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Operators bemoan eight years of inactivity, apathy in primary market segment

By Helen Oji
16 February 2023   |   11:14 pm
The inactive state of the primary market segment of the Nigerian capital market in the last eight years has become a source of worry to operators, leading to apathy as most companies now resort to alternative means of raising capital, especially through bonds and Commercial Papers (CPs).

Personal Assistant to Chief Executive Officer, X3m Ideas Limited, Victoria Buzugbe (left); Creative Director, X3m Ideas Limited, Sola Kosoko; Executive Director, Market Operations and Technology, Nigerian Stock Exchange (NSE), Ade Bajomo; Chief Executive Officer, X3m Ideas Limited, Steve Babaeko; Head of Finance, X3m Ideas Limited, Folahan Salam, Head, Information Security, NSE, Favour Femi-Oyewole; Head of Human Resources/Administration, X3m Ideas Limited, Olasukanmi Atolagbe, and Team Lead Copy, X3m Ideas Limited, Femi Taiwo, at the closing gong ceremony at the Exchange in Lagos.<br />

…Task govt on peaceful polls to rejig economy, revive IPO market…
‘Preference for money market instruments over equities is heightening’, say stockbrokers

The inactive state of the primary market segment of the Nigerian capital market in the last eight years has become a source of worry to operators, leading to apathy as most companies now resort to alternative means of raising capital, especially through bonds and Commercial Papers (CPs).

The stockbrokers expressed concerns about the current high yields on securities and money market instruments, saying such returns impede the rebound of the equities market.

They renewed calls for a peaceful poll that would pave the way for new reforms needed to support economic growth and stimulate activities in the equities market.

According to them, the poor state of the capital market has made it impossible for companies to float shares successfully on the floor of the Exchange, even as they leverage the debt market as an alternative window to raise capital for operations.

They noted that both corporates and retail investors do not have confidence in the market any longer, arguing that the stock exchange will remain uninviting in terms of fund raising and attracting Initial Public Offering (IPO) until the government’s economic policy responded to the challenges currently rocking the domestic economy.

Before the 2008 financial crisis, the primary market for equities was an important hub of activities, and the persistent offering of new issues kept the tempo of market expansion and capital formation for the economy.

The primary market is also where securities are created. In the primary market, companies sell new stocks and bonds to the public for the first time, such as is the case with IPOs.

As of July 2022, debt market size rose to N28.94 trillion, according to reports from FMDQ Securities Exchange. Also during the half-year ended June 30, 2022, six Nigerian companies approached the debt market to issue corporate bonds worth N246.28 billion to boost their working capital.

Reacting to the development, Vice President of Highcap Securities, David Adonri said the capital market has failed to form any reasonable capital for the economy in the past eight years because the primary market segment has been practically inactive without new offering.

“Other than MTN’s offer for subscription targeted at retail investors, the primary market for equities was virtually inactive in the past eight years.

“Consequently, the capital market failed to form any reasonable capital for the economy in the past eight years.”

Chief Research Officer of Investdata Consulting Limited, Ambrose Omordion, affirmed that the dormant primary equities segment of the Nigerian capital market has prompted listed companies to rely on the debt market for fundraising.

According to him, the preference for the money market and debt instrument arises from the fact that returns on such facilities, which are loaned to government or corporate bodies, are guaranteed with high yields for the fixed period of their tenure, unlike stocks which are exposed to the vagaries of market forces as they are traded daily.

He added that if the corporates fail to take advantage of the low rate in the debt market currently, it may increase by the time the Federal government will approach the market to fund the budget deficit.

“I believe that they are not outrightly abandoning the primary market, but also looking at the right time to approach the market since they can not wait forever for the right time to come. They have to take advantage of the disconnection between the rate and what is happening in the market.

“But activities will improve in the equities space immediately after the election and with new reforms from the incoming government to support economic reset that will give the country a clear direction, confidence of both local and international players will improve and there will be a turnaround in the equities space even better than what we are seeing if we get our election right,” he said.

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