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Reaction to HCCM Planned Listing of Telcos

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November 28, 2011

Today Hon. Herman Hembe, Chairman of the House Capital Markets & Other Institutions Committee released the following statement on the planned listing of economic interest sectors on the Nigerian Stock Exchange.


Key Highlights: 

1.    telecoms and energy sector players to be encouraged to list in Nigeria;

2.    to partner with relevant stakeholders to speed up passage of the Petroleum Industries Bill;

3.    to foster subsequent listing of major upstream players, the NNPC and all other operators in the Oil and Gas sector.

4.    encouraged by the positive comments, support and encouragement so far expressed by captains of industry, the CBN Governor, Media houses and market operators.

5.    to continue stakeholder consultations so that a well informed Bill can be placed on the floor of the House for consideration and passage by 2012.

This is a welcome development and a vindication of the plea from analysts and market operators (see NCM Report 2009, page 66) Nigerian Capital Market Report 2009:

“Companies listed on the Nigerian Stock Exchange do not accurately reflect the GDP contributors and the correct state of the economy given that hugely capitalised firm in such sectors like Power, Upstream Petroleum and Telecom are not listed on the NSE. We can take the example of the JSE where MTN is currently listed as a basis for our optimism and belief that mandating such huge cash-flow based operations in Nigeria to be so listed, would not be changing the rules of engagement as the firms know it. Farther than that, they would afford the investing public the opportunity to be engaged in at least two sectors of the economy considered essential services – telecoms and power; where returns can be expected in a developing economy.

Legislation should be passed and government should compel at least all GSM companies to get listed on the floors of the exchange. It will be a positive development if major telecommunications companies should be compelled by the regulators to list or/and raise fresh funds for its operations. This is more so as major investments are being made across the continent by operators such as MTN, Zain, Vodafone, Globacom and Etisalat. The government needs to pick up the pace to ensure that the sectors like Telecommunications come to the Market to indicate its commitment to the reforms proposed and enhance liquidity in the market.”

This has now come to life now in 2011.

The House and Senate Committee leaders are now working on developing a bipartisan, bicameral bill for approval by the National Assembly to provide depth to the Nigerian Capital market by providing legislation that extends the privatization requirements to ‘national economic interest sectors’ starting with the Telecommunications sector.

There is a consensus amongst stakeholders and experts consulted that Nigeria is a country with strong economic fundamentals, good macroeconomic policies, and a strengthened financial industry who is now undertaking reforms to transform the economy structurally to mitigate the concerns related to our political risk, low GDP per capita, and large infrastructure needs.

The reform effort, aided by revenue from high oil prices, has led to significantly improved macroeconomic outcomes, including weaker inflation and strong GDP growth in the last three years. The robust growth in 2010, in the aftermath of the global financial and economic crisis, underscored the resilience of the Nigerian economy and to some extent, the prudence of its economic policies. Medium-term prospects are also bright, with real GDP growth projected to remain strong and stable at 6.9% in 2011 and 6.7% in 2012.

Notwithstanding these positive developments, the Nigerian economy remains confronted by many serious challenges. Structural imbalance and lack of diversification – with the economy excessively dependent on oil – is preventing the domestic economy from flourishing.

Deepening the reform process is therefore clearly necessary and part of the reform process required to pass legislative reforms that would encourage designated sectors to list on the bourse of the Nigerian stock exchange and according to the House Committee on capital markets – “to pass formal and contractual requirements to do so supported by incentives, unbundling of stringent eligibility requirements that creates high barriers to potential entrants and hinder participation by willing businesses, and adoption of options that promote foreign investment in our economy under terms that supports our national interests”.

The role of the Exchange in raising long term capital is particularly pronounced by the huge infrastructural requirements needed for developing the Country to its full potential in the areas of mining, oil and gas, agriculture, transportation and petrochemicals to name but a few. While alternative sources of capital are available to these industries due to the potential high returns and margins that are characteristic of these industries with an oversubscribed demand pipeline, using the capital market as the funding vehicle provides a win for the companies to raise their required long term capital at highly competitive rates, enabling them to pass on the benefits to consumers, both local and international, at competitive rates as well as facilitating Nigerians to participate in the ensuing wealth creation.

