RECAPITALIZING MICROFINANCE BANKS IN NIGERIA: THE CAPITAL MARKET - - PowerPoint PPT Presentation
RECAPITALIZING MICROFINANCE BANKS IN NIGERIA: THE CAPITAL MARKET OPTION Presented by Taba Peterside GM/ Head, Listings Sales & Retention , The Nigerian Stock Exchange At the 2nd AGM of the National Association of Microfinance Banks The
Presented by Taba Peterside GM/ Head, Listings Sales & Retention, The Nigerian Stock Exchange At the
2nd AGM of the National Association of Microfinance Banks
The Women Development Centre, Central Business Area Opposite The Central Bank of Nigeria, Abuja
May 12, 2012
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SESSION ON RECAPITALIZING MFBs THROUGH THE NSE -
RECAPITALIZATION & UNLOCKING INTRINSIC VALUE THROUGH THE NIGERIAN STOCK EXCHANGE
OUTLINE
Microfinance;
Government on Microfinance Provision;
Requirements for MFBs;
Financial Inclusion through Microfinance
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businesses, which lack access to banking and related services due to the high transaction costs associated with serving these client categories (Wikipedia). By extension, Microfinance is the provision
to poor and low-income earners in the society.
What is Microfinance?
aimed at reducing the percentage of adult Nigerians who are excluded from financial services from 46.3% (recorded in 2010) to 20% by 2020. (Microfinance Africa).
reasonable cost by households and enterprises currently excluded.
Financial Inclusion
Journey by The Federal Government on Microfinance Provision Initiative
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Lending as a % of savings (rural areas for rural people) Rural Banking Programme / Concessionary interest rate
Guarantee Scheme Fund (ACGSF)/ Nigerian Agric. Co-
Bank Ltd Nigerian Agric. Insurance Corp./ National Poverty Eradication Prog. (NAPEP) Family Economic Advancement
Peoples Bank of Nigeria (PBN)/ Community Banks Microfinance Banks
1970 - Date
The Microfinance Policy, Regulatory and Supervisory Framework was launched on December 15, 2005, amended April 29, 2011. Sectoral allocation of credits
Snapshot of Current Regulatory Requirements for MFBs in Nigeria
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Capitalization Requirement
A.Unit Microfinance Bank Authorized to operate in
minimum paid up share capital of N20 million.
Authorized to operate and
State or the Federal Capital Territory (FCT), with minimum paid up share capital of N100 million.
Authorized to operate and open branches in more than one State including the Federal Capital Territory (FCT), with minimum paid up share capital of N2 billion.
MFBs in Nigeria: Diagnostics
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Reasons for Past Failures
by operators for effective service delivery;
governance and management structure, inefficient internal controls and poor credit administration;
base leading to insufficient loanable funds. Implication of New Licensing Requirement
factors associated with its single location; Need for integration with other MFBs
and attendant opportunities across a State, although exposed to state-specific policies and risk factors;
restrictions on operating network and business model across the entire country. However increased cost and capital requirement Opportunities/ Gaps in Micro financing
(about 65% of the active population) do not have access to formal financial institutions;
required to address the gap in terms of savings, credit and
services;
increase employment
household income and create wealth.
7 The Nigerian Stock Exchange 5/12/2012
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NSE All Share Index 22,511.30 Equity Market Capitalization N7.18 tn
N12.68tn
2012
Fixed Income Market cap: N5.50tn Two key indices All Share Index (NSE ASI) Bloomberg NSE 30 Index (NGSE30:IND) Equity Products Market cap N7.18tn.
listed companies
Powered by over 200,000 Institutional Investors and about 5 million retail investor accounts * CSCS Report 2010
Statistics as at May 10, 2012
Overview of Nigeria’s Capital Market
8.9% (YTD) 10.21% (YTD)
Our Markets Cover Blue Chip & Growth Companies
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Board Segmentations aligned with the Nigerian economy which is growing at over 7% per year
Agriculture 0% Conglomerates 1% Construction/ Real ESTATE 2% Consumer Goods 31% Financial Services 31% Healthcare 1% ICT 1% INDUSTRIAL GOODS 29% Natural Resources 0% Oil & Gas 3% Services 1% Construction/ Real Estate 1% Consumer Goods 6% Healthcare 0% Industrial Goods 5% Natural Resources 0% Oil & Gas 74% Services 14%
Main Board
designated for large sized blue chip companies.
investments and long term capital raising
multiple sectors of the economy with N7.18tn equity market capitalisation as at 10/05/12
ASeM Board
for small and mid-sized companies, with high growth potential.
SMEs through long term capital injection and sound corporate governance.
