The Managing Director/Chief Executive Officer, Blackbit Limited, Mr Wale Ajibade, in this interview with FEYISAYO POPOOLA, describes investors of defunct Skye Bank as the major losers in the recent takeover of the bank by regulatory authorities
What are your thoughts on the current state of the Nigerian stock market?
The stock market is reacting to the economic cycle. We are also in the run-up to elections. So, the entire world is actually taking a view on the Nigeria economy; and investors, mostly foreign portfolio investors, are observing the economy based on the fact that we are in an election period.
Beyond the recession, the election period is also affecting the view on the market. Recent events in the financial sector such as the takeover of Skye Bank would also have eroded investors’ confidence in the capital market as well as the long-drawn recapitalisation of insurance companies.
The Nigerian Stock Exchange suspended trading in the shares of the now defunct Skye Bank following the revocation of its licence by the Central Bank of Nigeria; what does this mean for the shareholders?
Equity investors essentially take a risk on companies. In good times, they benefit, and in bad times, they are the first to take a hit. So, the investors in the defunct Skye Bank have lost their investments because as of today, the bank has ceased to exist. This spells the end of all their investments. In America, they call it bankruptcy or chapter 11.
In this kind of situation, debtors tend to have a higher claim than equity holders. So, for equity holders, they have lost out their entire stake in the bank. Every shareholder in Skye Bank has nothing to take home. It is only the customers, debtors and creditors that are going to be answerable to the new bank.
Given the increased rate of mergers and acquisitions of banks in recent times, will that not discourage most people from investing in banks?
The market is a volatile market; you can make gains and you can make losses, which is why you need professional advisers. We have different categories of investors; there are retail investors that invest in mutual funds that are professionally managed. People who have high stakes are qualified institutional or individual investors.
Now, this is a bad time for a particular entity, but people have also made money on the market. Like they always say, it is when you lose people hear about it; but when you make gains, no one makes noise about it. So, no one hears anything.
So, for a professional investor, it is nothing to worry about because the things we bother about is how the investment was managed and whether such a development was foreseen. For me, we have to look at the root cause.
That the bank was liquidated is not the issue but what caused it. Maybe there was a governance issue or regulatory issue, so that you can learn when you see such signs later. If one also has a diversified portfolio, it would be easy to recover from such shock.
With oil prices looking up, what should investors expect in terms of market performance?
There are two things with oil prices. First, is the market perfectly correlated with oil prices? One could say yes, but how many oil and gas companies are trading on the exchange and what is their impact?
Secondly, while oil prices are going up, are our production levels increasing?
It is a good time for oil producing countries to make much profit, but for Nigeria, it has not really made any significant impact. You would expect that with the increase, foreign exchange reserves would stabilise and exchange rates would drop.
I think that as a country, we need to look at other areas that will create employment and improve our Gross Domestic Product beyond oil.
A large number of foreign portfolio investors have exited the stock market since the beginning of the year; what is the cause and what can be done to reverse this?
Their exit is temporary; they are all speculative investors. So, during times of high yields like when treasury bills are doing 15 or 18 per cent or when foreign bonds are priced around eight per cent, they take the risk. With election cycle coming and the uncertainty in the economy and polity, speculations would make them withdraw their portfolio.
Also, we have hedgers who are using the volatility to hedge their portfolios. If the parameters are not favourable to them, they leave. All these are a matter of timing.
On another hand, long-term portfolio investors do not react to short-term cyclical events. You do not expect that Heineken would pull out of Nigerian Breweries because of election. So, what we see every cycle as we approach election is more speculators and hedgers exiting the market.
Once elections are over and there is a positive outlook to the economy as yields begin to rise, you will see the foreign portfolio investors coming back in.
The stock market has not seen Initial Public Offerings in a while; what reasons could be adduced for this?
The reason we have not had many IPOs is because of the listing criteria. Not that they are too stringent as such but they are quite a lot and not many companies can meet the listing criteria.
Secondly, how has the economy and businesses in it performed in recent times? Do they have a good story to tell? If we have not created enough businesses that meet the listing criteria, then we would not have IPOs.
MTN has been the whopping company that we had our eyes on because when you look at the telecommunications market, it only appears that the viable entity that should come to the market is MTN. But MTN is already listed on the Johannesburg Stock Exchange.
If more sectors begin to become buoyant and companies within those sectors are meeting listing requirements, then you would see these companies coming to the market for IPOs.
Is the proposed MTN IPO still likely this year?
I cannot speculate on MTN’s IPO; I think that when the time is right, the company will make a decision.
One has to be very careful though, as MTN has been in the news for some reasons. You need to look at the economy; if they are doing very well and they are being subjected to fines, when they list, will it amount to a potential exit of current investors? The fact that MTN wants to do an IPO may not be a positive development. It may be an exit strategy for the current investors. So, it is too early to speculate on whether they would do an IPO or not.
What can be done to encourage more domestic investors in the stock market?
One way is to increase access to the market by youths. In a country of 180 million people and counting, do we have unique individual investors active in the market? So, we need to increase access to the market, create multiple trading points, reduce the entry criteria for young people to be able to understand the market, leverage technology and begin to learn how to trade with very little capital.
Today, we focus on high net worth individuals such as corporate and institutional investors, but for you to increase the frequency of trading, one needs to leverage technology and reduce the barriers to people accessing the capital market. For instance, if I have to physically go to the Central Securities Clearing System to thumbprint and snap for a passport photograph, it is really stressful and archaic.
There is a need to reduce the process of opening a CSCS account as the first barrier to allowing more young investors access the market. If we have more of domestic investors, we would not be having this current fear of what the exit of foreign investors may bring. Failure to do that, in subsequent years, mean that when foreign investors sneeze, we would catch cold. We need to automate the process and leverage technology.
As a key operator and stakeholder in the capital market, what is BlackBit looking to do to contribute positively to the market performance?
We are an issuing house and we focus on infrastructure, we hope to see that some of the transactions we have done in recent times yield expected results. We monitor companies to ensure that corporate governance is observed and adherence to rules and regulations, and then we usher them into the market.
We are incubating companies that are capable of being introduced into the capital market. We also select viable companies that are able to build traction within three to four years and make good positive returns. After that, we can then take them through an IPO process. So, in essence, we are creating companies spanning energy and infrastructural sectors, among others, in readiness for listing through IPOs.