CBN reforms: Bank investors to expect good dividend in 2011-Expert


Cordros Capital Limited is a leading investment management company and is licensed as Brokers/Dealers by The Nigerian Stock Exchange (NSE) and Securities & Exchange Commission (SEC).

Cordros offers a broad range of services to a diversified client base that includes private clients, small businesses, financial institutions & corporations and high networth individuals.

Source: Company’s official website



Investadvocate in its usual manner sought to find out more about Cordros Capital Limited, A member of the Nigerian Stock Exchange (NSE) and the current state of the world economy and the Nigerian Capital Market (NCM).


In this interview with PETER OBIORA, Online Editor of investadvocate, Wale Agbeyangi, Managing Director (MD) Cordros Capital Limited discusses issues relating to the world economic crisis, Asian Economy and Stock Market, Nigerian Capital Market (NCM) and its relationship to the global economy, the Cordros Plan B product and way forward for the company.


Other issues discussed include  Kobo dividend payment by companies declaring results on the Stock Exchange, the current changes at the NSE and its impact on the confidence of foreign investors, past projections of the Market recovering in Quarter three (Q3) of year 2010 which was not so; amongst others. Excerpts:








On World economic crisis



I reckon that the world economy is still fragile and if you look at some of the biggest economies in the world; economies such as the United States (US), United Kingdom (UK), they are still in the process of recovery. Nigeria is still struggling in one way or the other. Therefore, to a large extent, I may not say that we should look at a doomsday or say we have recovered. However, I won’t be as overtly pessimistic as some of the Analysis of Economic Analyst has been, but I will apply caution in affirming that the recovery is not yet here. If you have observed the Stock Market in the US for the last two weeks, it has been one form of decline or the other and of course here in Nigeria our local environment cannot also exist in isolation. To a large extent, I would affirm that the world economy is yet to be fully recovered. Thus, a lot of effort would have to be put in place by international economic Managers to ensure that we are on the part of quick recovery of the world economy.






“In March 2010, two Economists at Morgan Stanley affirmed that as global economic recovery remains strong in 2010, risks mount for 2011. This was contained in a Report on the Finfacts website, an Irish Business and Finance portal.


The economists, Joachim Fels, Manoj Pradhan and Spyros Andreopoulos, all based in London, say there is no need to worry about 2010 growth: They continue to forecast solid, above – -consensus global GDP growth of 4.4% this year – – despite growth downgrades in Europe, a weaker Q1 in the US (largely weather – -related) and the recent softening in the China Manufacturing PMI (reflecting Chinese New Year seasonality, in their view).


The economists say that the risks of a global double – – dip this year are low.  Rather, they think that economic growth could surprise on the upside over the next couple of quarters  – – the MS team in the US has a preliminary forecast for March payrolls for a whopping 300,000 gain!  The economists say they don’t think that bond markets are prepared for positive growth surprises and they continue to look for rising yields.


But downside risks for 2011: At the same time, the MS economists believe that downside risks for the global economy in 2011 are mounting, for three reasons.


First, many central banks in EM are about to start tightening monetary policy, and they expect the Fed to nudge official rates higher from Q3 2010 and thus earlier than markets currently expect.  Monetary policy works with a lag, so most of this will only impact 2011 growth.


Second, the MS macro team is looking for significantly higher bond yields this year and for a sell-off in developed equity markets. If so, it would dampen growth prospects for next year further.


Third, the economists expect sovereign debt concerns to spread throughout the advanced economies as fiscal policy in most developed countries is on an unsustainable path. If (a big if, as discussed below) governments tighten fiscal policy significantly starting next year (this year, most countries are still easing fiscal policy), this would hurt growth”.


On the Asian Economy


There has been massive growth in the Asian economy in the last decade, China, India, Singapore and some Asian Tigers have been the ones driving the world economy, China is the biggest producer of technology, commodities and so on in the last decade. To a large extent, we would affirm that the Asian Stock Market has been responding favourably to growth and recovery.






“As Reported by Bloomberg late July 2010,  Asian stocks rose, driving the MSCI Asia Pacific Index to a one-month high, after most European banks passed stress tests, boosting optimism over the health of the global economy”.



On the Nigeria Stock Market



The Nigerian Stock Market is still undergoing one form of recovery or the other and the nature of investment in the Stock Market is cyclical in nature and therefore not an abnormal situation to see prices and Market Capitalisation going up or depreciating over a period of time.



