Friday, September 16, 2011 / Jude Fejokwu
Most of us have heard the statement: "Hell hath no fury like a woman scorned." What happens when shareholders feel scorned? Ever thought about it? Can a market progress consistently when shareholders move from relevance to irrelevance and back with random abandon?
The market has so far defied the hyperbole of sell-side analysts, the "wonderful" results of banks whose sentiment drives our market, Asset Management Company of Nigeria intervention and the supposedly cheap nature of most stocks. Why? Why are shareholders disillusioned? The stock market ofZambia (another commodity based economy) is doing well and so are Tunisia and Ivory Coast that have experienced political turmoil of extreme proportions this year. Even Kenya that has fared worse than Nigeria in terms of market performance as of September 15th, 2011 has attracted fresh listings of significance this year. Are we focusing on the wrong things and ignoring the most important? We will not join the train and postulate as to exactly why the market is obeying the law of gravity for the past nine months with a few rest days in between. What we intend to do is point regulators and other decision makers within our capital market to an area that requires an intense look at and may very well hold the key to our stock market getting the attention and respect we seek in the Frontier Africa space. We need to earn it and not just demand it because of our populous nature.
Majority of shareholders (not by shareholding but by investors) have been treated unfairly most especially over the past five years (2007 -2011) and counting. They are left alone to bear their pain under the guise that financial markets are risky. This is not in doubt or in question. Their pain comes from the financial structure and system in place supposed to protect them either ignoring them or working against them. This compounds their losses beyond the typical investment risk scenario. This is similar to non-systematic risk applicable to stocks. We will mention just a few capital market sins against investors in the Nigerian market crying to a higher being for vengeance in no particular order and leading to the abandonment of our stock market by shareholders and even companies.
1. Funds locked up in private placements of companies; the funds were largely provided with the belief that they would list within a year of placement closure. Till date nothing has happened.
2. Shares of Oceanic Bank, Fin Bank, Intercontinental Bank and Union Bank are being canceled and reconstructed to the benefit of the acquirers and not the shareholders. How can our capital market progress when shareholders suddenly are just a passing thought?
3. Funds lost in one fell swoop by shareholders in Afribank, Spring Bank and Bank PHB. What will happen to dividends outstanding that have not been claimed by owners? Have the dividends also gone up in smoke?
4. Stockbrokers charging commission on trades higher than the account owner expects; money is rarely refunded if the account owner ever finds out.
5. Shareholders being denied access to Annual General Meetings because the board has brought in mercenaries (abuse of the proxy system) to fill their spots. No one talks. Money keeps talking and everything else including most people's mouths especially those that can make a difference given their positions remain shut.
6. Sell-side analysts telling investors to sell when they want to buy and telling investors to buy when they want to sell and telling them to buy when they are staying clear. The shareholders get burned and complaints fall on deaf ears. We are not saying money is not supposed to be lost. What we are saying is no shareholder wants to be purposely mislead. The goal is to avoid losses and not to seek out losses.
7. Registrars putting so many stumbling blocks that make investors lose interest in claiming some of their dividends. “I need your confirmation of signature etcetera before we can issue you a check”. The shareholder looks at all the cost implications against the small dividend and abandons the dividend. Others feed off of it and earn interest. The owner is denied while third parties gain.
8. Manipulation of certain stocks upward and downward. While the shareholder should be happy with the upward manipulation, it distorts the market and comes back to haunt the shareholder in the not too distant future when the noose is loosened. On the downward side which is pretty straight forward, shareholders lose money because of other people's personal agendas. In addition, some stocks' prices being managed within a certain narrow band, thereby creating more inefficiencies in our already aptly labeled frontier market.
9. Annual reports (company financials) are hoarded, hidden and in more than enough cases denied to shareholders and other stakeholders. Why should I invest in a company that is not forthcoming with its earnings and refused to shed more light on its operations other than when it goes cap in hand seeking funds? Shareholders go about buying stocks that the true state of affairs is not known to them; not for like of trying in some cases, but due to withholding of vital information by the public company in question. The Securities and Exchange Commission asked all public companies to put their annual reports on their website on or before June 13th, 2011. How many listened?
10. Auditors have given a clean bill of health to banks and non-banks over the years whose true state of affairs were far different from that portrayed in the financials. What happened to them? Nothing in most cases, and a slap on the wrist in a particular case... What stops the continued release of company financials that do not depict the true state of affairs if you will not get caught and even if you do, you will be treated with kids gloves? Just like the bible is the GUIDE for Christians, the Annual Report is the GUIDE for shareholders.
When it cannot withstand the scrutiny test, the core of the existence and belief system of shareholders is being messed with.
Shareholders now see a bright light through the emergence of independent research which is gradually gathering more followers and advocates across the country. How ready are we to free our capital market from the grip of investment banks, stockbrokers, politically connected individuals and the journalists that have been compromised to misinform instead of inform? Any market that is run by vested interests for vested interests through vested interests (generality of shareholders not inclusive) will talk a lot and DO LITTLE and the little done will not have the desired impact; because, the generality of SHAREHOLDERS have not been carried along or are considered irrelevant in the grand scheme of things when they are not.
There is power in numbers; we tend to focus on the money part which grants power and forget about RESPECT for shareholders and regulations on which the development of any stock market depends on. There is a lot more to say but I will end it here for now with this.
We recommend that the 5% upward and downward price ceilings in our market be immediately removed. The perennial liquidity issue will be significantly improved and the market will respond more transparently to the forces of demand and supply. Secondly, short-selling should immediately be approved for every stock with a market capitalization of at least $50m as of September 30th, 2011. There are more short-selling details which we will not go into through this medium. Trust me, a good amount of the stranglehold on our market will be immediately freed with these two actions. Then we are on course. New products, new listings will in our opinion not do much to our market (from a performance and participatory standpoint) until a new found respect is entrenched in our system for shareholders who have been abused and used over the years. Remember, when it comes to the stock market, hell hath no fury like a shareholder scorned!
P.S. - We remain independent analysts and not advocates strictly speaking. When we analyze companies, industries, the stock market etcetera, we come across scenarios like the above that given our business philosophy, we feel obligated to bring to the fore for all and sundry.
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Jude Fejokwu. Principal Analyst. Thaddeus Investment Advisors & Research Ltd., 01-899-0959.