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‘The capital market can bridge budget gap on infrastructure’ – SEC DG

Acting Director General, Securities and Exchange Commission (SEC) - Mary Uduk
Acting Director General, Securities and Exchange Commission (SEC) - Mary Uduk

The Acting Director General of the Securities and Exchange Commission (SEC), Ms. Mary Uduk in this interview makes a critical appraisal of the implications of COVID-19 for the nation’s economy and also on other issues that can improve the capitalization of the Nigerian bourse, especially the listing of government assets.

With COVID-19 now declared a pandemic by the World Health Organisation, should we worry about a contagion effect on our market?

The effect of coronavirus has been bad for the economy because economic activities have slowed down due to the fear of the virus and we don’t see it as affecting the market directly, what would happen is that businesses will no longer do as much activities as before thereby slowing down business and when that happens it affects the market. So it’s not just about the Nigerian capital market, it’s about the companies in the economy and how it will affect them which is a bigger consideration than just the consideration of the capital market. In all, we believe the Ministry of Health that told us that they are ready and we will continue, as a prayerful people in Nigeria, to pray that the virus doesn’t spread further in Nigeria. I think efforts are being made to ensure that it is contained. So, we don’t see this as much of the problems. What we see as the problem is our trade with other countries that are seriously infected by this virus. Trade has slowed down and this will affect the global economy not just the Nigerian economy.

The 2020 budget was approved early for the first time in recent years. What is your view on how the government can leverage the capital market to grow the economy in light of the new Finance Act?

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The capital market plays a huge role in the development of any economy. We are seeing a lot of deficit in infrastructure, our budget can really not give us the amount of infrastructure we need as a country and the capital market is there, it is able to meet this gap if we leverage it the right way. The Finance Act also has made it a bit easier. For instance, the provisions made for real estate investment companies for securities lending and other issues. So, the capital market will be able to contribute money to this budget, using the Finance Act. We are excited about the Finance Act provisions.

Beyond the provisions of the Finance Act, what other steps do you think the government should take to support the capital market?

I want to say that we appreciate the Federal Government’s initiative of the Finance Act. If you have read the Act, you will know that there are a number of initiatives that are in support of the capital market.

We had expected more because we had been working on some of these initiatives for many years with FIRS and other relevant stakeholders. The government has, through the Finance Act answered some of our prayers, albeit there are others we thought that should have been done. For instance, on the issue of taxes we had thought that the taxes would have been more far reaching but we will continue to push for more tax reductions in different areas. We also expected that government would give us some other palliatives, maybe to some companies to encourage them to come to the market. But we are still working with government to ensure that those are done. This is just the beginning, because if we have to wait for the government, to go to national assembly to amend or repeal certain bills or come up with new ones, it will take years. But with the finance bill, we have to do this every year, now we know what they have done, we will start again to work towards next year. For us, to drive investments, we ought to bring capital into key areas. The issue of tax is very critical to infrastructure funds. Government can’t fund infrastructure alone and so, the private sector will help to do that. So, we should be able to have infrastructure funds which are investment vehicles and they should enjoy tax incentives. We have private equity funds that also drive investments in SMEs and things like that. These are critical areas, and the government can look at private equity funds and operators who invest in certain core areas like mining agriculture, and others, and also grant them certain incentives. So these incentives would drive inflows of capital into those areas. These are the kind of things that should be done; having more incentives for more investors to come into the market, enlarge the market, SMEs and all of that. So, we need to consider that area of tax because the issue is that you want to bring in more people into the tax base.

What do you intend to do this year to encourage investors to offer new shares?

As we speak, there is a market committee, even without adding the effort of the SEC as the regulator, going round and engaging a lot of these companies to come to the market. We also have a standing market committee that is driving this issue in respect of encouraging, engaging and bringing other companies to come to the market to list. Most of these companies are private companies or family companies, so it takes a lot to really convince them to come to the market. I also find out that other jurisdiction have the same issue. I remembered we were discussing this same problem with Saudi Arabia two weeks ago, when we had a meeting. One of the things that they said was that they had to reduce a lot of their requirement to get these companies to list. They started them with, what we call equivalent of our second tier market and then gradually moving them into the main market.  We are also looking at that, we are also looking at those requirements that these companies find difficult to comply with? We will work with them to ensure that are comfortable with what to do to at least bring them into the market. We are also working with the exchanges because we also find out that in other jurisdiction they have something like a clinic where the exchanges and the regulator will assist those companies to comply with the requirements, especially on the issue of governance because you know governance is very key.

