Nigeria faces test in listing prized asset





By Tom Burgis in Lagos

Published: August 23 2010 22:31


For an ugly word, demutualisation is in vogue.


From Brazil’s Bovespa to Bursa Malaysia, numerous exchanges have either demutualised or are planning to, spurred on by the prospect of a profit-driven exchange investing in better trading systems and bolstering international credibility.


Another temptation is the potentially sizeable windfall for members who convert their mutual ownership into part of the equity in a newly-listed exchange and float the rest.


Yet a push for a similar transformation at the Nigerian Stock Exchange sheds light on the power struggles that can ensue when ownership of a nation’s most prestigious financial asset comes up for grabs.


For some Nigerian financiers, a demutualisation could help to unlock the potential of Africa’s most populous country and leading energy producer.


It would also cap a reform drive designed to prevent a repeat of the abuses behind the ruinous crash of 2008.


“You can plug the holes but if you don’t change the [ownership] structure you can’t make sure it won’t happen again,” says Bismarck Rewane, chief executive of Financial Derivatives, a consultancy.


Only a fortnight ago, traders arrived at the exchange building through the hubbub of Lagos’s financial district to be greeted by armed police. They had been deployed following the sudden ousting of Ndi Okereke-Onyiuke, who during a decade as the bourse’s chief executive, had established a reputation as the single most powerful figure in Nigerian capital markets, with impeccable political connections.


She had also presided over the crash that wiped $50bn off the index’s market capitalisation when boom turned to bust in 2008.


Probes by the Securities and Exchange Commission, Nigeria’s market regulator, have exposed widespread abuses by some brokers and banks whose reckless margin lending – in some cases, to ramp up their own stocks – helped to inflate the bubble.


The SEC’s new head, Arunma Oteh, is seeking to stiffen previously lax oversight. In removing the NSE boss, Ms Oteh cited “allegations of financial mismanagement”.


But the chief executive had been due to depart in December in any case.


According to exchange insiders and people close to the regulators, the move to foreshorten her term was driven by fears that she was planning to ensure she was succeeded by an acolyte, allowing her to retain influence through the demutualisation process.


Ms Okereke-Onyiuke denies the mismanagement allegations and is taking legal action, claiming the SEC did not follow due process.


Once an advocate of demutualisation, her enthusiasm cooled as Aliko Dangote, Nigeria’s richest man with an estimated $2bn fortune, amassed influence at the exchange, rising to president of its governing council before pushing for Ms Okereke-Onyiuke’s removal.


As part of the SEC’s intervention, Mr Dangote has also been suspended, but only until a legal challenge to his election is resolved.


For some in the market, Ms Okereke-Onyiuke’s dismissal has cleared a big obstacle to reform.


“The transformation programme had stalled,” says one exchange insider, asking not to be named. “The change of leadership has allowed the process to start again, and part of that is demutualisation.”


There are many hurdles to clear, starting with the closely watched selection of a new NSE chief from 900 applicants.


Months, if not years, of preparations for demutualisation are expected to follow. Some proponents of demutualisation say it will spur higher governance standards; others say that only once those standards are in place could a listing realise the exchange’s value, estimated by another insider at $2bn.


Elsewhere, exchange members – including broker-dealers and listed companies – have proved reluctant to cede control.


Deciding what proportion of the shares in a successor company would accrue to 300-odd members could be contentious.


Boye Olawoye, head of strategy at Afrinvest, a Nigerian brokerage, says there is support among some brokers for demutualisation. But he adds: “The value is hard to quantify at the moment. The worst time to do any sort of listing is in a bear market. Timing is key.”

 Tom Burgis, West Africa correspondent, Financial Times

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