NSE’s Bold Step To Global Exposure

... building globally competitive brands

The Nigerian Stock Exchange (“NSE” or “The Exchange”) took a bold step towards realizing its crucial role of supporting economic growth by way of providing an efficient and sustainable capital market on Tuesday with the launch of its Premium Board.

The landmark event is in consonance with the transformation journey embarked upon by The Exchange since 2011 in order to position it to carry out its business in accordance with established global best practices.

The philosophy behind the creation of the new board is to provide a platform for local entities that meet the required standard to be exposed to accessing cheap capital from the global market. This is confirm in the listing rules of the Premium Board which states, “The Exchange through the Premium Board aims to provide for greater global visibility for eligible Nigerian entities, which will make it easier for them to attract global capital flows and reduce the cost of borrowing.”

Three companies met the stringent requirement of the NSE to qualify for the pioneer listing on the Premium Board. They are Dangote Cement Plc, Zenith International Bank Plc, and FBN Holdings Plc, with market capitalisation of N2.87 trillion, N587.43 billion and N277.70 billion respectively.

According to the NSE, the listed companies all passed the Corporate Governance Rating System (CGRS) before applying for the Premium Board. The CGRS comes in three stage and directors of prospecting are expected pass the test for the entity to qualify.

Prior to the launch of the Premium Board, the NSE had two boards, the Alternative Securities Market (ASeM), the Main Board. 

Qualification

According to the rules guiding the operations of the new board made available to ThisDay, an Issuer aspiring to be listed on the Premium Board will have to seek admittance by making a written request to The Exchange as well as execute the General Undertaking for listing on the board.

Such entity must have been listed on the Main Board of The Exchange, however, new entrances wishing to list on the board may be admitted provided they meet the stipulated standards. This includes submitting itself for evaluation under The Exchange’s CGRS test and scores a minimum rating of 70 per cent. In addition, the entity must have achieved a market capitalisation that is equal to or excess of N200 billion at the point of applying for listing.

As earlier stated the NSE test is a threefold practical assessment process which involves each director of the company carrying out a self-evaluation. The results of the self-evaluation is then presented to the company’s stakeholders, while the NSE carries out independent survey of the self-evaluation to collaborate it with the stakeholders’ assessment. The next stage is to get experts, who then takes the inputs from that survey, go ahead to analyse them with a view to making sense out of them.

The last stage is the judiciary awareness test. Here each director of the companies is required to do a test. The results of all assessments are then put together and appropriate weighting done to score their performance. The standard is that each director must score 70 per cent to be judged to have passed the corporate governance rating.

Furthermore, the issuer is also required to have a minimum free float of 20 per cent of its issued capital; this implies that not less than 20 per cent of the entity’s outstanding shares must be available for trading in the secondary market. Issuer will also be admitted where the value of the free float is equal to or above N40 billion (US$500 million) at the point the issuer is seeking admission into the board.

However, the National Council of The Exchange reserves the right to determine the market capitalization and free float requirements from to time.

Remaining on the Premium Board

Once listed on the Premium Board, an issuer is expected to keep to the highest standard of corporate governance as well as keeping the post listing requirements of the NSE. To ensure that listed companies comply with the required standards, The Exchange from time carries out evaluation on the performance of issuers. The period for such evaluation is determined by the NSE. 

Corporate Governance Requirement

Given that one of the reasons for establishing the Premium Board is to ensure that issuers operate by stringent corporate governance standards, the NSE says entities opportune to be listed on the board must comply with the Securities and Exchange Commission’s (SEC) Code of Corporate Governance. 

The issuer is further required to disclose in its annual report a list of its codes of corporate governance to which it subject itself.

Again, in accordance with global operating standards, the annual report of the issuer should include a statement signed by the Chairperson of its Board of Directors and the Company Secretary, disclosing the extent of its compliance with the provision of the code of corporate governance. Where it fails to comply, a detailed statement of the facts of its non-compliance and explanation thereof must be included in the annual report.

Sanctions

Bearing in mind the fact that people and institutions will always err, The Exchange has put in place some stringent sanctions for breaching any of the listing rules. According to the NSE, such sanctions include fines, suspension from trading, delisting from The Exchange or transfer to another board or public reprimand.

