June 18, 2015/ The Punch

Capital market experts have urged small market operators to consider mergers in order to meet the new minimum capital requirement that the Securities and Exchange Commission adopted for operators.

Under the new minimum capital base, the capital requirement for brokers/dealers was increased from N70m to N300m. That of brokers was raised to N200m from N40m, while that of dealers was hiked to N100m from N30m.

The requirement for issuing houses, underwriters registrars, trustees and rating agencies also went up.

SEC had initially fixed December 31, 2014 as the deadline for compliance with the new structure, but the commission extended the deadline to September 30 this year in reaction to calls by operators for an extension.

While many of the operators have met the requirement, many others have yet to do so, leading to fear that some operators, especially the small operators, would lose their licences.

But experts, who spoke in Lagos on Wednesday at the maiden edition of the Capital Market Roundtable Interactive Session, said a solution that would benefit all stakeholders could be found if the option of mergers was seriously considered.

The guest speaker at the event, which was hosted by Meristem Securities Limited, Mr. Tayo Shenbanjo, said that by merging their operations all operators stood a chance of remaining active in the market.

Shenbanjo, a United States-based financial markets operator, who was the pioneer Chief Executive Officer of Oasis Capital Portfolio Limited and MBC Securities Limited, both of which were dealing members of the Nigerian Stock Exchange, explained that by coming together, the operators would be better off.

This, he explained, was because the outcome of the mergers would be bigger and more viable firms, which were capable of generating greater returns or profit than they were making by running smaller firms.

Explaining the viability of mergers, he said, “It has been done successfully in America. Nigeria remains a leader in Africa, no matter the problems we are facing. Let us work to improve our markets. If we are futuristic in our thinking, we should come together and form big firms instead of having small moribund companies.”

In addition, he said it was important for bigger firms with underutilised capacities in terms of infrastructure to make their facilities available for others, who could act as sub-brokers.

“That is one of the things that the market should look at. Many companies have excess capacities that can be hired out to other operators (and they will) make money from it. Just draw up MoUs and it will work,” Shenbanjo, who is currently the Corporate Compliance Consultant at Nationwide Investment Services Corporation, Ohio, United States, said.

In reaction, the Managing Director, Signet Investments & Securities Limited, Mr. Dipo Aina, who agreed that mergers and acquisitions were good for the market, explained that for that to succeed legacy issues had to be effectively addressed with the support of the regulators.

“Unless we draw the line that there will be no mushrooming of liabilities, then we can’t deal with it. There is no reason why companies should not merge because 10 per cent of an active company is better that 100 per cent of bad company,” he said.

Also, the Managing Director, Meristem Securities Limited, Mr. Wole Abegunde, said the legacy issues had been obstacles to mergers in the market.

He also noted that the reality was that many people wanted to own their firms 100 per cent.

He said a model that would protect the parties of a merger against the legacy issues of one of the parties had been suggested to the regulators, stressing that without the buy-in of the regulators that won’t be accepted.

“We need to think out of the box,” he said.