How to raise stock market capitalisation through multinationals

Since the 2007-2008 global financial crises, there have been growing agitations for multinational companies operating in Nigeria to list on the capital market, to create employment, deepen the market and make capital available for investors.

Economists have argued that the listing of big corporations in niche sectors of the Nigerian economy, especially the telecommunications and oil and gas companies will significantly raise the capitalisation of the stock market, which had remained slightly above N12 trillion in the past few years.

Market cap is the value of a company on the stock market, and this is one of the factors that attract investors. Rather than the calculation of sales or total asset figures to determine a company’s size, the investment community makes use of the market capitalisation to determine the size of the company on the bourse,

Indeed, sectoral analysis of the market shows that some sectors are under-represented. Indeed, none of the major national aviation company’s shares are traded on the Nigerian Stock Exchange (NSE).

To engender a willingness to participate in the market, the listing rules of the Exchange had been reviewed to make it easier for these companies to access the market and eventually list their shares.

NSE had also provided a legislation that covers incentives, unbundling of stringent eligibility requirements that create high barriers for potential entrants and hinder participation by willing businesses, adopting options that promote foreign investment in the economy under terms that support national interest without exposing the market to past dangers.

Unfortunately, the local bourse has continued to record unprecedented lulls due to foreign exchange (forex) volatility and macro-economic concerns.

This is despite strategies and strict regulatory framework and reforms introduced by the regulators to reposition the market for growth and development as well as increased dividend yields of shares to investors in the last eight months.

Foreign portfolio flows to emerging markets turn negative.

Spill-over effect from China and the COVID-19 crisis, in addition to the fall in oil prices are responsible for poor global equities market performance. The market experienced sustained volatility as investors’ exited positions and speculators went bargain-hunting

The long reign of bears has become a cause for concern to both retail and foreign investors. For the former, the continuous depreciation in stock prices has become a justification for their apathy to investing in the stock market.

The foreign investors, which constitute over 50 per cent of participants in the Nigerian stock market, are holding on to their investments while a few of them with high risk appetite are simply engaged in speculative trading.

Although the first half (H1) 2020 earnings results have continued to spur reactions, pushing the market capitalisation to N13 trillion last week Thursday, economists believe that more needed to be done by the regulators and government to shore up the figures, which is very low compared to other major international exchanges.

The Johannesburg Stock Exchange (JSE) for example, with equities capitalisation a little below $1.105 billion representing over 280 per cent of South Africa’s gross domestic product (GDP), and over 380 listed companies, the New York Stock Exchange (NYSE’s) market capitalisation is about $21 trillion with more than 2,000 listed companies.

A Professor of capital market at the Nasarawa State University, Keffi, Uche Uwaleke, said there is no doubt that bringing multinationals to the Stock Exchange will go a long way in deepening the market.

He said: “I will not support coercion through legislation as a way of making them listed on the Exchange, as that could send the wrong signals and discourage foreign investors.

“Rather, through moral suasion, the government and the Exchange should continue to engage multinationals, especially in the Oil and Telecommunications sectors, in discussions regarding listing including the use of incentives.

“The listing of these telecom and aviation giants would ultimately shore up the liquidity of Nigerian capital market, which will in turn restore the much-needed investors’ confidence. It will help position the market in performing its role of capital formation in Nigeria.

“But many multinationals are reluctant to come to the Exchange because they would not want to be subjected to the disclosure and corporate governance requirements of the Exchange. Some would not want their financial statements subjected to public scrutiny.

“The listing of MTN on the NSE for example, had a salutary effect on the capital market, as it provided opportunity for many Nigerians to be part of the company, and expanded investment options for Investors interested in the Telecom sector.

“Listed companies benefit the economy because the Exchange demands transparency and good governance. The companies become more responsible corporate citizens as tax evasion is made more difficult leading to more revenue for the government.”

Corroborating, the Director, Centre for Economic Policy Analysis and Research (CEPAR), University of Lagos, Prof. Ndubisi Nwokoma, said the multinationals can be encouraged to list their shares in the local bourse through moral suasion and legislation.

According to him, moral suasion could be achieved by relaxing some of the listing requirements such as an adjustment of the minimum float in the market so that their entry into the market can be gradual.

Furthermore, he pointed out that these firms can also be encouraged with tax incentives to list their shares in the local exchange.