Comments 

Speaking at the launch of the Premium Board last week, the Chief Executive Officer (CEO), NSE, Mr. Oscar Onyema said, “The Exchange is a member of the United Nation’s Sustainable Stock Exchange Initiative, which is designed to encourage stock exchanges to influence their ecosystem to adopt sustainable ways of doing business around Environmental, Social, and Governance dimensions. The Premium Board is one result of our commitment to place corporate governance front and centre as a way to improve the climate for doing business in Africa. We expect that companies on the Board will enjoy the highest levels of visibility and appeal to investors looking for large companies with the highest standards of corporate governance.” 

Expatiating on the Premium Board Index (PBI) which was launched simultaneously to act as a performance assessment to the listed equities on the Premium Board, Onyema said, the PBI would serve as a benchmark for investors looking to track the performance of large firms with excellent corporate governance and sustainable business models.”

“Typically, similar indices outperform their market wide index by double digits. The NSE Premium Board Index had a four year average return of 17.65 per cent versus the All Share Index return of 11.31 per cent over the same period”, he stated.

Also speaking on this development, the Executive Director, Business Development, NSE, Mr. Haruna Jalo-Waziri, stated that “the launch of Premium Board and the Premium Board Index is in line with The NSE’s commitment to promoting and continuously developing a more transparent, liquid, accessible market. The Premium Board is for issuers with minimum market capitalization of N200bn and highest corporate governance standards. Companies aspiring to be listed on the Premium Board must achieve a minimum score of 70 per cent on the stringent CGRS. In addition, they are required to maintain a minimum free float of 20% of their issued share capital or a free float value equal to or above N40 billion”.

Recipient’s Comments

The CEO, Zenith International Bank Plc, Mr. Peter Amangbo one of the companies that made it through to the elite board while commenting on the development said, “To us in Zenith Bank it is history being made, and we are very happy and pleased to be part of its. It takes a lot for any company to be listed on the Premium Board, in terms of disclosure, in terms of corporate governance; it is a very rigours process for any organization to go through.

Speaking on his expectations he said, “I will say it is even more of a responsibility, as an organization, you are like the first among equal, you are like a flag bearer to other listed organization so you are expected to do everything correctly, you are expected to set standard. At the end of the day if you do things correctly in terms of performance, you will found out that it will reflect on the valuation of the company. So we expect that Zenith Bank will be rewarded.”

On his part, the CEO of FBN Holding noted that to get to this stage, “You are expected to meet the highest standard of corporate governance. You can see from our records that we have maintained our reputation as an institution”.

He added that his group expects more inflow of investment into our companies as well as a positive impact on the share price of the FBN Holding stock on the floor of the NSE.

Conclusion

With the launch of the NSE Premium Board, The Exchange has joined the league of foremost exchanges like the London Stock Exchange (LSE). A Premium Listing on the LSE is only available to equity shares issued by trading companies and closed open-ended investment entities. Issuers with the LSE Premium Listing are required to meet the UK’s super-equivalent rules which are higher than the EU minimum requirements.

According to the LSE, a listing on its Premium Board means the company is expected to meet the UK’s highest standards of regulations and corporate and as a consequence may enjoy a lower cost of capital through greater transparency and through building investors’ confidence. 

Whether this expectation from the NSE and the pioneer listed entities will come true remain a discussion of the future. What is certain, however is that the NSE has initiated another bold move which if given the right push can build globally competitive brands that will attract global investors into the country.

The Sky is not falling! Access bank, Intercontinental Bank M&A

If you have ever bought a 20 year old ‘Tokunbo’ car without having to fix a thing, you can exit this post already and leave to people like us who have and are currently still fixing minor faults here and there with our newly acquired “Tokunbo”. Not saying tokunbos’ are bad buys, just saying “fairly used” don’t come in perfect shape, we find and fix issues so much to deliver expected service. sometimes we assume a perfectionist mindset hoping to transform the same car to a brand new car (if wishes were horses)

That is how simply I can explain what M&A issues are, why they are a necessary part of every M&A and why we customers need to exercise some patience to have them thoroughly fixed.

So in the context of my discussion, Access bought over Intercontinental bank (not sure about what brand of car to illustrate the might of this transaction) but while it is perceived that inter could be the range rover and access the Toyota corolla, I see things a little differently. Access to me is a 2012 Bugatti Veyron, Intercontinental ‘was’ a 2000 dodge viper (that refused an upgrade), insane difference in engine capacity and elegance. So access bought a tokunbo 2000 dodge viper with the task to upgrade to a veyron-ish like dodge (Pimp my ride kinda stunt).

