This piece attempts a review of the global situation in the IPO market, seeking to use comparative insights and analysis to understand the realities of the Nigerian bourse, and identifies why the current situation offers Nigeria a unique opportunity to clean house and rebuild a more virile primary market.
The IPO market in 2012 is expected to be much stronger than anticipated in some countries while the same story cannot be told of other countries as the primary market (IPO market) in 2011 left much to be desired; indicating that the raising of fresh capital is either on hold or still far from such markets due to their rate of recovery from the global financial crisis (and in some specific climes, internal issues related to depth, liquidity and lagging economic conditions).
Stock markets over the years have played an integral part in enabling businesses raise capital to expand and grow their businesses. Activities in this regard have however been lethargic in the aftermath of the global financial crisis.
The questionable account of IPOs is definitely about to change in some markets despite the general pessimism and underperformance of many popular offerings in 2011. Year 2012 is forecast to see some very exciting underwriting activity with more than 200 companies waiting to go public.
BATS Global Markets which was founded in 2005 first filed to go public in May 2011 and plans to raise up to $100 million through the offering. Facebook which has an estimated $100 billion valuation is one of the many IPO debutantes whose shares will be in high demand.
While cities such as London, Dublin and Stockholm have proven fertile grounds for nurturing business, listing in the US may gradually drive operations there too; depriving Europe of the full fruits of its tech boom.
The growth is not of a Western focus alone as the IPO market in Korea is also poised to attempt a recovery in 2012 with about 70 companies led by Hyundai Oilbank waiting in the wings to go public following disappointing performances in 2011.
The Indian market has witnessed a five IPO offerings thus far in 2012 while the amount raised in the market keeps fluctuating - 2010 being the best/highest to date based on available data.
Throughout the period under review, 2012 recorded a 100% success rate.
The Nigerian Situation
A cursory look at the Nigerian Capital Market indicates that the IPO/primary market was less active in 2011 and has remained the same till date; leaving the market to present an activity base around ‘listings by introductions’. The market is severely challenged and despite well-intentioned efforts by market regulators and operators, has failed to gain traction. The reasons are well documented.
In a recent news analysis, the structure of the Nigerian market was revealed to have changed composition, with the retail market, all but dead; and now dominated by foreign institutional investors. These set of investors made a quick getaway from the Nigerian stock market between 2008 and 2009 at the peak of the global financial crisis, but have now increased their dominance of the market, accounting for 81 per cent of total value of traded stocks in 2011.
In its March report on the Nigerian economy, Financial Derivatives Company (FDC) indicated that despite the negative returns from the stock market, foreign investors have continued to take advantage of the low valuations to make returns.
Here is a table reflecting the activity structure in the market.
Majority of the companies listed on the Nigerian bourse between 2008 and 2010 are currently trading below their listing prices with the exception of very few firms that are trading a little above their listing prices.
The Brazilian market, well known for its boisterous level of IPO activity is reportedly facing a hard year as well.
While most markets have gradually continued to recover from the global financial crisis of 2008, IPOs remain out of favour. Just as well, IPOs can be a risky investment under these conditions and the market has to confront the ‘chicken or egg’ dilemma it has found itself.
Individual investors clamouring for an immediate return to a bubbling IPO market are equally cautious given the tough climate and the inability to predict what the stock will do on its initial day of trading and in the near future since there is often little historical data with which to analyze the company.
For us in Nigeria, an opening may yet exist should we find the political will to advance a growth inclusive economic model for the rebirth of the capital market by encouraging through regulation backed incentives; the linkage between growth sectors of the economy, addition of privatised entities and new PPP structures with the capital market.
Indeed, we have a unique opportunity to create a bottom-up restructuring of our market to eliminate ‘hot money’ and a ‘preponderance of speculators’ from our market and usher in a new era.
Time is however running out for a decisive action that will halt the drift.
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