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Avuru: Government must stimulate private sector growth to attract more IPOs 


Austine Avuru

Co-founder/Chief Executive Officer of Seplat Petroleum Development Company Plc, Austine Avuru, in this interview with HELEN OJI, enumerated benefits of getting listed in the Nigeria Stock Exchange, what government must do to strengthen and grow the private sector, as well as, steps to take to encourage entry into the capital market.

In about a decade, less than five firms have approached the Nigeria Stock Exchange for Initial Public Offerings (IPOs). What inspired your firm’s decision to take this step, where it recorded a 100 per cent subscription at the peak of apathy in the market?
Our inspiration really was that we wanted to start on a regulatory platform that will impose on us, the highest level of corporate governance and that was why we did not only list in Lagos, we also listed in London, which is truly difficult.

In the United Kingdom, they will not allow you list by introduction, probably we would have listed by introduction. You have to come in and raise funds, and there has to be an IPO before you can predetermine how much you want to raise. And if you are unable to raise that kind of money, you have to pull the IPO and that is how stringent it is. So, we set out to raise $500m. The full subscription was over $700m.

To specifically answer your question, our real motivation was to put the company on a platform that forced us to comply with international corporate governance standards. So, when you look at our governance standards; when you look at our business report standards; disclosure standards, they are up to international standards and in the past four years since we listed, as you can see, we have moved up to the Premium Board of the Exchange (PBE).

There are seven companies in the PBE and none of them is less than 20 years old as a company. Four years old after listing and we are in the PBE not just because our market capitalisation is higher than 200 billion market capitalisation, which is one of the qualifications, but when you look at our governance standards, we have been properly evaluated on governance standards (including all the directors taking written exams) before we came into the premium board. So, what we have achieved today is exactly what we set out to achieve to ensure that we build and run a company with the highest standards of corporate governance.

Within this period, were there exclusive strategies that your firm adopted, which availed you the 100 per cent subscription?
When enlisting particularly in the UK, it is likely different from here because you are targeting mostly institutional investors, but here in Nigeria, we targeted institutional investors and high net-worth individuals. So, the key thing is how you market your prospectus. However, we did a road show around the world- in the U.S., the entire Europe, South Africa and in Nigeria, and so we got a sizeable number of institutional investors and high net-worth individuals that believe in our story, and our prospects, and when we finished the road show and did the offer, we got about 40 per cent subscribers.

Seplat has been enjoying tax relief as a pioneer status from its six oil blocks since acquisition in July 2010. It’s now eight years after, do you feel you still deserve such tax holiday, including an extension considering the amount of revenue being lost to government on account of this?
We do not. We had pioneer status for only three years, that is, from 2014 to 2017 and after that it expired. During the period that we enjoyed it, you can see what we did with the extra revenues generated. Within that period, we built 375 million scores of gas processing capacity. No other investor has put in more money in gas processing in that period of time than we have done in this industry.

Stakeholders are alleging neglect of the capital market by the Federal Government. Do you agree with this, in the light of what is happening in other sectors?
The capital market should really be shielded from interference by the Federal Government. You have the Securities and Exchange Commission (SEC) as a regulator, which is equivalent to UKLA in the UK. The NSE in fact operates almost like a coded company of its own, runs its own account, and so should be independent. Now, what we should really strive at is two things: drive the size of a nation’s capital market, and the size of the private sector in the country.

Until 20 years ago, the private sector was a very tiny segment of the economy and the government controlled everything from banks to even hotels. So, you see that the private sector since 1990 has been growing almost at the same pace as the Federal Government, and the government is even withdrawing from business. Put differently, almost a good chunk of the private sector, as you know it today developed out of the privatisation programme. As government was withdrawing, the private sector was coming in, and with the government withdrawing, we will succeed. Some have already succeeded, while some have not. So, the summary of what I am saying is that we are going through a transition that is going to last for a long time during, which the private sector will have to reinvent itself, and create proper governance structure because that is what creates and sustains the life of any company or institution. It is not about short-term profit.

First of all, government must be committed to withdrawing from business. So far, it has done so well, but there are still areas like petroleum refining and a few other segments where government is still involved, but when government completely withdraws, and the private sector takes over, the next stage would be for the private sector to reinvent itself in terms of proper governance and rules as it is growing. It is such companies that would seek assistance from the stock market either to raise money, or to create liquidity in their businesses.

These are the key reasons why we have to commit to proper governance processes. However, there are still a lot of Nigerian entrepreneurs that would prefer to keep the power of the private company to themselves without all the hassles of a listed company in terms of reporting standards or governance standards because they are quite strenuous.

So to summarise, I would say that it is not about government doing anything, if there is anything that government has to do, it is for it to stimulate the growth of the private sector. As the private sector grows, you will see the entry of more private sector companies into the capital market.

How do you think government/regulators can attract IPOs in the market?
All that government needs to do is to first of all stimulate the growth of the private sector and it can only do that by withdrawing completely from business, and always coming up with fiscal rejigs both in tax terms, fiscal and monetary policies. Those are the only two instruments that government can use to stimulate the growth of the private sector.

For instance, what kind of custom’s salvage structures are in place; how much protection does it offer without offending WTO rules? How much protection does it offer those who are doing business here? How much of credit is available to the private sector to expand from the banking sector, and at what cost are they borrowing? Is it at 22 to 28 per cent? If that is the case, then the private sector cannot grow because competing countries are borrowing at single-digit interest rate.

So, those are the key issues and once those are tackled, then you will start seeing major growth in the private sector and increased entry into the capital market.

Of what impact is Seplat’s being listed on PBE to shareholders?
When shareholders invest in any company, they are placing a bet on two things- the competence and integrity of the board and management. And so for us, listing the company is to further increase the confidence that investors have in our level of governance.

Like I just said, any investor in a business is placing a bet on the competence and integrity of the firm’s management as integrity is about governance, while competence will produce results that will be open to everybody in terms of the bottom line. Improved turnover and revenue, payment of dividend, capital appreciation on stocks all come with competent management and integrity of the board and management. Therefore, the integrity of the board and management, in addition to that competence is what every investor places a bet on.

So if you list a company, you are already telling potential investors that you are prepared to be scrutinised by investors and the scrutiny that comes with listed companies. That in itself heightens their level of confidence in the integrity and competence of the board and management.

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