Definitely, both banks run widely different operating models, even their banking application/software is different. To truly come together as one Bank, the platforms and modus operandi must also come together and YES there will be issues.

While I’m not arguing that the once upon a time magical service delivery of access seems to be massively affected, (as expected) as a result of the merger, I’m also saying they deserve a chance to complete the business integration, then we can sit to rate their performance. But if Access can pull this off, not compromising their high level service delivery standards, then this M&A would be perhaps the most memorable.

While it’s obvious they have issues with the system integration process, let us stop spreading un-founded rumors about Access Bank failing. A failing bank never buys another; It struggles to keep afloat.

I am a proud customer of both banks and my expectation is to have the emerged entity deliver quality service maybe better than it used to be with access.

It’s only a corn that hit your head, the sky is not falling…don’t be deceived by Foxel Loxey into a den of no return. access bank is not fading. Its only growing its might and I still think the bank will cause a great upset very soon in terms of the best financial institution in Nigeria.

NB. Access should try sha o! I spent an extra hour trying to cash money last week o! but it’s a cross I’ll bear with you for now…I can’t wait for it to end. + thanks for the light refreshment in your banking halls, it made the wait a little bearable.

All is well that Ends Well: Adieu Intercontinental Bank!!!

I somewhat share a slightly different sentiment on perhaps the most popular business combination (Merger and Acquisition) we have had in recent times. Access Bank takeover of Intercontinental Bank

A lot of folks have questioned the rationale and workability of such a huge project, expressing their dismay at how Access (a frog) could swallow Intercontinental (an elephant). While I understand where most folks are coming from in the sense that Intercontinental bank was the mother of modern day banking in Nigeria with an intimidating back up of resources (financial and infrastructure) enough to blow out its competition into oblivion, I dare to tell you it’s all past glories. The Inter we knew is no longer the one that was acquired. Infact the deception remained largely in its robust retail offering and personal attachment of its loyal customers to the brand. The foundation could no longer hold, critical issues bordering on corporate governance had robbed the bank of its former glory.

An erstwhile unknown access, steadily grew its might over the years, imbibing strict corporate governance and sustainability practices into its operations. this guaranteed them a top 10 finish in Nigeria’s most profitable business as at 2008. At the time I remember telling a friend about the institution and its strategic drive for success. More to their blessing was having an astute business man as the head, aig (as he is called) understood the Nigeria business terrain and worked his life out to make the bank what it is right now. My brother was amongst his recruit at the time and I can remember how he became an alien to us, due to his work, but I loved the fact that he was sold out to the organization’s vision. such was the determination of the access army that provoked the biggest argument on the subject matter, how could they buy over intercontinental bank?

So the question truly is

How could the mother inter leave its workers to the mercy of another? A bank that had the arguably the best employment offer (including a severance pay), 1^st bank to cross the $1 billion in first tier capital

My views.

· The banking sector is a critical part of any economic system, so important that their slip could cost the economy an irrecoverable loss.

· Intercontinental bank and the rest four affected banks were undercapitalized and posed a risk to the entire banking system.

· "The banks lost their money in bad loans

· The excessively high level of non-performing loans in inter was attributable to poor corporate governance practices, lax credit administration processes and the absence or non-adherence to credit risk management practices.

· CBN had to act. the economy needed urgent CPR, the banks (and invariably the economy) needed bailouts.

And so it happened, CBN looked inwards, got them off to indigenous takeover and that is what got us to where we are today.

FIRST BANK, ZENITH, INTERCONTINENTAL, UBA DOMINATE MARKET SHARE- Afrinvest Report.

After subjecting Nigerian banks to stringent stress-tests, Afrinvest, Africa’s leading investment research firm, has reported four banks as dominant in the Nigerian financial market. The banks according to the report released over the weekend said the four banks control between 40.6 and 45.9 per cent of the industry while the remaining 20 banks control between 54.1 and 59.4 of the market. 

  

The breakdown according to the report shows that in terms of total loans the banks control 40.6% in shareholders’ fund, 45.9% in total assets, 40.6% in total loans and 42.5% in total deposits. According to the Afrinvest ‘‘they also dominated market volume. Measured by gross revenues, our analysis reveals precisely the same alignment, with the same four banks between them accounting for 42.0% of estimated industry revenues.’’ 

