“Cordros Capital Limited is a leading Financial Services Company and is licensed as Brokers/Dealers by The Nigerian Stock Exchange (NSE) and Securities & Exchange Commission (SEC).

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

(Source: Company’s Official website)

Lagos– investadvocate, Tuesday March 01 2011 in its usual manner sought expert opinion on the status update of the Nigerian Stock Exchange (NSE) and other related issues.

In this interview with PETER OBIORA Online Editor of InvestAdvocate, Wale Agbeyangi, Managing Director/Chief Executive Officer of Cordros Capital Limited, (Member Nigerian Stock Exchange) in Lagos Nigeria discusses issues relating to the status update of performance at the Nigeria’s Exchange in the first Quarter (Q1) of year 2011, the Central Bank of Nigeria’s (CBN’s) reforms and its impact on Banking Stocks, why Companies raised fresh funds via Rights Issue prior to this time, and proposed consolidation of the Nigerian Stockbroking Industry by Securities and Exchange Commission (SEC).

Other issues discussed include reasons for delay by Nigeria’s Exchange in opening an Over-the-Counter (OTC) Market, Chartered Institute of Stockbrokers (CIS) rejection of Nigerian Bottling Company’s delisting from the NSE, future outlook of Cordros Capital Limited; among others. Excerpts:

Status update in terms of performance at the Nigeria’s exchange

I think to a large extent, the Nigeria’s Market has performed, up to date; we are doing something close to 10 percent. The Nigerian Capital Market (NCM) is full of expectations this year. We are expecting a lot of mergers and acquisitions in the Banking Industry; especially the rescued Banks by the CBN. Also, the commencement of operations by the Asset Management Corporation of Nigeria (AMCON) would go to a large extent to support the operations of these Banks.

Again, this is a transitional year; whereby we would move from one Government to another, like I affirmed earlier; the performance of the Market has been on the average side so far.

Contrary to Analyst projections, the Market did not recover fully third quarter of 2010, why?

The Market in year 2010 did not do poorly; when compared to the previous year, it recorded a better performance. This year, I will affirm that investors should expect a very good performance from the Market. The reason is that so many things are at stake, if we see the merger of the troubled Banks, increase in AMCONs operations. Also, if foreign investors continue to show interest in the Market; like they did last year; they accounted for 68% of the Market.

Apart from these, there a lots of funds from Fund Managers abroad chasing investment opportunities in Frontier Market, in this, Nigeria, South Africa and Egypt are prominent players in that Market. With Egypt troubled, Nigeria and South Africa seems to be the only opportunity available.

As I speak with you, three Markets are shut in Africa, they are Cote D’ Ivoire, Tunisia and Egypt. Out of these three, Tunisia and Egypt are very big Markets; Egypt being the prominent one. Therefore, the opportunities for new investments in Nigeria this year are very huge; coupled with the ongoing reforms in the Nigerian Capital Market, it is just a good opportunity for investors to take advantage. I see the potential for the Market in the remaining period of year 2011 as being very huge; like I affirmed earlier. I want to also project a better performance compared to year 2010.

We should expect a minimum of 20% improvement in performance this year compared to last year. 20% is a fantastic figure; if you take cognisance of what is going on around the world; 20% is in order. The era of having a 100% year-to-date performance has gone. Thus, 20% from my estimation is proper, if an investor have 20% returns on his or her investment in a year, that investors should be happy. We should expect a better volume on transaction in the later part of this year.

EDITOR’s PICK:

“The Nigeria’s Exchange ended year 2010 on positive note, closing the last trading week with aggregate score of 0.33% gain, while it recorded month-to-date and year-to-date performance of 0.34% decline and a 18.87% growth respectively for the year 2010.

However, Market Capitalisation, during its last trading week, appreciated by N26.13 billion to close the year at N7.91 trillion compared to N78.23billion growth recorded in the previous week to close at N7.88 trillion”.

CBN reforms: Impact on investment returns in banking stock

I can assure that as results begin to come in by the end of March 2011, investors we observe some level of performance and good returns on their investments. We should look at the likes of Guaranty Trust Bank, Zenith Bank, First Bank and Diamond Bank, they would be consistent in dividend payment and a lot of investors would have cause to smile; when compared to year 2009 that so many people were not even sure of getting anything and did not. To a large extent, I think investors would smile this year; especially those that invested in the Banking Industry.

However, we have to excuse the troubled Banks and concentrate on those that didn’t have issues.

