NIGERIAN CAPITAL MARKET: MODERNIZATION, REFORMS, TRENDS & OUTLOOK FOR THE FUTURE Presented by Oscar N. Onyema CEO, The Nigerian Stock Exchange for NIGERIA ECONOMIC & FINANCIAL MARKETS CONFERENCE Bloomberg Auditorium, London, UK 23 March, 2012 23/03/2012 The Nigerian Stock Exchange 1
About the NSE Established in 1960 Approx. 5 million investors: Foreign 81% of market activity Local 19% of market activity 234 active Broker-Dealer firms 28 member Issuing Houses Equities 199 listed cos. N6.35t ($40.56b) mkt cap Bonds 52 bonds N5.23t ($33.40b) mkt cap ETFs 1 ETF N1.09b ($6.96m) AUM 14 electronic trading floors around Nigeria Figures as at 29-Feb-2012 23/03/2012 The Nigerian Stock Exchange 2
NSE Vision and Goal 23/03/2012 The Nigerian Stock Exchange 3
Consistent inflationary pressure 10.9% 12-mo average (12.6% in Jan 2012 remains in double-digit territory) Tight monetary policy to manage inflation and high FX demand High MPR from 6.25% to 12% Increase in credit to private sector Up 30% month-on-month High lending rates Nigerian Economic Trends 2011 16.75% prime (23.21% max) High level of unemployment 23.9%; 15-24 year olds are highest bracket (approx 35m) Relative exchange rate stability N148.67 to N156.70 for USD1 23/03/2012 The Nigerian Stock Exchange 4
Total Value of Shares Traded (Billions) ASI (Daily) Equity Market Performance 2002-2011 Share Value ASI 35 30 25 20 Peak: March 5, 2008 ASI 66,371.20 A N1,000 investment in 1996 would have been worth N13,029.26. 70,000 60,000 50,000 40,000 15 10 5-17.07-20.39 30,000 20,000 10,000-2-Jan-02 2-Jan-03 2-Jan-04 2-Jan-05 2-Jan-06 2-Jan-07 2-Jan-08 2-Jan-09 2-Jan-10 2-Jan-11-23/03/2012 The Nigerian Stock Exchange 5
Equity Market Drivers Soft global economy and cautious foreign investors Eurozone contraction (Aug-Dec) with 17-year unemployment high in UK and record high of 10.7% in 17-member zone; Credit ratings for 9 Euro nations cut by S&P (Jan 2012) US economy recovering 3.0% growth in Q411; Inflation at 2.9%; Unemployment down to 8.30% (Jan 2012) from 8.50% Eroded investor confidence Preference for fixed income, especially for government paper Nigeria banking crisis N30b ($119.13m) market cap erased in one day; Banking Index down 34.69% Low broker-dealer participation rates Margin loan debt overhang and lack of access to financing (CBN prudential guidelines) Unfavorable interest rates Lack of liquidity and depth Low equity issuance, no IPO in 2011 PFAs and Institutionals on the sidelines; Inordinate ratio of foreign-to-local participation 23/03/2012 The Nigerian Stock Exchange 6
Investment Flows FPI estimated at N511.72 bn ($3.37 bn) in 2011, up 34.19% from 2010 FPI inflows accounted for over 80% of total transactions, driven primarily by the UK and US, and Hong Kong, Luxemburg, South Africa and Germany Type of Investors % of Total Value Traded 2008 2009 2010 2011 Foreign Investors 53% 30% 49% 81% Local Investors 47% 70% 51% 19% 2004 2005 2006 2007 2008 2009 2010 2011 New CSD Accounts (Retail ) 206,264 220,650 308,072 950,992 1,817,616 424,813 168,148 128,638 23/03/2012 The Nigerian Stock Exchange 7
Stocks 1 fund: Closed-end fund Sim Capital Alliance Value Fund Prospective issuers delaying raising new capital, i.e., no IPOs Investors rewarded with bonus and rights ($24.85b) issues, and dividends Exchange Traded Products 1 ETF: 1 st ETF in Nigeria (and West Africa) NewGold ETF; up 10.2% YTD (Feb 2012) Sovereign/State Bonds 2 state bonds: $329.33m Delta bond and $59.28m Niger bond Corporate Bonds New Issues 7 corporate bonds: $14.16m NAHCO bond $30.5m Tower Funding (x2) bonds $52.76m Dana Group bond $230.54m UBA bond $4.45b AMCON (3 tranches) bonds 2011 23/03/2012 The Nigerian Stock Exchange 8
Offering Blue Chip and Growth Companies Main Board - 2011 187 listed companies spanning multiple sectors of the economy N6.53t ($43.01b) market capitalization 89.29b shares traded, valued at N634.90b ($4.18b); 43% of cos. paid dividends ICT 1% OIL & GAS 3% NATURAL RESOURCES 0% HEALTHCARE 1% INDUSTRIAL GOODS 29% SERVICES 1% AGRICULTUR E 0% FINANCIAL SERVICES 31% CONSUMER GOODS 31% Avg. dividend yield of 3.97% CONGLOMER ATES 1% CONSTRUCTI ON/ REAL ESTATE 2% ASeM - 2011 Board for small and medium enterprises 12 listed companies spanning multiple sectors of the economy N4.07b ($26.81m) market capitalization 284.73m shares traded, valued at N154.67m ($1.02m); 8% of cos. paid dividends CONSTRUCTI ON/REAL ESTATE 1% TURNOVER RATIO = 9.7% SERVICES 14% CONSUMER GOODS 6% OIL & GAS 74% HEALTHCARE 0% Avg. dividend yield of 11.54% INDUSTRIAL GOODS 5% NATURAL RESOURCES 0% 23/03/2012 The Nigerian Stock Exchange 9
