•Nigeria lags South Africa, others in new listing
Operators have renewed calls for market reform that would help reactivate the primary market segment of the capital market and stimulate fundraising through an initial public offering (IPO).
The operators, while speaking on the outlook of the market and how to sustain current growth, argued that since the secondary market is already overheated, attention needs to shift to the primary market to boost capital formation.
This comes on the heels of strong indications that money market investments are flowing to the equities market even as speculative trading in foreign exchange ebbs out.
Barely two months after the stock market crossed 70,000 mark to hit 70, 589.76 in November 2023, it exceeded 80,000-mark on January 8, 2024, to close at 80,328.58 points.
At the close of trading on Tuesday, the market witnessed an unprecedented rally that propelled a surge in market capitalisation by N1.57 trillion as virtually all the stocks recorded price appreciation. Operators said the current bullish trend may not be sustained without new companies floating IPOs and bonds to create new securities.
According to them, the stock exchange will remain uninviting in terms of fundraising and IPOs until there is a policy response to the challenges currently rocking the domestic economy.
There are two ways through which companies can get listed on Nigeria Exchange Limited (NGX) – IPO and new listing. While an IPO is a process by which a company offers its shares to the public for the first time, a new listing is a process in which a company already listed on any other stock exchange approaches another exchange for dual listing.
Vice President of Highcap Securities, David Adonri, said the market has only been functioning on the investment side, giving investors some level of profits, and creating liquidity. This, he said, suggested a reasonable level of safety, while capital formation has been non-existent.
He pointed out that with the current state of the secondary market, which is already overheated, there is an urgent need for attention to turn to the primary market to soak away pressure and boost capital formation.
Adonri stated: “A market is overheated when the price of securities continues to surge ceaselessly. At this stage, the market is no longer reacting to the fundamentals of the securities.
“Since the secondary market is already overheated, attention needs to turn to the primary market to soak away pressure and boost capital formation.”
He said there was a need for the government to focus on tackling rising insecurity in Nigeria as well as increasing production of goods to boost investment and create a more vibrant economy.
Before 2008 when the government privatised lots of enterprises, the capital market served as the platform through which those exercises were carried out and that was what triggered the boom in the stock market during the period.
For instance, the number of securities listed on the Exchange increased to 293, up from 287 in 2005. In 2007, the number of securities rose to 312. This brought the number of listed government stock, industrial loans and equities to 6,238 and 212 respectively.
However, the number declined to 170 as of November 2020, with eight domestic companies on the premium board, 144 companies on the mainboard. As of April 2023, it declined further to 160.
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.
An independent investor, Amaechi Egbo, explained that the government should make listing in the nation’s bourse less stringent and consider abolishing withholding tax on dividends.
According to him, there was a need for the government to also provide more incentives to companies that are listed on the stock exchange. A look at other exchanges showed that NYSE has a total of 2,800 listed firms as at March 2023 while NASDAQ and India have 3,700 and 5,215 firms listed on their exchanges. Also, the Johannesburg Stock Exchange and Egypt have a total of 294 and 240 listed firms.