  

The report revealed that several banks were content to focus on niche business within specialized markets like trade and import finance, large-ticket structured finance, middle-market wholesale trading, capital markets, and real estate financing. In some instances, the analysts observed that some other banks were limited from achieving any degree of operating scale by internal challenges arising either from legacy merger issues, or missed capital raising opportunities during the boom cycle. 

  

Overall, Afrinvest said, “there were rich pickings to be had both as large scale operator seeking market dominance and as a niche operator focusing on specific client markets. Indeed, we note that significant market volatility in 2008/2009 may have created disadvantages to scale, as larger banks may have been insufficiently nimble to react to a fast changing market environment.” 

  

On risk exposure, Afrinvest report stated that ‘‘patterns across banks differ (depending on specific active markets), we did witness a broad enough scope of change in market direction to ensure that all operators will be faced with some degree of exposure to challenging risk positions over the next 12 months.’’ 

  

In conclusion, Afrinvest Researchers noted that the on-going global financial crisis with its attendant implications for sub-Saharan Africa has helped set-up what will be the first major test for Nigeria’s recently consolidated and recapitalized banking sector.  And  Nigerian banks (fresh off three major cycles of successive capital raising and consolidation) are significantly better poised to weather the storms than they would have been without these industry-defining changes. 

  

Nonetheless, rapid growth and easy access to domestic and international capital markets have fueled an expansionary period in risk asset creation that will now be tested under the most severe of market conditions. 

  

Afrinvest Ltd is a London-based independent investment bank. Its focus is exclusively the African markets and it has become the leading provider of African securities to the European investment community in emerging markets. It was created in 1995 identifying a gap in the emerging markets to provide specialized research and investment advice for London-based institutions interested in the African markets. Afrinvest provides all the execution services for international institutional clients seeking to deal in African securities. 

Intercontinental Bank, UBA, First Bank make Forbes top 2000 World's Biggest Companies

At the backdrop of global economic meltdown three Nigerian banks, Intercontinental Bank Plc, First Bank, United Bank for Africa (UBA) Plc made the Forbes list of top 2000 world biggest companies.

They joined 248 other companies around the world to displace same number of companies that featured on the list in the 2008 ranking. This appears to be a confirmation of the 2009 global banking industry. which listed the three banks among top 500 banks in the world.

The global banking industry research and ratings for 2009 has listed First Bank of Nigeria Plc, Intercontinental Bank Plc, Union Bank of Nigeria Plc, Zenith Bank Plc and United Bank for Africa on the World’s top 500 banking brands by the Banker magazine, a publication of the Financial Times of London.

Nigerian banks made their first showing on the world’s top 500 banks in 2007 when Intercontinental Bank came number 355 on the list while also emerging the fastest growing bank in the world. The bank has since then made the list moving up in 2008 to 334.

The banks that made this year’s list had emerged as industry leaders consistently since after the banking industry reforms introduced by the Central Bank of Nigeria in 2004 and industry watchers believe they are going to sustain this position for a long time as their market share keep growing by the year.

Factors accounting for the drop off of the companies that were on the 2008 list but could not make the list in the 2009 ranking, according to Forbes, include mergers, weak financial performance and outright failure.

For instance, Forbes noted that the former 97 th -largest company in the world, Lehman Brothers, fell into bankruptcy, while the weakness in the financial markets led to governments nationalizing some big banks, such as Ireland’s Anglo Irish banks and Iceland’s kaupthing Bank.

For Nigeria, the listing of three of the country’s banks on the Global 200 current listing is a cause for cheers. First Bank Plc is ranked at 1,375 while the United Bank for Africa comes on the list at number 1,560, Intercontinental Bank Plc completes Nigeria’s showing on the list at 1,798.

Explaining the methodology adopted in arriving at the final compilation of the 2000 biggest companies, Forbes says that companies must have a publicity traded stock in order to qualify for the Global 2000. The Global 2000 companies have the top composite scores based on sales, profit, assets and market value.

First Bank Plc’s composite score on the four metric measures shows a sales figure of $1.29billion, a profit stated at $0.31billion, assets metric calculated at 413.05billion and market value stated at $2.89billion.

The United Bank of Africa’s sales figure is stated at $1.44billion with profit at $0.35 while its assets stand at $14.22billion and its market value calculated at 41.43billion.

