds. The stockbrokers that have been asking for the N200 billion funds, are they going to share it among their clients from whom they had collected transaction fees? In every transaction with their client, they collect transaction fees from them. At the point that the clients are buying shares, let assume the share is going for N2 and I want to buy 100 shares, which will be N200, but I will pay more than N200 to the stockbroker because I have to sustain the broker in business with certain percentage of the total of the transaction amount. Automatically, if price depreciates, it is the shareholder that will sustain a loss. If it appreciates, it has to get to a certain level of appreciation to be able to take care of the transaction cost and the fee that was paid to the broker.

Now, the market operators and regulators have never thought it necessary to plan how they should do things properly, rather they are planning how to get tax payers’ money in form of intervention funds to mop up the shares in the market and after a while, those who use taxpayers’ funds to mop up the market will start throwing into the market 50 shares. And after the shares are sold, they will jack up the price, and then throw in another 50 shares and jack up the price again until they make as much money as they want at the expense of the investors. The market operators have gone a step further to suggest to SEC that they should use the sum total of the unclaimed dividends to push up the market. I regard this as unethical because, like a lady said in a recent press interview conducted by The Guardian that the unclaimed dividend has a life of 12 years, when that 12 years expire, and the money reverts to the company, how can such money be used to push up the market?

It is the same regulatory authorities that have overlooked the 12 years lifespan of a dividend by asking the registrars to transfer whatever is with them as unclaimed dividends to the companies that issued the dividends even before the 12 years stipulated by law, and that the companies should put the amount involved in an Escrow account, so as to prevent the registrars from using the money to make more money.

Our association frowns at such initiative. At the time SEC was pursuing to take over that money, what would they have done with it?

Way forward

We have to do a rethink. The regulators should engage the stakeholders, especially the retail shareholders, because it is not possible to get all of them – over 10 million shareholders in this country. You can use points of contacts, through their various associations, the genuine ones, because we have some fake ones that do not have followers but are claiming that they are shareholders’ leaders. Other means to reach the investors are newspapers and TV houses to restore the people’s confidence in the market. And when the confidence is restored, people will continue to hold on to the shares they have and which they were contemplating to sell. Some will begin to buy more, and by so doing the excess shares in the market will dry up and prices will begin to rise.

Using an artificial means to force up the prices of shares through intervention funds is not what will solve the problem. If it was so, the market makers that were created some years ago have not been effective because they do not want to use their funds to buy.