“By legislation, new entrants into the Nigerian business landscape could have, as part of their entry requirements, a listing on the local capital market.

“Either way, the impact would be an increase in the size of the domestic capital market, and in the enhancement of the economy,” he said.

Arik Air, one of the largest Nigerian-owned airlines, had in May 2016, announced plans to list the carrier on the floor of the Exchange, in efforts to boost its capital base, and acquire more aircraft, but the proposal was never realised, until it was eventually placed under receivership by the Asset Management Corporation of Nigeria (AMCON), in early 2017.

Arik Air was at one time West Africa’s leading airline operating domestic, regional and international flight networks. The Airline also held a comfortable leading position in the domestic market where it deploys about 80 per cent of its capacity, giving it a market share of 56 per cent, offering about 68,000 one-way seats weekly.

Former President, Association of Stockbroking Houses of Nigeria (ASHON), Rasheed Yussuf, said the listing of these multinationals on the Exchange would enhance the country’s pension funds and leverage the number of investible stocks in the market.

According to him, the effect of pension funds would be visible in the market through listing of multinationals such as Shell Petroleum Development Company, Globacom Nigeria Ltd., Arik, and 9mobile, among others.

Yussuf also noted that most of the pension fund administrators (PFAs) had reduced their exposure in the market since 2008, following global financial meltdown to minimise losses due to fewer blue-chip companies.

He said the PFAs would be forced to increase their exposure in the market with the listing of more bellwethers on the Exchange, adding that pension fund assets could be in the range of 13 per cent compared with the approved limit of 50 per cent endorsed by the Pension Commission (PenCom).

Also contributing, the President, Ibadanzone Shareholders Association, Eric Akinduro, said the government must create an enabling environment and incentives that will attract these firms to list in the stock market.

Akinduro pointed out that most multinationals defy listing on the stock market due to government involvement in private businesses, and urged the government to withdraw from such businesses and show minimal participation where necessary.

“These incentives can come in form of tax holidays, consistent policies, custom tariff, and good infrastructure development. If these and many more are in place, they will serve as a stimulus for them.

“Indeed, active participation of multinationals will boost our capital market, and translate to more income for the government; but without a good structure in place, it cannot work.

“To woo them as I mentioned earlier, we need to have the right policies that will attract them. Our regulators should not over-regulate the market, tax incentives should be encouraged, and the issue of multiple taxes should be discouraged in the market,” he said.

Recall that the listing by way of introduction of 20.4 billion shares of MTN at N90 per share on May 16, 2019, lifted the market capitalisation by N1.8 trillion to close the day at N12.5 trillion from N10.63 trillion the previous day. MTN Nigeria share rose by 10% from N90 to N99 per share after listing on the premium board of the Nigeria Stock Exchange (NSE)
With the listing of MTN Nigeria on the Exchange, the market closed bullish, after eight consecutive days of decline.

Also last year, the NSE announced the cross-border secondary listing of 3,758,151,504 ordinary shares of Airtel Africa Plc .The shares were listed at an offer price of N363 per ordinary share on the main board of the Exchange and at 80 pence per ordinary share on the main market of the London Stock Exchange, the primary listing exchange.

The listing of the company’s shares added N1.36 trillion to the market capitalization, further deepening the Nigerian capital market. It also increased the visibility of Airtel Africa to investors on the continent and across the globe.

Commenting on the listing, the NSE Chief Executive Officer, Oscar N. Onyema, had commended Airtel Africa Plc for taking the bold step to list on the Exchange.

“Listing on the Exchange reaffirms Airtel Africa’s long-term commitment to expanding opportunities and providing everyday services to Africans and Nigerians in particular.

“It also indicates the firm’s belief that our platform, which has a total market capitalization of N25.20 trillion across various asset classes, remains a veritable avenue for raising capital and enabling sustainable national growth.

“This listing serves to deepen the telecoms and technology sector for investors, and provides an opportunity for a wider group of Nigerians to be part of the African telecoms growth story.”

“Today’s listing is a promising development in Africa, with Airtel Africa being the second company to have its ordinary shares listed on both the London Stock Exchange, and The Nigerian Stock Exchange. This gives credence to the successful partnership between the two exchanges. I encourage similarly situated companies to explore the different opportunities for raising capital on the Exchange’s platform,” Onyema added.