Fact is that our stock exchange is relatively small and unrepresentative of the size of the nations’ economy, underdeveloped, illiquid and operates in isolation from other markets. This is unsustainable while efforts are well underway to address this by the Nigerian Stock Exchange and wider Capital market participants, the government must play an urgent role to address this developmental gap.

Nothing better illustrates the decision of the house than the realities presented below:

1.    The Telecoms sector, with a starting market size of less than a million in 2000, now caters for about 90 million users. The Contribution of this sector to the GDP in Q3 2011 is about 5.7% of the GDP from a meager 0.06% of the GDP in 2002 – making it the fastest growing sector in the economy to date and one that can ensure that participation amongst domestic shareholders would help return retail investors back to the capital market;

2.    Examples from countries that have deployed this process in Africa vindicate the rationale for such a step. Some of this include:

a.    Kenya/Nairobi Stock Exchange – The government passed legislation that compelled multinationals operating in the country to list through its “foreign investor regulation” enacted in 2002. This legislation provided that there would be a 25% minimum reserve of the issued share capital for locals while the balance of the 75% would be for all types of investors. This has since delivered several plantation companies such as Sasini, a prestigious and regional media player - Nation Media, a well known tourism operator - TPS East Africa, an established airline - Kenya Airways and the region's pre-eminent mobile company – Safaricom; on the bourse.

b.    Tanzania/ Dar-es-Salaam Stock Exchange - The government insisted on partial listings as a condition of the award of a mobile license. The exchange started trading in 1998.

c.    Egypt/ Egyptian Exchange (EGX), comprising two exchanges, Cairo and Alexandria, both governed by the same board of directors – saw the listing of Vodafone Egypt, an investment between Telecom Egypt and Vodafone was driven by the  government’s intervention through the National Telecommunications Regulatory Authority (NTRA). But for the ongoing crisis in the country, Etisalat would have been listed.

d.    Ghana/ Ghana Stock Exchange (GSE) – It was the contractual obligation to float that saw Tullow Oil agree to float a token stake on the Ghana bourse.

e.    South Africa/Johannesburg Stock Exchange (JSE) – through the Governments’ Black Empowerment Policy, put in place to encourage foreign investors to list, Dangote Industries Limited’s R1, 129 bn acquisition of Sephaku Cement (the largest single investment ever by an African company into South Africa) had to be listed on the JSE; just as Oando Plc had to undertake a cross listing on the bourse in part fulfillment of the legislation put in place.

3.    Etisalat sometime ago undertook about $250m syndicated loan from about three banks locally confirming that funds can indeed be raised locally in our markets.

4.    According to the House Committee - Preliminary extrapolated figures indicates that the Telcos (MTN,, Airtel, Glo and Etisalat), in terms of market capitalisation could account for an average of N6.76 trillion (MTN – N2.4trillion, Airtel – N1.55 trillion, Globacom – N1.70 trillion, and Etisalat – N1.1 trillion) by Q2 2012 – a figure far higher than the current market capitalisation (of which Dangote Cement accounts for about 35%) of N6.38 trillion as the November 22, 2011.

From the above, it appears obvious what needs to be done in Nigeria and the general consensus is that the reforms we have in mind will address the development gaps observed.

The goal should be to ensure that interventions would not disrupt individual company operations but provide a direct benefit to the local economy which is consistent with the same terms available in other countries.

The key considerations for the house, we hope, will cover the following:

1.    Agreeing that the economic model Nigeria seeks to deploy – an indigenous growth-inclusive measure – will deliver for us an inclusive economic capital market.

2.    The options for listing of such companies – Either listing by Introductions of the Nigerian operations or through secondary/cross border listing of group operations;

3.    Consideration of possible incentives to be introduced to encourage foreign investment; and

4.    Reviews of existing legislation to enable it amend/enact bills that would provide depth to the market by extending the privatization requirements to cascade into the market.




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