However, what has happened in the Nigerian Market in the past few weeks should be attributed to the Central Bank of Nigeria’s (CBN’s) directive to Banks to reduce their assets in margin facilities to not more than 10 percent (10%). This also ensured that there was a lot of supplies in the Market’ and if there are lots of supply and no liquidity in the system to handle the demand, what we see is disequilibrium; which leads to a free fall at that point in time, but in the last few days, we can observe some measure of stability. Also, what we need to do now is that once we see some Corporate Actions in the result announcement of good companies, the Market will naturally adjust itself through such information.



Nigerian Capital Market and the global economy



To a large extent, I would agree with What Emmanuel Ikhazoboh, the Interim Administrator of the NSE had affirmed that the Nigerian Market is reacting to happenings in the global economy; because our stock Market to a certain extent has been internationalised. Therefore, whatever happens in the international Market would also affect our local Market. This would discountenance our notion a couple of years back that the Nigerian Capital Market (NCM) was a local Market.



We are the ones trading in the Market and I can confirm that 70 percent of the transactions that we do today on the Floor of the Stock Exchange are done with International Fund Managers and Brokers; therefore, you can see that whatever happens in the global economy would also affect their decision making if they want to invest or sell their stakes in the Nigerian Market or not. Based on these facts, I agree with the Interim Administrator of the NSE that our Market is tied to what happens in the global economy. While the CBN were giving directives to Banks in Nigeria that they should not have so much of their assets in Margin Facility, the international Market was also giving another negative signal, thus, the combined reaction on these two fronts had an impact on our Market.






“The Nigerian Stock Exchange’s Interim Administrator, Mr. Emmanuel Ikazoboh in reviewing the on-going downswing on The Nigerian Stock Exchange; described it as a global phenomenon.



In his preliminary review of the market mood, Mr. Ikazoboh assured the investing and general public that the current trend is not peculiar to Nigeria. He affirmed that the stock market is a derivative of the economy; hence, the global economic slowdown is still impacting on it. As an international market, The Exchange cannot be insulated from the global development.



Companies and current Kobo dividend payment in Nigeria



For instance in the Banking sector, we shouldn’t expect so much from them; because it is an industry that is currently undergoing one reform or the other.        We saw a lot of provisioning which the Banks had to do and as these provisioning was done, they cannot at the same time give dividends, we cannot rule that out for the Banks, dividend payment in the last one year would have been very difficult apart from the big four Banks, Zenith Bank, GTBank First Bank struggled to pay 10 Kobo and above as dividend. For other Banks having difficult times, this was not possible in the review period.



For companies in other sectors, as far as a company is not doing very well, it will be difficult for them to pay dividend. Aside the Banking sector, those in the Manufacturing, Food and Beverages, a lot of shareholders have enjoyed bountiful dividend from these sectors. So it may actually have been restricted to the Banking sector; which is a sector that commands between 50 to 60 percent of transactions we do on the Floor on a daily basis.



If that sector is having difficulties, investors would not have good returns on their investments. I can affirm that from next year, we will see better results from these Banks and shareholders would benefit from such results in terms of dividend payments.



Companies raising funds through Rights Issue



When in a situation like what we are experiencing currently, those who can trust a company and understand its problems are the companies existing shareholders. Thus, the Board can go back to them and request for fresh funds to inject into the business due to new plans of moving the firm forward, they would be in a better position to understand the aspirations of the companies or whatever they want to do. This may be by the way of having new plants, taking on new opportunities in the business environment. So, companies are more inclined to raising funds from existing shareholders; rather than throwing it open to the investing public. Also, the Primary Market has been slow in the last two years due to scarcity of funds; shareholders do not have funds to give out. As a result of this, it will be difficult for a company to raise funds through existing shareholders when nothing has been given back to them in terms of returns on investment, they wouldn’t have the money to invest. These summaries what have been happening in recent times.



Current changes at the NSE and impact on foreign investors’ confidence



I do not think that the current reforms going on at the NSE would have any negative impact on the confidence of foreign investors; because we have not received any negative feedback from our foreign clients, they are not even bothered about the current leadership changes at the Exchange. This does not disturb their investment decision in any way. I can confirm to you that I have asked them if the situation would not affect their investment decision in the Nigerian Market and a good number of them confirmed to me that they are not bothered. Like I affirmed earlier, I don’t think that it would have any impact; a lot of them have come to understand the Nigerian factor and our leadership style.



We had expected that when the Securities and Exchange Commission (SEC) made their changes at the NSE, we thought that some of the orders we had from these foreign investors would be halted, but no indications to that effect.



