MPC rate slows over N200bn cap­i­tal raise by cor­po­rates

In­di­ca­tions are be­gin­ning to emerge that most cor­po­rate en­ti­ties may not con­tinue with their planned debt cap­i­tal raise this year, in the face of the cur­rent mon­e­tary pol­icy rate at 14 per cent and trea­sury bills which hover around 18 to 19 per cent.

Daily Trust - - NEWS - From Sun­day Michael Ogwu, La­gos

Penul­ti­mate week­end, the Cen­tral Bank of Nige­ria (CBN) Gov­er­nor, Mr. God­win Eme­fiele, was quoted as say­ing, the bank would be fail­ing in one of its key man­dates if it cuts the Mon­e­tary Pol­icy Rate (MPR) at this time.

The com­ment by Eme­fiele, which came be­fore the CBN’s 257th MPC meet­ing, sig­nals the likely po­si­tion of the bank for the fore­see­able fu­ture, per­haps, till full year 2017.

The lull in the eq­uity mar­ket in the last few years has paral­ysed eq­uity cap­i­tal rais­ing ex­er­cise in the cap­i­tal mar­ket.

There was an ex­pert con­sen­sus by the sec­ond half of 2016 that the macroe­co­nomic chal­lenges in the coun­try as well as the level of de­pre­ci­a­tion suf­fered by the na­tion’s cur­rency, will com­pel more com­mer­cial banks to seek for av­enues to beef their cap­i­tal in 2017.

A La­gos-based in­vest­ment and re­search firm, CSL Stock­bro­kers Lim­ited, in one of its re­ports high­lighted the im­por­tance of rais­ing the funds as it is ex­pected to en­able the fi­nan­cial in­sti­tu­tions with­stand any shock in the in­dus­try as well as to re­main above the reg­u­la­tory thresh­old.

Cap­i­tal ad­e­quacy is a per­sis­tent is­sue for a num­ber of Nige­rian banks. Reg­u­la­tory cap­i­tal ra­tios have been im­pacted by the large de­pre­ci­a­tion of the naira given the ex­tent of dol­lar lend­ing in the sec­tor. They have also been hit by the sharp rise in im­pair­ments (im­ply­ing lit­tle or no re­tained earn­ings).

The Cen­tral Bank of Nige­ria (CBN) re­quires that banks with in­ter­na­tional sub­sidiaries main­tain a cap­i­tal ad­e­quacy ra­tio (CAR) of 15 per cent while banks with­out in­ter­na­tional sub­sidiaries main­tain a CAR of 10 per cent. The min­i­mum re­quire­ment for sys­tem­i­cally im­por­tant banks (ef­fec­tive July this year) is 16 per cent.

About 10 com­pa­nies have got their share­hold­ers’ nod to raise N200 bil­lion be­fore the end of the year, 2017, while four firms have suc­cess­fully floated about N7.2 bil­lion from Jan­uary to June 2017.

Money raised by way of rights is­sue floated in the first half of 2017 in­clude: UACN Prop­erty Devel­op­ment Com­pany, UPDC Plc N5.2 bil­lion; Port­land Ce­ment Plc N1.02 bil­lion; Live­stock Feeds N750 mil­lion; and Meyer Plc N218 mil­lion.

Some of the com­pa­nies that have got­ten share­hold­ers’ ap­proval to raise about N191.3 bil­lion this year in­clude: Wema bank N50 bil­lion; Guin­ness Nige­ria Plc N39.7 bil­lion; Forte Oil N20.0 bil­lion; UACN Plc N15.4 bil­lion; Union Bank Plc N50 bil­lon; Unilever Nige­ria Plc N63.0 bil­lion; and May & Baker Nige­ria Plc N3.0 bil­lion.

Re­searchers at the FSDH had noted last month that, the re­cent rally in the eq­uity mar­ket has opened a win­dow for the quoted com­pa­nies to raise eq­uity cap­i­tal to fi­nance their ex­pan­sion projects, and that the bear­ish trends that dom­i­nated the eq­uity mar­ket in the last few years have caused many com­pa­nies to aban­don the mar­ket as a source of rais­ing long-term cap­i­tal.

The Nige­rian Stock Ex­change All Share In­dex (NSEASI), which mea­sures the per­for­mance of the eq­uity mar­ket, ap­pre­ci­ated by 20% be­tween March 06, 2017 and May 31, 2017.

The ex­pert at the FSDH were of the opin­ion that the fac­tors re­spon­si­ble for the ap­pre­ci­a­tion in the eq­uity mar­ket in­clude the im­prove­ment in the Q1, 2017 re­sults of quoted com­pa­nies com­pared with the cor­re­spond­ing pe­riod of last year and the prospect of bet­ter per­for­mance in sub­se­quent quar­ters.