2012 Outlook - Global Global recovery underway, surrounded by risks Eurozone debt crisis remains a key risk to the world economy Concerns surrounding sovereign debt sustainability Volatility in certain regions (and sectors) driven by prolonged unrest Slower growth projected in OECD countries* 2.1% (2011), 2.6% (2012), 2.5% (2013) US 2.9%, Eurozone 1.8%, Japan 2.6% Non-OECD countries to sustain world growth* East Asia & Pacific 8.1%, South Asia 7.7%; Sub-Saharan Africa 5.7% Nigeria 7.5% * Figures reported by World Bank 23/03/2012 The Nigerian Stock Exchange 10
2012 Outlook - Nigeria Potential deregulation of Oil & Gas sector Passage of revised Petroleum Industry Bill (PIB) Focus on downstream Oil & Gas sector Urgent requirement for fiscal consolidation Shift towards balancing capital and recurrent expenditures Urgent attention to unemployment Agriculture initiative to increase employment potential Deployment of the SWF funds Returning liquidity in the banking system Deeper capital market reforms Slight market recovery anticipated 23/03/2012 The Nigerian Stock Exchange 11
Reform-Driven 5-Year Outlook Targeted Business Development Efforts Strong Regulatory Environment 21 st Century Technology Strategies Growth- Enabling Market Structure First-Rate Investor Protection Programs $1t Market Cap Target 23/03/2012 The Nigerian Stock Exchange 12
NSE Regulatory Reforms Legal & Regulation Division BROKER DEALER REGULATION 1. Supervision, monitoring and enforcement of rules new penalties for violations 2. Compliance 90% for submission of financial accounts (was 5%) 3. Investigation Panel reconstituted; new Code of Conduct LISTINGS REGULATION 1. Disclosure Standards updated penalties for violations 2. Compliance - 96.81% for submission of annual accounts (2010) 3. Corporate Governance annual certification requirement 4. Share Buy-Back Policy revised 1. Automation SURVEILLANCE 2. Implementation of Market Quality analysis RULES AND INTERPRETATIONS 1. Formation of Department 2. Rule Book Revision 3. Rule-Making Processes 4. Interpretative Guidance 5. Listings Requirements revised 23/03/2012 The Nigerian Stock Exchange 13
New Products and Services Equities Bonds ETFs (Launched 2011) Options (2013) Futures (2015) Technology infrastructure X-Net (virtual private network) for brokers Development of NASDAQ OMX X-stream trading platform New corporate database Market data services New data policy Feeds, subscriptions and reports for market participants NSE Web site Access and market information for investors and all stakeholders Value-added services Corporate Governance, Investor Relations, Institutional Services, Equity Research Coverage, and Corporate Access for listed companies 23/03/2012 The Nigerian Stock Exchange 14
Outside NSE Control Key Initiatives Within NSE Control Reform-Based Key Initiatives 23/03/2012 The Nigerian Stock Exchange 15 Term Short (2011) Medium (2012) - Market Segmentation - Company Share Buy-Back - Introduction of ETFs - Investor Clinics - New Web Site - Revised Listing Rules - Market Making (rules approved) - Securities Lending (rules approved) - Short Selling (rules approved) - AMCON Debt Resolution - Advocacy - Develop Product Liquidity and Depth - Attract and Retain More Listings - E2E Trading Automation - Continued Enhancement of Regulatory Programs - Financial Literacy Program - IFRS Compliance - Demutualization - Market Data Services - Advocacy - Dematerialization - Review PFA Investment Guidelines - Tax Breaks on Transaction Fees - Policy on Large Cap Firms to Deepen Market - Access to SWF Funds - Exit Strategy for Privatized Entities - Reduce Focus on Dividends - Capacity of Local Institutional Investors - Broker Margin Debt Resolution - Broker Access to Funding
First-Rate Market, First-Rate Companies 23/03/2012 The Nigerian Stock Exchange 16
The Gateway to African Markets We offer some of the highest yields available at maturity, and the potential for capital appreciation. Growing per capita income as a result of an economy that is growing over 7% annually. 23/03/2012 The Nigerian Stock Exchange 17
Thank You The Nigerian Stock Exchange Stock Exchange House 2-4 Customs Street P.O. Box 2457, Marina Lagos Island Lagos, Nigeria oonyema@nigerianstockexchange.com www.nse.com.ng 23/03/2012 The Nigerian Stock Exchange 18