The paperless Initial Public Offers (IPOs) being considered by the Securities and Exchange Commission (SEC) will make application process easy and friendly for investors. CHRIS UGWU writes
IPO market activity has been silent for some years now in Nigeria as some firms, which hitherto would have floated IPO have continued to gauge the market pulse, taking their time to approach the market to raise capital based on their valuation considerations of share offer price.
In the last 19 years, the IPO market recorded the highest boom between 2007 and 2008, that was before the global market witnessed financial crisis, which Nigeria was not insulated from.
From 2016 to date, the primary market recorded zero activity on IPOs. The only attempt at an IPO was South Africa’s telecom group MTN, which met with the SEC in 2016 to discuss a possible initial public offering and how it wanted to structure the share sale. The Africa’s biggest mobile phone operator had planned to list its Nigerian unit in 2017, part of an agreement with the government, but delayed the IPO due to market conditions.
However, the activities have since started picking up in the capital markets since the Naira has stabilized, investors have regained confidence, and issuers, which paused their plans due to uncertainty have started accessing the market again. Analysts expect to see renewed activity in the IPO market. Regulators are also coming up with innovations that will facilitate the market, one of which is the plan to introduce electronic IPO.
Full automation has become more effective in expanding the outreach of IPOs with increasing popularity of online trading. The market needs a new application process, which is easy and friendly for investors to use and provide various market participants such as brokers, banks, registrars, among others with a more cost-effective means to conduct their business as it is currently obtained in some countries.
How it works in other climes
For instance, in Hong Kong the Securities and Futures Commission (SFC) guidelines for e-IPO showed that different market participants such as brokers, banks, Hong Kong Securities Clearing Company Limited, among others are allowed to offer the eIPO service to their clients or the public. They are referred to as the eIPO service providers.
Each e-IPO service provider can set up its own website and use other methods (e.g. by phone, use paper instruction forms etc.) to collect applications from their clients or the public for securities in an IPO.
Each e-IPO service provider will rely on its own business arrangements with clients or the public to effect applicants’ payments for the subscription (for instance, a bank may rely on its own system to debit applicants’ accounts; brokers will make necessary arrangements with their clients to ensure that there is sufficient fund for the subscription).
Each eIPO service provider will prepare data files containing all the application information in accordance with the standard data file format specified by the Federation of Share Registrars Limited and submit them either electronically through the SD Net (which is a proprietary network built and maintained by the SFC) to the share registrar or manually through the submission of CD-ROMs to the receiving banks.
Each eIPO service provider will also submit the consolidated application forms together with the subscription money to the receiving banks, which, in turn, transfer the consolidated application forms to the share registrar for further processing.
Refund of subscription money and delivery of allotted securities will be made to the eIPO service providers or the applicants, among others.
Benefits of e-IPO
Managing Director Crane Securities, Limited, Mr. Mike Eze, listed the benefits of electronic IPO to include expanding the outreach of IPOs, promoting the culture of keeping stocks in a book-entry form, expediting the IPO process and making it easy to use.
Eze noted that the new system is indeed a welcome development to the Nigerian capital market as it ensures more accessibility for the general public while effectively utilising the growing concept of online banking.
He stated that the Centralised Electronic IPO system will enable investors to apply for subscription of securities electronically.
“This system will save the investors’ time and effort as they will not have to manually fill and submit the forms. Moreover, they won’t be required to wait in long queues to submit their IPO application while visiting a bank branch.
“From the issuer’s point of view, the e-IPO will be very cost-effective as they will efficiently raise funds from the market while reducing the issuing cost and increasing the turnover,” he said.
SEC warms up
In order to follow other markets and allies to the new technology, stakeholders in the Nigerian capital market have begun the process towards full automation of IPO and other public primary offers in the Nigerian market.
A committee on the full automation of the primary issuance process is setting up the secretariat and it is expected to submit its report ahead of the next meeting of the Capital Market Committee (CMC).
The SEC Acting Director General, Mary Uduk, who stated this at the last CMC post press briefing, said that the Nigerian capital market cannot afford to be left behind as capital markets are moving towards e-IPOs.
The committee, according to her, comprises the SEC, Nigeria Stock Exchange (NSE); Association of Issuing Houses of Nigeria (AIHN); Association of Stockbroking Houses of Nigeria (ASHON); Central Securities and Clearing System (CSCS); Institute of Capital Market Registrars (ICMR); Capital market Solicitor Association (CMSA); Fund Managers Association of Nigeria (FMAN), and Nigerian Interbank Settlement System (NIBSS).
The full automation of primary issuance will involve automation of the process, approval, documentation, subscription and allotment of all issues, especially IPOs and public offers. With this, investors will be able to subscribe and make payment for IPOs and public offers online with such orders being matched and allotted electronically and directly to the investment accounts of the investors at the CSCS.
The full automation will enable primary market to operate within a designated transaction cycle, possibly within the T+3 four-day trading cycle being operated at the secondary market.
Curbing multiple subscriptions
The apex regulator said that the full automation of the IPO will be driven by Bank Verification Number (BVN).
The embattled SEC Director-General, Mr. Mounir Gwarzo, had at the 2017 second post Capital Market Committee (CMC) news conference in Lagos, said the initiative will contribute in no small measure in curbing the menace of multiple subscriptions that was witnessed during the market boom.
Multiple subscriptions to public offers occurred during the market boom when investors joggled their names in different forms to enable them purchase more than the permitted units of shares in public offers.
The worrying situation became more prevalent because it is believed that the continued rise is detrimental to the growth and development of an emerging market that wants to achieve a world class market and attract direct foreign investment.
“With the BVN, the moment you do double application, it will be thrown out,” Gwarzo had said.
Speaking on the absence of IPO in the nation’s equity bourse, he said the dearth of IPO was not only in Nigeria but the entire emerging market which is attributable to rising inflation.
He said that the SEC was optimistic that it will bounce back very soon
“We believe that in near future, IPO will come back on stream,” he said.
SEC had recently notified the general public on how reported cases of multiple subscriptions to public offers would be treated.
The Commission being aware of the negative effect of this act to the market, constituted a market-wide committee with the aim of proposing the manner by which securities as well as dividends accruing to such persons via multiple applications should be treated.
ASHON President, Mr. Patrick Ezeagu, said IPOs automation and public offers will instill more transparency and efficiency into the Nigerian capital market.
According to him, improved transparency and efficiency will enhance investors’ confidence and further position the Nigerian market as a more competitive investment destination.
He noted that automation will translate to less time and cost on documentation and mailing, thus enabling parties to the issue to round off the transaction in a manner similar to the secondary market trading.
To Eze, it appears that good times are coming for investors and potential investors as well as listed companies on the capital market as the considered model would allow investors to apply for subscription of securities electronically, saving them time and effort.
He noted that e-IPOs also have the potential to expand the outreach of IPOs through a web-based portal that’s available 24 hours a day, 7 days a week.
“It also allows instant handling of public offerings via an automated system. As an investor, you get to track your order status and also modify your bids online,” he said.
The new model would encourage competition and innovation among market players and allow investors to have the freedom to choose the e-IPO services, which meet their best needs.
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