Past projections by some Analyst that the Market would fully recover in Q3 of 2010



With the benefit of hindsight, the projection then might have been over optimistic, because a lot of things have happened in Nigeria which some of these Analysts didn’t foresee or consider. When we spoke, we didn’t envisage some other things that have happened in the world economy and the crisis between the NSE and SEC. So, having to assume that by the third quarter of this year, things would be back to status quo and the Market would have gained about 25 percent would be unnecessarily optimistic, don’t forget we also have elections on the way and a lot of investors would be cautious to see how the transition programme would be and ensure that all is well.



Therefore, if we have all these factors, we would observe that the Market would remain very quiet until after that period. However, I reckon that we are still going to have some stability in the Market between now and the third quarter of next year.



Indices to support this new projection



For us to see any progress in the Market, we need to have a stable banking environment and regulatory environment and a stable transition programme. This is not something that can be done immediately; but gradually maybe a period of nine months to achieve, I can affirm that come July 2011, we can see some form of growth in our Capital Market. If the factors that will encourage investors are put in place, then the Market would be stable and come to stay.



One of the things that I have noticed is that investors’ confidence starts from the retail investors, any Market that does not encourage retail investors to participate in it, be it a Stock or manufacturing Market, then that Market will not be a stable one; right now we don’t see a lot of retail investors coming to the Stock Exchange and say I have N1.0 million to buy shares; because of liquidity problem that we have and the losses recorded by these investors in the review period, we are not there yet. The people we have in the Market now are Institutional investors, such as Pension Funds, Foreign investors Insurance Companies; these are the people that we see at this particular point in time in our Market. This is a pertinent work for Market Operators and Regulators to do; because they act as a cushion or support for the Market, they don’t look at trading possibilities, we will need them to come back so as to stabilise the Market.



On your product “Cordros Plan B”



We have gotten tremendous response from investors in terms of Cordros Plan B. The objective behind this product is to encourage retail investors, those who can invest on a periodic basis and committed to investing in the Market. The opening balance on this account is N50,000 regularly which amounts to N600,000 yearly. Like I affirmed earlier, if we do not have retail investors showing interest in the Market, then we would have a lot of problems.  We thought in Cordros Capital that for those who want to invest for the next five years on a regular basis of N50, 000 per month; having at the back of their minds that the Capital Market has a long term opportunity, the Cordros Plan B is a good product for that.



Also people who want to send their children to school and they want to still invest in the Market, this is a good product for them; including those with housing projects. The response we have gotten from people on this product has been a tremendous one.



Way forward for Cordros Capital as Dealing Member of the Exchange



Our strategic plan when we commenced operations was divided into three; these include, short, medium and long term plans. The short term goal was for us at Cordros Capital to be able to build our capacity in brokerage dealing business; this we have been able to do very well. Right now, we are moving into full wealth management and advisory services as an Issuing House. We have already received our license from SEC and have some mandates already to execute. Right now, we are doing some advisory work for an oil servicing company and we are raising about $67 million for them; through a combination of debt and equity.



On the last Barcelos Private Placement



We have had an Annual General Meeting (AGM), shareholders have received their certificates from Barcelos over a year ago and we are committed to listing the company on the Nation’s Stock Exchange; but the consensus we had when shareholders met was to still put on hold the listing; due to the current problem that has not yet been resolved in the Capital Market. The reason for this is to avoid the erosion of value on shareholders investments.  However, we are trying to provide a liquidity window in terms of Over-the-Counter (OTC) for investors who want to trade the Barcelos share certificates. Again, as part of usage of the proceeds to that Placement is that new outlets spring up in a couple of places; this indicates we have been able to do about 70 percent of what Barcelos promised in the Placement Memorandum; apart from listing.



I can confirm that out of the N2.0 billion we wanted to raise, we were able to raise about N1.4 billion recording a shortfall of about 30 percent. Though we had investors who wanted to buy bulk, the Board was not ready to take it; because it would have diluted a lot of holdings of some other investors; which was not the right thing to do.




Barcelos is a Portuguese branded eatery, from the Placement Memorandum, the company offered 3,000,000 Shares of 50 Kobo each at N2.50 Kobo per share. Also, the Placement Memorandum page 19  reads thus: In the event of an oversubscription of the shares being offered during the Private Placement, Directors may offer additional shares from unalloted shares of the company to prospective investors and or shareholders may offer part of their collective and individual shares by way of an offer for sale to accommodate the oversubscription.





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