Post on 19-Mar-2020
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 Women Development Centre, Central Business Area
Opposite The Central Bank of Nigeria, Abuja
May 12, 2012
5/12/2012 1 The Nigerian Stock Exchange
SESSION ON RECAPITALIZING MFBs THROUGH THE NSE -
RECAPITALIZATION &
UNLOCKING
INTRINSIC VALUE
THROUGH
THE NIGERIAN STOCK
EXCHANGE
OUTLINE
• Financial Inclusion through
Microfinance;
• The Journey by The Federal
Government on Microfinance
Provision;
• Snapshot of Current Regulatory
Requirements for MFBs;
• Overview of Nigeria's Capital Market
• Capital Market Instruments;
• Benefits of Listing;
• Steps to Actualization.
Financial Inclusion through Microfinance
5/12/2012 The Nigerian Stock Exchange 3
• Microfinance is usually understood to entail the provision of financial services to micro-entrepreneurs and small 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 of financial services, which include savings, insurance and loans to poor and low-income earners in the society.
What is Microfinance?
• The Central Bank of Nigeria recently developed an exposure draft on its strategy towards financial inclusion in Nigeria, which is 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).
• This is expected to create a wider access to financial services at reasonable cost by households and enterprises currently excluded.
Financial Inclusion
Journey by The Federal Government on
Microfinance Provision Initiative
5/12/2012 The Nigerian Stock Exchange 4
Lending as a % of savings (rural areas for rural
people)
Rural Banking Programme
/ Concessionary interest rate
Agric. Credit Guarantee Scheme
Fund (ACGSF)/ Nigerian Agric. Co-
op. & Rural Dev. Bank Ltd
Nigerian Agric. Insurance Corp./ National Poverty Eradication Prog.
(NAPEP) Family Economic
Advancement Prog. (FEAP)/
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
5/12/2012 The Nigerian Stock Exchange 5
Capitalization Requirement
A.Unit Microfinance Bank
Authorized to operate in one location with
minimum paid up share capital of N20 million.
B. State Microfinance Bank
Authorized to operate and open branches in only one State or the Federal Capital
Territory (FCT), with minimum paid up share capital of N100 million.
C. National Microfinance Bank
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.
• Currently, over 900 MFBs at different stages of approval with the CBN;
• Only one listing (NPF Microfinance Bank Plc) and a prospective listing.
MFBs in Nigeria: Diagnostics
5/12/2012 The Nigerian Stock Exchange 6
Reasons for Past Failures
• Lack of adequate skills set
by operators for effective service delivery;
• Lack of proper corporate governance and management structure, inefficient internal controls and poor credit administration;
• Lack of adequate capital base leading to insufficient loanable funds.
Implication of New Licensing Requirement
• Unit MFBs: Exposed to risk
factors associated with its single location; Need for integration with other MFBs or Commercial Banks;
• State MFBs: Wider coverage and attendant opportunities across a State, although exposed to state-specific policies and risk factors;
• National MFBs: No restrictions on operating network and business model across the entire country. However increased cost and capital requirement
Opportunities/ Gaps in Micro financing
• Available statistics reveal that
over 80 million Nigerians (about 65% of the active population) do not have access to formal financial institutions;
• Microfinance Solutions are required to address the gap in terms of savings, credit and other associated financial services;
• Micro funding is expected to increase employment opportunities, enhance household income and create wealth.
7 The Nigerian Stock Exchange 5/12/2012
NSE Vision and Goal
5/12/2012 The Nigerian Stock Exchange 8
NSE All Share Index
22,511.30
Equity Market Capitalization
N7.18 tn
• Total Market Cap = N12.68tn
• 22.65% of GDP 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.
Approx. 200 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
5/12/2012 The Nigerian Stock Exchange 9
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 • The Main Board of The Nigerian Stock Exchange is
designated for large sized blue chip companies. • It is a platform for connecting issuers and investors for
investments and long term capital raising • Currently has 187 Quoted Companies spanning
multiple sectors of the economy with N7.18tn equity market capitalisation as at 10/05/12
ASeM Board • The Alternative Securities Market is a specialized board
for small and mid-sized companies, with high growth potential.
• It is a platform to drive growth and development of SMEs through long term capital injection and sound corporate governance.
• Currently has 12 Quoted Companies spanning multiple sectors of the economy with N4.10bn equity market capitalisation as at 10/05/12
NSE – Home to First Rate Companies
5/12/2012 The Nigerian Stock Exchange 10
Destination
Segmentation
of MFBs
5/12/2012 The Nigerian Stock Exchange 11
Agriculture
Construction/Real Estate
Consumer Goods Financial
Services
Healthcare Industrial Goods
ICT
Natural Resources
Oil & Gas Services
Utilities
Conglomerates
Subsectors
• Banking; • Insurance Carriers,
Brokers and Services
• Mortgage Carriers, Brokers and Services
• Non-Depository Credit Institutions;
• Other Financial 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
5/12/2012 The Nigerian Stock Exchange 12
Transforming Company Listings
5/12/2012 The Nigerian Stock Exchange 13
• Introduced quantitative elements for equities to make it flexible and competitive in line with global best practice
Listings Requirements
• Ensuring all our companies realize the value of listing on the 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
5/12/2012 The Nigerian Stock Exchange 14
Microfinance Bank Co.
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/
or core investor.
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
months. Submission of quarterly, semi – annual and
annual statements. Companies must retain a Designated
Adviser to assist with regulatory compliance.
Listing Requirement Summary
5/12/2012 The Nigerian Stock Exchange 15
Routes to Listing
Initial Public Offering (IPO)
A company offers
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
5/12/2012 The Nigerian Stock Exchange 18
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 ownership.
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.
5/12/2012 The Nigerian Stock Exchange 19
1. Consultation & Discussion
2. Preparation & Reorganization
3. Phase I Marketing (Analysts)
4. Packaging of Offer &
Application
5. Phase II Marketing (Fund
Managers)
6. NSE Approval & SEC Registration
7. Investor Education
8. Phase III Marketing & Bookbuilding
9. Listing
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
5/12/2012 The Nigerian Stock Exchange 20
Pre IPO Guide – Parties & Responsibilities
The NSE Listings Sales & Retention Department is available to provide guidance through the whole process
QUOTATION
LISTING IS PART OF A COMPANY’S STRATEGIC BUSINESS PLAN
True Success Comes After Listing
5/12/2012 The Nigerian Stock Exchange 21
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 on investment (ROI)
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 operators Relies on timely submission of forecasts and quarterly/ yearly
performance (accounts)
Listed companies must work to maintain credibility using these resources
Q&A
5/12/2012 The Nigerian Stock Exchange 22
Thank You
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