How to spur development, IPO resurgence in Nigeria
Experts have charged the Federal Government to restrategise to address the current macro economic concerns impeding the nation’s economic stability and promote issues of national development.
According to them, this would help tackle the prevailing stock market volatility, restore the market to sustainable rebound and attract new issues to the nation’s bourse.
They stressed the need for the government to develop focused strategies that will economically empower indigenous firms and multinationals, as well as stimulate their investments’ interest.
The experts, who described the relaunch of Initial Public Offering (IPO) as the only option for capital market stability, however, maintained that the offerings cannot thrive in an environment where the secondary market is not vibrant.
They pointed out that IPOs’ resurgence would deepen the market and make it capable of providing the needed funds required to fortify the equity standings of several listed companies that are now in the clutches of debt overhang.
Furthermore, it would boost the Nigerian stock market’s average, in terms of volume of activities and contributions to GDP, which is currently rated low when compared to other emerging markets’.
In 2007 and 2008, IPOs were common before the market witnessed a downturn and companies shunned the capital raising strategy, embracing mostly rights issues and bonds.
Analysts said that the overall weak macroeconomic scenario, sustained negative market sentiments in the past few years, coupled with tensed socio-political space, has not encouraged successful primary market activities.
Specifically, Partner, White & Case, London, Jonathan Parry in an interview with The Guardian at the just concluded Deloitte Nigeria IPO Master Class workshop held in Lagos, recently, stated that investors are worried about Nigeria’s macro economic concerns.
He pointed out that the market would record IPO revival if the government would to come up with an appropriate policy framework that would explain its economic direction as well as align fiscal and monetary policies, especially, where there are disconnects.
“Investors are worries about Nigeria macro economic concerns. We need more clarity, more direction because if we move in the right direction, with disclosure and guidance, more foreign investors would become more active in the market.
“Liquidity is the first reason, many wonderful companies want to invest but because of the illiquidity in the market, they are holding back their money.
“Foreign investors are not comings not now but coming in and if we can fix some of these issues, I would hope we should see more activity on the exchange.
“The problem with Nigeria is not investors base, it is not a matter of quality of companies because the companies are great but it is actually about volatile economy, another biggest problem that we have is the gap in valuation, are investors willing to buy, that is what is stopping companies from coming to invest.
“Nigeria has many opportunities in terms of potentials in the countries, the demographic and potentials of businesses but have other market concerns and as a result investors have a price to pay.
“If the regulators could become more market-friendly in terms of capital coming n and going out, to encourage foreign direct investment to come in and free-flowing expatriation of dividend and other wise, things can make a difference. But the major thing is if we can get investment actively in growing companies,” he said.
An investment analyst, Johnson Chukwu, argued that several reasons entice companies to list on the Exchange, including the expectations that the market will appropriately buy them and place a premium to the intrinsic worth as a lure for investors to trade on the equities.
“Again, there should be liquidity in the equities market so that people can actually buy and trade their shares. Lastly, the listing will give them better access to credit.
“Unfortunately, in a bearish and dampened equities market, these factors are not present. Until there is a significant recovery in the secondary market, one should not expect a re-launch in IPO.
“The economy is weak and the market pricing reflects earnings’ capacity of companies, which now has been weakened by inflationary period the economy had witnessed.”
He attributed the weak economy to hostile and inconsistent macro-economic policy and regulatory environments and lack of transparency in economic management.