The Association of Corporate Trustees (ACT) last week called for the injection of funds into the Nigerian capital market by the Federal Government as a way of bailing it out from its poor state.

The trustees made the call in their presentation to the House of Representatives Ad Hoc Committee conducting a public hearing on the near collapse of the Nigerian capital market in Abuja.

Trustees provide investor protection services, secured credit administration, supervision and monitoring of fund managers and issuers to ensure compliance with regulatory obligations. They play a vital role in maintaining a safe market structure for investment activities in the bond and collective investment segments of the market.

Making the presentation on behalf of other members, President of ACT, Mrs. Oluwatoyin Sanni, said: “Clearly, injection of funds is required to shore up prices and lift the capital market from its present very low depth. Responding to the financial meltdown afflicting every facet of business in Nigeria, the issue for determination at this juncture is whether short, medium and long term palliative measures are sufficient to uplift the Nigerian capital market. As with the Money Market, through AMCON, we believe there is a need for government intervention to salvage the Nigerian capital market.”

According to her, the intervention measures by the government could be in short or long term.

She said  such measures  were largely crafted and put in place by the various governments and the regulators.

“This implies that the Nigerian Federal Government and its various organs have a huge role to play in the recovery of the Nigeria capital market taking a cue from what obtains in global environment,” she added.

Under the short-term measures, the trustees said the government  engaged in direct purchase of shares on the Nigerian Stock Exchange (NSE) and a bail-out for real and manufacturing sectors of the economy.

Explaining the direct purchase of shares on the NSE, the trustees said the government wished to utilise a Special Purpose Vehicle (SPV) or use the Ministry of Finance Incorporated to commence buying of shares on the NSE.

“When these shares are  purchased, they will serve twin purposes – being investment for the government which it can hold, earn returns and later resell on one hand and increase the demand segment of the capital market leading to market recovery.

“On the other hand, it is estimated that the sum of N800 billion will suffice as the chain effect will trigger other purchase mandates as investor confidence heightens, following the upward movement of both the market capitalisation and the NSE All-Share Index.  This measure which was adopted in the United States of America after the 1987 crash helped to cut out programme  trading and save the American market,” Sanni said.

Justifying their call for the government intervention, Sanni explained that for each of the past global crashes,  government played major roles in ensuring economic recovery.

“During the Tulip and bulb crash (1634 – 1637) in Holland, government stepped in to halt the crash by offering to honour contracts at 10 per cent of the face value. Lately in the 2007 to 2009 credit crunch (US Subprime Mortgage Crisis) which affected global economy, the US Federal Reserve Bank and Reserve Banks around the world took steps to expand money supply to avoid the risk of a deflationary spiral in which lower wages and higher unemployment lead to a self-reinforcing decline in global consumption.

“Interest rates were cut by central banks globally to help borrowers. In addition, the US Federal Reserve bank injected fresh funds to the tune of $2.5 trillion into the market by buying up the debt of private and government agencies.  The governments of European nations and the US also raised the capital of their national banking systems. Governments bailed out several firms incurring large obligations,” she said.

Speaking on the bail-out for the real sector of the economy, ACT boss, who is also the Chief Executive Officer, Trustees/Global  Investor Services, United Bank for Africa Plc, said many of the listed companies were suffering from the effect of the global economic crisis.

“Investors in the Nigerian capital market as at end of January 2012 have lost more than N9 trillion. It is not only banks that can benefit from bailouts. Many of the listed companies in the real and manufacturing sectors are suffering from the effect of global economic crash and their fortunes and consequently investor fortunes would be boosted by government aid to achieve recovery as was done by the US government,” she said.

Regarding the long-term measures, Sanni said a consistent and determined fight against corruption would elevate our nation and make our market more attractive to the world.

“Rapid installation of world class market infrastructure, commencing with market wide Straight Through Processing as have been done in advanced and even smaller neighbouring economies which are wholly electronic. For example, the West African Economic and Monetary Union, headquartered in Cote D’Ivoire. Enthrone transparency/checks and balances in line with global standards of best practices,” she said.

According to her, the market should be broaden through the acceleration of process of commencement of new products like securities lending will aid liquidity and boost activities level.

“Regulatory synergy/synchronisation between the different arms of the financial system is an imperative for sustained growth of the capital market. Regular  workshop with the various stakeholders of the capital market-relevant governmental departments who perform capital market related functions. Market education and investors awareness/sensitisation as to the opportunities and risks of the market is crucial. Recapitalisation and consolidation of market operators to ensure economic strength, capacity and to eliminate fragmentation, thus aiding effective regulation,” she declared.

Source: Thisday/Goddy Egene