Other fac­tors in­clude the in­crease in the sup­ply of for­eign ex­change, im­proved crude oil pro­duc­tion and price, im­proved in­vestors’ con­fi­dence in the Nige­rian econ­omy and the fi­nan­cial mar­ket, in­crease in the par­tic­i­pa­tion of both the lo­cal and for­eign in­vestors in the mar­kets and the boost to the econ­omy by the pas­sage of the Pe­tro­leum In­dus­try Gov­er­nance Bill (PIGB).

The sec­toral anal­y­sis of per­for­mance of the eq­uity mar­ket in the first five months of 2017 shows that the bank­ing sub-sec­tor recorded the best per­for­mance, fol­lowed by the In­sur­ance, In­dus­trial and Con­sumer Goods sub-sec­tors. The NSE Bank­ing In­dex gained by 30.70% as at May 31, 2017; the NSE In­sur­ance In­dex gained 9.77%; the NSE In­dus­trial In­dex gained 9.15%, while the NSE Con­sumer Goods In­dex gained 2.97%.

How­ever, Mustapha Su­beru, Lead Re­search & Strat­egy at Eczel­lon Cap­i­tal Lim­ited ar­gued that: “The hike in mon­e­tary pol­icy rate from 12 to 14 per cent would taper the spate of bond is­suance as the cost of is­suance may be­come too high for cor­po­rates to bear.”

One of those that have taken this po­si­tion is Wema Bank, which got the Se­cu­ri­ties and Ex­change Com­mis­sion nod to raise N50 bil­lion.

Tunde Maba­wonku, the Chief Fi­nance Of­fi­cer (CFO) at Wema Bank in a re­cent chat about the bank’s half year re­sult said: “We are look­ing at bond is­suance in Q3, 2017 to raise tier 2 funds. We are still mon­i­tor­ing the mar­ket, de­pend­ing on the in­ter­est rate, we will make that call. If the rate does not re­duce, we my not raise the bonds this year, maybe in Q1 2018.

“When trea­sury bill is sell­ing for 18 and 19 per cent, you will raise bonds at a higher rate and lock down for 7 years.”

An­a­lysts, how­ever be­lieve that the cur­rent rally in the eq­uity cap­i­tal mar­ket of­fers a great in­cen­tive for quoted com­pa­nies to ac­cess the mar­ket to raise the needed eq­uity cap­i­tal for their ex­pan­sion projects.

“As ac­tiv­i­ties in­crease in the pri­mary mar­ket seg­ment of the eq­uity mar­ket, the de­mand for debt cap­i­tal may drop. Con­se­quently, we ex­pect the in­ter­est rate and yields on the fixed in­come se­cu­ri­ties to drop,” the FSDH posited.

“The eq­uity mar­ket is cur­rently wit­ness­ing an uptick in ac­tiv­i­ties. A com­bi­na­tion of the change in as­set al­lo­ca­tion rules for Pen­sion Fund Ad­min­is­tra­tors (PFAs) and open­ing of a win­dow for in­vestors and ex­porters has led to a sus­tained rise in the price of equities. The ris­ing ap­petite for equities means an eq­uity of­fer may wit­ness a high level of sub­scrip­tion.

Sola Oni, Stock­bro­ker/CEO, SOFUNIX In­vest­ment Lim­ited said, “The Adop­tion of Rights Is­sues is a trade off of other op­tions for cap­i­tal in­jec­tion such as bank loans, cor­po­rate bonds and a host of other fi­nanc­ing in­stru­ments.

“As econ­omy con­tin­ues to re­cover, we shall see more com­pa­nies rais­ing fur­ther funds ei­ther by way of rights or pub­lic of­fer­ing.”

He also said, “The emer­gence of rights is­sues through the NSE sym­bol­ises in­vestor con­fi­dence in the com­pany and the cap­i­tal mar­ket. There is no doubt that Nige­ria’s econ­omy is on the path of sta­bil­ity as ev­i­dent in en­cour­ag­ing cor­po­rate earn­ings and in­stances of mar­ket rally. This is a sig­nal that share­hold­ers would pick their rights. It is ex­pected that the trend shall con­tinue in the sec­ond half of this year.”

He how­ever ex­pressed cau­tious op­ti­mism, “The key down­side to our view lies in the high rate of re­turns on gov­ern­ment se­cu­ri­ties which are con­sid­ered se­cured.

“Should this hold for most part of the sec­ond year, it will crowd­out (sup­press) pri­vate bor­row­ings, and make in­vest­ments in equities unattrac­tive as well,” he said.

Cen­tral Bnak of Nige­ria (CBN) head­quar­ters in Abuja.

Newspapers in English

Newspapers from Nigeria

© PressReader. All rights reserved.