Why did some Companies raise fresh funds only through Rights Issue prior to this period?

This year, I believe the investment terrain maybe tough for new offerings; as investors still continue to watch what is going on in the Market. If we are going to have Initial Public Offerings (IPOs), they will be very few and I think so many Companies that desire to raise funds from the Market; may still do so through Rights Issue. Rights Issue is existing shareholders putting more money in the business they have, I think if existing shareholders still continue to have confidence in the Companies they have investments in, it will not be difficult for these Companies to raise funds through Rights. So, IPOs could still be difficult, and we are not going to see the multiplicity of funds raising that we saw between year 2007 and year 2008, it will still continue to be through Rights Issue to a large extent or through Special Placing; involving Companies seeking core investors. Thus, IPO to a large extent this year may not happen.

FACTS CHECK:

In year 2009, Companies that sought fresh funds via Rights include Cadbury Nigeria Plc, Integrated Energy Conglomerate, Oando Plc, Africa Petroleum Plc, Ecobank Nigeria Plc, Interlinked Technologies and Hallmark Paper Products.

On the consolidation of the Stockbroking Industry by Nigeria’s Securities and Exchange Commission

From my view, SEC cannot say that Stockbroking Firm A should merger with another Stockbroking Firm B . SEC can only advise that Brokers should consolidate their activities; especially if a Regulator comes up with a minimum Capital requirement that they know a lot of the operators would not be able to meet up with.

Therefore, consolidation by Operators is voluntary; for instance, if SEC says that the minimum Capital requirement for Stockbrokers now is N1.0 billion, the Commission cannot mention certain Firms and ask them to come together and merger; it should be like the Banking Industry; whereby the CBN just advised. And I think this will happen eventually; considering the activities of the Commission in recent times. How much this would be, we are yet to know. As we speak, some Brokerage Firms are already in merger talks; in terms having alliances and consolidating their operations together. I won’t be surprised in anyway if we see this happen, from my personal view, it is in order.

Now we have close to 300 Brokerage Firms; out this figure, about 30 accounts for 80% of the transactions that we do on a daily basis on the Stock Exchange. Others in the real sense of it are not doing so much; so it will be better for them to analyse their strengths and weaknesses and look for partners they can work together in the best interest of all stakeholders.

On the planned reduction of Stockbroking Firms by SEC

I don’t think this would solve any problem; because the Regulators are supposed to have all the necessary tools and machineries in place to deal with the number of players in the Market. Although, they can say that it will be easier for them in the sense that it will reduce the time that they spend monitoring operators. If everything is well regulated and if we can use IT to solve some of the problems, reducing the number of operators may not be necessary.

On current minimum Capital requirement by Brokers

The minimum Capital requirement we have currently is N70 million; which is over $400,000 and when SEC comes up with a policy statement on the above, then we will analyse same and see if it is right or wrong. I know that to some extent, Brokerage Firms needs to be fairly liquid in terms of Capital base and in order to be able to do the kind of business and attract clients of their choice. Also, funds are needed for overhead cost to ensure a smooth, effective and efficient operation.N70 million to do business in this environment may not be enough; it may all go on overhead cost; unless firms may not be able to acquire necessary technology or attract competent professionals to work; to this regard, SEC is right for wanting to increase the Capital requirement of Stockbroking Firms.

Does having a larger Capital make a better Broker?

It does to a large extent, for any business whatsoever, having the right Capital to do business, puts you at an advantage. You can work from a conducive environment by having your office in a very good location, acquire the latest technology; for example in terms of trading software and platform. You can have the most robust research capacity and high level professionals to move the business forward. If you don’t have enough Capital, it will be difficult for you to do business and compete very well. It is a choice, it is either you want your Firm to be among the top players or the bottom players. For any business, I am sure that every Firm wants to be on top; because competition is very stiff. To me, having a good Capital, stands you a better chance of being one of the best in your industry.

Does large Capital base engender speculative trading of few securities available?

It does, having a larger Capital beyond a Firms requirement will also encourage speculation and this was what we saw when the minimum Capital base for Brokers was initially increased to N1.0 billion. Brokers went borrowing from the Banks; because they wanted to make enough money to get to N1.0 billion or beyond. Some who already had N1.0 billion were under pressure to want to have better returns to their shareholders; they went trading heavily through speculative trading and what we saw was negative; because during the meltdown, they lost so much money; because the whole of the Capital was off. Having excess Capital beyond requirement may not be necessary for you to do business; you just need to have the minimum Capital to do Brokerage business that we are doing; but like I affirmed earlier, you need to be fairly liquid to be able to do all the necessary things that I have mentioned. In any business you are doing, if you have more than enough Capital beyond what you need, you may likely waste that Capital. Also, if there are no adequate risk management policies in place to help your business, it will be the same thing.

