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Why Right-Issues dominate the primary market - Investors pause on IPOs

Category: Public Offers Private Placements

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Why Right-Issues dominate the primary market - Investors pause on IPOs


Wednesday, March 13, 2013/ The Analyst

The key purpose of the financial market is to help active and growing firms raise capital more efficiently. Recently, the Nigerian Capital Market recorded some positive impetus from firms to raise capital but the vehicle of choice was not through public offers but through right issues.

This trend questions the health status of our primary markets as regards to the PO/IPO Market, since the exchange is yet to record a single IPO (REIT excused) or traction on fresh public offers.

Apart from the recently concluded Oando Plc rights issue, the result of which is not yet known but anticipated to have been successful; we have the following companies in the pipeline for rights issue offers; viz: Prestige Assurance Plc, Transcorp Plc, Wapic Insurance Plc, Resort Savings and Loans, Aso Savings Loans Plc and African Paints Nigeria Plc

Though, this assessment might be considered too early in the day, it nonetheless provides a pointer to how the market mindset is structured, in relation to investors' confidence and the health of the market.

So, what could be responsible for this state of cautious optimism? Could it be a function of the sluggishness in the economy uptake? Is it that companies are delaying expansion or are not expanding at all? Can we link this with the current fragile status of the market recovery? Or could it be that confidence in the market is still low and investors have turned more cautious towards equities ahead of / and in anticipation of results?

An attempt is therefore made here to review the state of public offers in the market and possibly showcase some likely reasons why we have not been recording activities in new issues.

In 2013 to date, and across the globe; majority of the markets are equally optimistic about the revival of the IPO/PO markets driven by expectations on the back of performances recorded in 2012.

In Nigeria, there seems to be a lull and lack of traction in this area. The firms that signified interest in coming to the market last year have suddenly developed a cold feet – prominent of which include Promasidor Nigeria Ltd and Notore Chemical Industries Limited.

Of the listed companies in 2012 - Fortis Microfinance Bank Plc and Austinlaz Company Plc were listed by introduction. Instructively, the total value for new issues in the year 2012 closed at N195.36billion, representing -91.12% fall when compared with total value for new issues in 2008 (the benchmark year for the advent of the financial crisis in Nigeria).


The IPO market remains inactive since 2009 till date as the NSE CEO re-echoes his hope to record at least 20 IPOs this year (2013).

The market has taken the middle road however –choosing to deploy the rights-issue option with at least fourteen (14) quoted companies deploying this vehicle between 2010 and 2012.


The question thus needs to be asked about the decision and its place within the recovery matrix for the Nigerian bourse.

Is this a question of investor profile, needs or/and confidence matter or a question of liquidity? Extending the logic further, could it be a question of listed companies not wanting a further dilution of ownership or a reinforcement of ownership ahead of changes or threats from market making activities?

While analysts continue to ponder on the driving factors, we understand that firms like Promasidor, Notore Chemical Industries and the likes continue to gauge the market pulse, taking their time to approach market to raise capital based on their valuation considerations of share offer price.

We can safely opine at this point that the consideration of a fair price or near true value of share worth, amidst a liquidity challenged market remains a key consideration for the re-entry of IPO’s and PO’s in the Nigerian bourse.

This should be a matter of time. For now, the market will have to get used to the call on shareholders to show their commitments to their holdings through the vehicle of rights issues; and the trade of such rights.





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