Intercontinental Bank Plc incredibly returned a higher sales figure that the other two Nigerian banks on the list with its $1.48billion position and a profit position of $0.29billion with assets calculated at $11.90billion and market value adding up to $0.88billion.

Speaking on the report, Microsoft Chief Executive Steve Ballmer said, “ Even a depression is a place for opportunity if you have cash, scale and ambition. Many of the names on this year's Forbes Global 2000 list of the world's biggest companies will emerge on the other side of the trough far stronger when world economies snap back next year. For the strong corporations, there are rivals to buy, technologies to fund and new markets to enter--all at lower prices than we've seen in years. ''Despite the economy, it's important to think about what is possible.''

Forbes' ranking of the world's biggest companies departs from lopsided lists based on a single metric, like sales. Instead, it uses an equal weighting of sales, profits, assets and market value to rank companies according to size. This year's list reveals the dynamism of global business. The rankings span 62 countries, with the U.S. still dominant at 551 members, but that is 200 fewer than in 2004, when we first published this global list.

For the past few years, we have also identified an important subset of the Global 2000: big companies that also have exceptional growth rates. To qualify as a Global High Performer, a company must stand out from its industry peers in growth, return to investors and future prospects. Most of the 130 Global High Performers have been expanding their earnings at 28% a year or better--easy for a start-up, hard for a blue-chip.

The brains behind the Rumors and De-Marketing in the Banking Industry

I refer you to Vanguard Newspaper lead story of 31 March 2009 and a similar story in the Punch Newspaper of 31 March 2009. It appears that the brains behind the rumors and De-Marketing in the banking industry are gradually being unveiled. Information flowing out is indicating that a particular old generation bank is actually spreading rumors targeting customers of Oceanic Bank, Intercontinental Bank and Zenith Bank. It is also becoming clearer that the purpose is to scare off the depositors of the banks and move their deposits to the old generation bank.

There is also clearer evidence in the Money Market that staff of this particular old generation bank are actually spreading rumors about the targeted banks. The CBN should not shy away from bringing the offenders to book, even publicly since it had stipulated punishment for De-Marketing.

De-marketing campaign taken to high-profile customers

Government ministries, corporate organisations and high-net worth individuals are being targeted in a fresh round of “high-level de-marketing” campaign in the banking sector aimed at gaining greater market share of deposits. This is part of the intensified competition in the banking sector, which is giving the monetary authorities a lot of concern.

Some bankers have claimed that the de-marketing strategy, in which rumours are spread about the supposedly precarious state of some banks, is being orchestrated by some first-generation banks to get customers of others to move their accounts and businesses to them.

The banks are said to be deliberately nurturing the perception of being the only “safe” banks to the detriment of rivals.

About a dozen banks have been mentioned in recent weeks as having some form of distress due to the effects of the global meltdown sent to heavyweight depositors and top ministry officials in text messages and unsolicited e-mails.

But the Central Bank of Nigeria and the Federal Ministry of Finance have insisted that all banks are generally safe and that government will prevent any bank failure.

Some industry sources say that the second generation and mid-tier banks are the main victims of this campaign and a few have seen limited run in the past few weeks with staff of some companies and government organisations moving their salary accounts from these banks.

Some bankers had previously accused stockbrokers that were heavily indebted due to losses from margin trading of spreading the false rumours to generate tension in the banking industry.

The stockbroker have since rejected this claim.

The Central Bank of Nigeria is worried that the spreading of such rumours could further undermine the banking sector confidence, and has reeled out sanctions for such unprofessional conduct including hefty fines.

The apex bank’s concerns are hinged on the uncertainties over the banks exposure to the stock market and petroleum products importers who have suffered losses due to the recent depreciation in the value of the naira.

The level of distrust in the system was responsible for the surge in inter-bank lending rates in recent weeks, to which the CBN has responded by expanding its discount window to provide liquidity for banks that might be short of cash.

Insiders said on Monday that at least 18 banks have so far accessed the CBN’s expanded discount window to meet short-term obligations.

A top banker, who did not want to be named said the conduct of rivals amounted to “risky” behaviour.

He said, “We know that the banks are tied together in one way or the other, if one falls, others will follow, so it is in our best interest to keep banks afloat. Even if one only bank fails, there will be a run on healthy banks because customers will say ‘if it can happen to that bank why can’t it happen to mine.’”

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