Guidelines for change of status from Broker/Dealer to Broker

For Broker/Dealership, the Firm have dual license, as a Broker, you are an Agent; as a Dealer you can go to the Floor and deal. Also you will have proprietary account and trade for yourself. But as a Broker, you are just an Agent and cannot trade on the Floor of the Stock Exchange. All the Broker does will be to source for businesses and pass it on to the Broker/Dealer to execute. You are a Member of the Exchange; but not a Dealing Member.

How many Brokers/Dealers and Brokers firms do we have?

Most people that are operating have dual licenses.

Why is the Exchange taking so long to have an Over-the-Counter (OTC) Market?

For an Exchange to have a good OTC Market, it has to be well regulated. I think that the NSE is still working out modalities with SEC to get this done. They need to have structures in place; for instance MTN just opened an OTC Market that is being regulated by Stanbic and FSDH. It needs a proper structure to be put in place and I think very soon, this will be done.

The stand of CIS on delisting of NBC Plc from the Stock Exchange

If shareholders approve it that their Company should be delisted, there is nothing anybody can do about it. And if they say no, there is nothing the Company can do; but to abide by their mandate. CIS advice to SEC is their opinion. However, it is not good for the Market; when Companies seek to delist; because we are saying that the Market is not deep enough and it would not be proper if Companies begin to delist.

We are encouraging Companies to get listed on the Exchange, it would be counter productive for us to see more firms delisting. It will not be to the interest of the Exchange, Operators or Regulators in anyway, but if shareholders come together like we have seen in the past with Companies such as Blackwood & Hedge, Tate and Lyle, there is absolute nothing anybody can do. Once they meet with the delisting requirements, the Exchange and SEC would grant it. But it is not in the interest of the NSE for Companies to be delisting; therefore, to a large extent, I will not support NBC to delist. In my opinion, the Firm has not given any serious reasons for their delisting.

Like I affirmed earlier, some of these Companies that seek delisting from our Nation’s Stock Exchange don’t tell the truth. So, it is the responsibility of our Regulators to find out from them why they are delisting. The reason must be genuine and acceptable to Regulators and supported by shareholders; even if there is free entry and exit.

We have seen some Companies when they raise funds in the Market, they will state in their financial forecast that they will not be able to pay dividends in the next three or four years and shareholders will accept that; as long as they sow now and reap in future. I know there are other reasons why NBC wants to delist from the NSE; apart from what they have come out with. Their reasons maybe on the issue of control, evaluation of their shares, the environment etc. These are the main reasons why the Company may be seeking delisting.

Again, Government should make it compulsory for some Companies to be listed at the Stock Exchange. A lot of Companies are granted tax holidays; like the Telecom Companies, Government should make sure that before the expiration of their tax holidays; usually five years, the Companies are listed on the Exchange; otherwise, those tax holidays would not be granted.

We want to increase the depth of the Market and Government has to support this initiative that more Companies should be listed and the Government I can say is shying away from that or maybe that people in control of affairs are not presenting the point to them adequately. When they grant tax holidays to Companies, don’t do so and after sometime, these Companies will say they are delisting or taking their assets abroad. When they are granted tax holidays, they must be listed after a period of time; this will be a step in the right direction.

EDITOR’s PICK:

On Friday February 25 2011, Mike Itegboje, President of the CIS at a Press Briefing affirmed that the main reason why the company wants to delist is that it wants the company to become a wholly owned subsidiary of its majority shareholder, Coca-Cola Hellenic Bottling Company South Africa.

He further affirmed that any other excuse given by the Company is beside the point. “Nigerian Bottling Company Plc (NBC) will equally be re-registered as a private company in accordance with the relevant provisions of the Companies and Allied Matters Act.

The supposed investment of $14 billion is only a ruse to drive Nigerians out of NBC” he said.

Future outlook for Cordros Capital Limited

We have a good strategy, to give very excellent returns to our shareholders. Also, we want to be as professional as possible to our various clients.

This year, we are increasing our service offering from being a Brokerage business to Wealth Management and Advisory Services. Cordros Capital is licensed as an Issuing House, we have dual licenses, one is Broker/Dealer and second as Issuing House.

End