Investors must be confident that they can exit the market without friction – Jalo Waziri

Haruna Jalo-Waziri is Managing Director and Chief Executive Officer of Central Securities Clearing System Plc. He has been associated with the Nigerian capital market for over three decades. In this interview with Vincent Nwanma, he talks about a number of issues on the growth of the Nigerian capital market and the economy in general

You have explained how Nigerian Exchange Limited (NGX) can improve its value proposition to listed and unlisted companies. Can you expand your perspective on this?

FFirst, it is important to understand the general interests of issuers and why they list on the exchange. Thus, improving the value proposition of the Stock Exchange to listed and unlisted companies is synonymous with meeting the expectations of management, the board of directors and company shareholders, who are essential stakeholders in any company, although not exhaustive. .

A common denominator for listing is accessibility to a large pool of investors for capital formation. Thus, by listing on the Exchange, issuers hope to break down barriers to raising capital and optimize transactions, in terms of timing, price or let’s say valuation, volume and diversification of the investor base. So how does an exchange ensure that these primary values ​​are delivered?

In this conversation, we cannot underestimate the importance of market penetration and, more broadly, market liquidity, as it is a relevant domino variable that can define the prospect of value creation. in stock exchange.

Thus, as a market facilitating interactions between buyers and sellers of financial assets, stocks, debts and others, it is essential to seek levers that would ensure transparent entry and exit of investors at a competitive cost, because it is an important tool towards value creation.

This brings us to the issue of market access. From a macro perspective, how accessible is our market to local and foreign investors; how easy is it to buy, sell and repatriate capital and profit from our market?

There is a part of the conversation that is beyond the control of the stock market and perhaps broader capital market players. Nevertheless, consistent advocacy and engagement is needed in this regard. Investors need to be confident that they can exit the market without friction, especially since there is no friction when they enter the system, and there should be no friction, imagined or real, when they come out.

The other part of the conversation, and perhaps the most important talk about market access, is about market structure. How smart is it for local and foreign investors to enter the market?

What are your main concerns regarding pre-listing and post-listing requirements from a reporting standards and corporate governance perspective?

The pre-listing and post-listing requirements mainly relate to the flow of information, and this is where hitherto private companies that go public tend to struggle in the preparatory phase of listing and sometimes some have also start-up difficulties with expansive reporting standards at first. registration days.

It is important to emphasize that markets thrive on information and, indeed, the valuation of a financial asset is largely based on expectations based on the information available. Thus, the more we can resolve the information asymmetry, the more efficient the market becomes. For example, there has been tremendous progress in NGX reporting through the issuer portal, as opposed to the past where issuers submitted hard copies. But we cannot afford to stop there.

Reporting is one thing, but perhaps a more important part of reporting is ensuring quality reporting. NGX should invest in issuer monitoring capabilities to improve the quality of corporate financial reporting.

Very few, if any, would like to invest in a black box. Thus, the more information investors have about a company, the more liquid that company’s securities are and, by extension, the more liquid the trade becomes.

It is important for companies to adopt integrated reporting, which is an approach that ensures comprehensive reporting of key issues beyond the company’s financial performance and accounting position. This is where NGX comes in to strengthen the ability of all listed companies to improve the quality of their reporting.

Likewise, corporate governance is an essential pillar that determines whether or not a company is sustainable. Thus, the Exchange must also look beyond surface reporting and ensure that companies adopt global best practices by using moral suasion and regulation to foster discipline and strict adherence to relevant rules. For example, how are shareholder representatives appointed to statutory audit committees and how effective is board oversight and the distribution of powers between the board and management of listed companies?

How does the exchange monitor related party transactions, which can potentially erode value for minority shareholders and/or raise base erosion and profit shifting issues with tax authorities? These and other key issues related to effective corporate governance standards are important areas where the Exchange may need to invest more not only in oversight but also in supporting companies to improve practices. and culture for the greater good and long-term sustainability of businesses and the greatest number. market.

As you have noted, raising capital is a key attraction for companies to list on the Exchange. How do you think the Nigerian Stock Exchange and other stakeholders can improve companies’ access to capital through the market?

It’s about improving the primary market process. While improving secondary market structures and boosting liquidity helps to deepen and improve valuation prospects in the primary market, there is also a need to review the structure of the primary market, with the ultimate goal of liberalizing market access for greater efficiency.

Technology can play a bigger role and MTN’s electronic IPO is a good start and a validation of technology’s potential to break down barriers to market access. It is therefore important to reform the structure of the market, emphasizing the offerings of equities and fixed income securities.

Another important aspect is time to market. In today’s world, issuer and investors are concerned about the time value of money and not only do they want to raise capital or invest their funds in a timely manner – both sides of the table want the value as soon as possible. Thus, intermediaries in the form of market players and regulation should not be an obstacle to achieving this goal.

Depending on the intermediaries and sometimes also on the capacity of the issuers, equity transactions on the primary market can take six months or more; that’s too long for a company trying to explore a set of opportunities that would never wait. Unfortunately, some companies may lose the opportunity before the capital is raised or inflation and/or exchange rate volatility may have skewed the momentum of the target investment. Thus, a delay in the process of raising capital can render the money useless or at least less useful.

The primary market has been somewhat weak since the crash of 2008/09. Are there still prospects for strong stock quotes and what would be the catalysts?

It is unfortunate that, unlike many other markets around the world, we have not yet fully recovered from the burns of the crisis that occurred more than a decade ago. That’s why I’ve always said that gaining investor confidence is like a Rolls Royce, it takes time, but it can be completely eroded overnight, the same way gas can be eroded. quickly evaporate in the air. This is why the genesis of the complete recovery of the primary market is to restore investor confidence from the secondary market.

In doing so, we are also retracing our steps on relevant initiatives to reform the primary market for better efficiency, as this is a means of repositioning the Nigerian Stock Exchange as an efficient source of capital formation and makes it the best destination for listing. .

So the question is, why aren’t oil and gas companies listed? Is it a concern that they wouldn’t be able to raise enough capital locally? I disagree with this perception. Saudi Aramco, the largest oil and gas company in the world, is listed on the Tadawul stock exchange and is revolutionizing liquidity on this stock exchange.

It’s a game of chicken or egg, and the question is which comes first. When a large, credible company is listed on the stock exchange, it attracts the right investors and the necessary cash. Capital is fluid and flows where the returns are most attractive.

Again, fiscal policy has an important role to play, and it’s not just about primary market quotes, fiscal policies also play an important role in deepening secondary market liquidity and depth. global capital market, all over the world, including developed markets, where people theoretically assume full liberalization, which is contrary to the realities of the markets.

Governments use political incentives to attract both issuers and investors to the capital market.

For example, in markets like the United States and Canada, on the investor side, there are tax savings when you invest in the capital market, subject to a minimum holding period and the possibility to recycle the funds on the market for a minimum period.

Interestingly, in some markets, large companies operating in certain sectors designated as critical to the sustainability of the country are not allowed to remain private once they reach a certain stage, because being public has proven to improve transparency, reporting practices and sustainability.

Thus, market players cannot afford to give up on defending relevant policies, both fiscal and monetary.

Governance practices are something we always fear, which again affects investor confidence. Experiences with equity investing have been mixed, and the worst experiences have been those related to failures in corporate governance.

It is therefore pertinent that all actors in the capital market maintain market integrity and this requires that we all become advocates of good governance, especially as this is important in ensuring the sustainability of Nigerian businesses and that it has a strong correlation with value creation. .

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