By Goddy Egene with Agency Reports
Buoyed by positive company results and renewed foreign interest in Nigerian equities, the stock market recorded its highest weekly gain in six months, rising 10 percent after five days of trading.
Share prices posted their steepest weekly gain in almost six months after United Bank for Africa Plc and Consolidated Hallmark Insurance Plc both announced increased earnings.
The market rally is coming on the back of efforts being made by stock broking firms to negotiate and restructure their exposure to banks that lent them margin loans for investment in stocks.
The All Share Index of the Nigerian Stock Exchange rose 3.7 percent yesterday to 23,516.06, bringing its advance in the past five days to 10 percent, the biggest weekly climb since November 14, 2008.
But the ASI has still slumped 25 percent this year, making it the world’s worst performing stock market.
The market is “beginning to claw back,” Matthew Pearson, an analyst at Renaissance Capital, a Russian investment firm with an office in Lagos, wrote in a note yesterday. “Outperformance is delivered to those companies that deliver the greatest transparency.”
UBA, Nigeria’s fourth-biggest lender by market value, advanced 62 kobo, or 5 percent, the maximum one-day gain allowed by the exchange, to N13.04, according to bourse data, for an increase of 22 percent in the past five days.
The bank, Thursday, announced an increase in its net income by 8 percent to N19.9 billion naira in the six months through March.
Consolidated Hallmark, a Lagos-based underwriter, also on Thursday reported that first-quarter profits had advanced by 45 percent. Its stock closed unchanged at N0.50 in yesterday’s trading.
Rencap is leading a pack of foreign investors showing renewed interest in Nigerian equities which have declined in value by several percentage points in the last year.
The investment bank, last month, raised the allocation of equities in its Nigerian portfolio to 30 percent from 10 percent.
Access Bank Plc, Diam-ond Bank Plc, Guaranty Trust Bank Plc, United Bank, UAC of Nigeria Plc, Niger-ian Breweries Plc and Guinness Nigeria Plc are among the brokerage’s top 10 picks.
In a related development, efforts to turn around the stock market may soon yield desired results as banks have begun to restructure their credit exposure to stock brokers to make way for longer repayment periods.
The stock market has been on a prolonged bear run since March 2008. Apart from the exit of foreign investors due to the global credit crunch, the market took a massive hit when banks, mid-2008, hurriedly started calling in margin facilities lent to stock broking firms.
While the Central Bank of Nigeria (CBN) has put banks’ exposure at below N1trillion, the Chartered Institute of Stockbrokers (CIS) put total exposure at over N1.5 trillion.
The CBN had approved the restructuring of the margin loans till December 31, 2009. But CIS at a meeting with the CBN last February proposed a restructuring of the loans into term loans repayable in five years or more.
CIS was of the view that until the loans are restructured into term loans, the stock market would remain under pressure as investors and would continue to sell to repay their facilities.
In some instances, some operators (stock brokers) had canvassed a repayment period of seven years with a two-year moratorium.
However, while no collective agreement has been reached on the terms of repayment, THISDAY learnt that Intercontinental Bank Plc may have made a definite move to agree to new payment terms with stock brokers.
It was gathered that Intercontinental Bank has agreed with stock broking firms to which it extended margin loans, that facilities in the region of N500 million and above be repaid within a period of four to five years, while those below N500 million be repaid between two and four years.
It was further agreed that a uniform 15 per cent interest rate across board will be applied on the facilities by Intercontinental Bank.
“The thinking is that it is better to restructure the loans into term loans instead of foreclosing which would be costlier for the banks. Besides, the value of the shares, which serve as collateral have been eroded, so what’s the point in holding on to share certificates that may not amount to much,” a source conversant with the deal said.
In accepting to restructure the loans, said one analyst, banks on their part are accepting responsibility that they lacked an understanding of the risks associated with margin lending and market fundamentals.
Given that several banks have already started writing down their bad loans, and all banks are expected to adopt international accounting reporting standards (IFRS) and a common year end by December 31st 2009, it is uncertain if the CBN is being kept abreast of developments between banks and brokers.
However, market sources said that it is unlikely the CBN will stop them because the new terms agreed with stock brokers shouldn’t deter the banks from making the necessary provisions for non-performing loans by the end of the year.
“The latest measure being adopted by banks and stock broking firms will give them (stock brokers) some rep-rieve that will enable them raise fresh funds and take advantage of low priced stocks in the market,” an analyst said. -Thisdayonline