We are also working with the exchanges, and of course we also engage other government agencies. For example, there are some companies in the petroleum industries, some either government owned or with government holding. So we will also engage them and those companies some of them are almost ready to even comply with the listing requirement. They are required to comply with all of the governance provisions. Some jurisdictions have begun to look at that critically with a view to looking at what aspect of governance do they step down for some of these new companies.

The problem of unclaimed dividends has persisted, what is the SEC doing to ensure that the unclaimed dividends actually get to the investors?

First of all, I will say that for new dividends that are being issued now I am not sure we have much problem.  The problems that we have with respect to unclaimed dividends are the legacy issues that have been there.

As for the issues of multiple subscriptions, as long as people don’t come forward to claim their shares it will be difficult to wipe out those unclaimed dividends.

Because if I have shares and I don’t even know that I have this shares, either because I had forgotten the names with which I use to buy the shares, as long as they are not claimed it will be difficult to know where to send these dividends to .

But for the new dividends today, that are being issued. We don’t have problems there.  For that reason we have been working with the registrars and the brokers to get in touch with these people who bought shares in different names to come forward and claim their shares.

We are trying to address the legacy issues. I have been working with registrars, the CSCS, the brokers to update the record in the system. Last year, we issued a circular in November directing all the stakeholders to update information in respect of their clients and those information should include the BVN number because at the time the subscribers or shareholders invested their money there was no BVN number. So, we have now directed the brokers to update their information.  And when they update that information they will send it to CSCS, from CSCS to the registrars. And we believe that if that is concluded the issue of unclaimed dividends will be addressed.

When are we going to witness the listing of government assets like the NNPC and other big entities like the DisCos, the Gencos and the NLNG in the market?

The question I would ask, in the way we understand is that if any Disco or a Genco comes to the market today, how many of you will invest in it the way they are? Is there anybody that will invest in it? So, initially what was agreed was that they were supposed to have operated between 5 and 7 years.

The government had felt that, by that time they will be ready to come to the market. But you and I know that as of today none of them is ready to come to the market.  If they came nobody will invest in them.

I know that the government is doing a lot to clean them up to bring them up to speed to get them ready for the market. Because it is only if they are able to come to the market and raise long term financing that they will be not only for them to operate well, have the money that they need to do their work, but also attractive to investors. But as of today they are not ready and of course since you are in this market and you are in this business, when they are ready we will all know.

We are engaging them, we are working with BPE, but even beyond that they themselves have to be ready.  And you know they have been clamouring for increase in tariff to enable them to re-positioned and I am not sure if the government has answered them as regards that because for a responsive government to agree for tariff increase, they have to see that you are operating efficiently and that your savings for the people you want to increase tariff for, that you are doing a good work but I am not sure whether that has happened. I believe that when they are ready all of us will know.

In respect to the NLNG and the NNPC,  we have been engaging NNPC all along and the NLNG came in sometimes ago to make enquiries.  There are certain things that need to be put in place before they are ready to come to the market. I am sure when they are ready they will come and we will not relent in engaging with them until they are ready to come.

What is your capital market development outlook in 2020?

It’s a very optimistic outlook. Like I said last year, we had some crowded out because of high yields on government debt and now those yields are fussing down and we are seeing flows coming back. Also, we had some draw down from the foreign investors, they were scared of the election that we had last year, but we see some of those monies coming back into the capital market. We are very optimistic. If you look at the equities market for instance you will see that most of the companies are undervalued as we speak. We believe that valuation would come up and also the risk sentiments in the market will improve. So, we are very optimistic about 2020 as we were the best performing equities market so it was only natural that a little of drawdown in 2018 and 2019. I think the bulls would roll in 2020. There will always be challenges but I want to assure you that the regulator is doing a lot to have a clean market. A market where everyone have a plain field, investors are protected with all these in place investors can trade and profitably too.

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