sectors of the economy with N4.10bn equity market capitalisation as at 10/05/12
NSE – Home to First Rate Companies
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Destination Segmentation
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Agriculture Construction /Real Estate Consumer Goods Financial Services Healthcare Industrial Goods ICT Natural Resources Oil & Gas Services Utilities Conglomerates
Subsectors
Brokers and Services
Brokers and Services
Credit Institutions;
Institutions
Currently, NPF Microfinance Bank Plc is the only listed Microfinance Bank in the Banking Subsector of Financial Services Sector (On the Main Board)
NSE Sector Classification
“21st” Century Technology Strategies Target-Based Business Development Efforts Strong Regulation and Supporting Regulatory Programs First-Rate Investor Protection Strategies Growth- Enabling Market Structure $1T Market Capitalization
NSE – Positioning for the Future
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Transforming Company Listings
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and competitive in line with global best practice
Listings Requirements
Exchange through value added services such as:
Value Added Services
1. Corporate Governance 2. Investor Relations 3. Institutional Services 4. Analyst Coverage 5. Corporate Access
Benefits of Listing to a Microfinance Bank
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Access to Capital for Recapitalization/ Expansion Transparency and Credibility in Operation Perpetuity of Operations Code of Corporate Governance as a competitive tool Risk Sharing amongst Shareholders Visibility: Inclusion in major Performance Indices Platform for attracting additional investment and investors Value Creation & Price Discovery
Subject Main Board ASeM Board Pre Tax Profits Profit of at least N300mn for the last 3 years, with a pre-tax profit of at least N100mn in the most recent year. N600 million for the latest 1 or 2yrs Medium term (at least 2 years) comprehensive business plan Market Cap 4bn - option 3 for main board at the time of the initial public offering, based on the issue price and issued share capital. NA Operating Record 0 – 3yrs operating track record of company and/
2 years Financials 3 years financials and the date of last audited accounts must not be more than 9 months Short term forecast (1 year) and date of last audited accounts must not be more than 9 months Public Float Minimum of 20% of share capital must be offered to the public. Minimum of 15% of share capital must be offered to the public Public Shareholders At least 300 for equity shares At least 51 shareholders Continuing Obligations Promoters to retain 50% of shares held at IPO for first 12 months. Submission of quarterly, semi – annual and annual statements. Promoters to retain 50% of shares held at IPO for first 12
annual statements. Companies must retain a Designated Adviser to assist with regulatory compliance.
Listing Requirement Summary
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Routes to Listing
Initial Public Offering (IPO)
A company
shares to the public for the first time. Money paid by investors for the newly issued shares goes directly to the company to provide capital for future growth, or to refinance debt.
By Way Of Introduction
A company’s shares are "introduced" to the market with a pre- agreed insider sale for public float, having complied with the Exchange’s Listing Requirements.
*A company may include an offer for sale element in its IPO, where funds will go to divesting shareholders – this helps to increase the public float.
The Capital Market Instruments
L I S T I N G
The Capital Market is the preferred option for raising low cost, long term capital for the recapitalization of Microfinance Banks in Nigeria, in accordance with the Licensing Requirements as set by the Central Bank of Nigeria.
Common Concerns About Listing
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Fear of loss of control by entrepreneurs Owners may retain up to 85% of total shareholdings of the company; requirement is for at least 15% minimum public
Fear of sharing profits Discipline is king as profits are shared per shareholding at specific intervals; planning is key to growing business and profits Fear of associated cost of being listed Benefits far outweigh cost. Total cost capped at 4.3% . Responsive cost reduction by principal stakeholders, NSE fees 0.3% of market capitalization for IPOs and 0.3% of nominal value of listing by introduction plus professional fees. Fear of much enhanced disclosure Disclosures are statutory and reflect the discipline of the company to transparency, which improves confidence and brand integrity. Fear of losing value due to poor market depth and liquidity Market is being restructured; introduction of market making; DFI is on the rise post 08/09 global crisis; national commitment to facilitating market development Fear of additional regulatory requirements (especially if already listed elsewhere) Waiver from having to comply with continuing listing obligations if listed on another foreign exchange with World Federation of Exchanges (WFE) status.
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Discussion
Reorganization
Marketing (Analysts)
Offer & Application
Marketing (Fund Managers)
SEC Registration
Education
Marketing & Bookbuilding
Steps to Actualization – Summary
The Listing Sales & Retention Department is available to provide guidance through the whole process
Issuing House
Overall co-ordination of IPO process Co-ordination of due diligence and application document Ensure compliance with applicable rules Develop investment case, valuation and offer structure Manage communication with SEC
Stock Broker
Prepare company for roadshow Facilitate research Build the book pre-float Manage communication with NSE Marketing and distribution Pricing and allocation/advice
Reporting Accountant
Review financials – assess company’s readiness for IPO Tax structuring Financial due diligence - long term, short term and working capital reports
Solicitors
Legal due diligence Draft and verification of application document Corporate restructuring Provide legal opinions
Other Advisers
Registrars Receiving Bank/s Trustees/ Underwriter Investor Relations
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Pre IPO Guide – Parties & Responsibilities
The NSE Listings Sales & Retention Department is available to provide guidance through the whole process
LISTING IS PART OF A COMPANY’S STRATEGIC BUSINESS PLAN
True Success Comes After Listing
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Discipline The most important competency a listed company should possess Enables good corporate governance practices Ensures proper management of the business and a higher return
Disclosure With proper corporate governance, disclosure is easy Required for maintaining “street” credibility--investor and market interest and confidence Key to liquidity Market Analysts Possibly the most important resource, post-listing Responsible for ‘buy-sell’ recommendations Relied upon by institutional, and international investors Indirectly market a company’s stock Public relations consultants Advertise and market companies and their brands Enforce the brand/image a company wants to project Augment the value of the company’s market performance Strategic Planning No plan, no success Accountability is a stipulation of raising money from the public Stock Exchange Delivers information about company’s performance to local and international investors and market
Relies on timely submission of forecasts and quarterly/ yearly performance (accounts)
Listed companies must work to maintain credibility using these resources
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The Nigerian Stock Exchange
Stock Exchange House 2-4 Customs Street P.O. Box 2457, Marina Lagos Island Lagos, Nigeria Direct Lines: 01- 4489363, 4489373
listingsales@nse.com.ng www.nse.com.ng