FUNDING FOR SMEs: THE CAPITAL MARKET OPTION Presentation at... · 5/17/2012 The Nigerian Stock...
Transcript of FUNDING FOR SMEs: THE CAPITAL MARKET OPTION Presentation at... · 5/17/2012 The Nigerian Stock...
FUNDING FOR SMEs:
THE CAPITAL MARKET OPTION
Presented by
Taba Peterside
GM/ Head, Listings Sales & Retention, The Nigerian Stock Exchange
At the
One-Day Workshop for SME Owners and Stakeholders, Organised by
The Nigerian Association of Small Scale Industrialists (NASSI)
Oranmiyan Hall, Lagos Airport Hotel, Obafemi Awolowo Way, Ikeja, Lagos
May 17, 2012
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SESSION ON CAPITAL MARKET AS
SOURCE OF FUNDING FOR SMEs -
UNLOCKING
INTRINSIC VALUE
THROUGH
THE NIGERIAN STOCK
EXCHANGE
OUTLINE
• Small & Medium Enterprises in
Nigeria
• SMEs in Nigeria: Diagnostics
• Overview of The Nigerian Stock
Exchange
• Capital Market Instruments
• Listing on The Nigerian Stock
Exchange (ASeM Board)
• Steps to Actualization
Small & Medium Enterprises in Nigeria
Despite the widely acclaimed vital role of Small and Medium Enterprises (SMEs) in economic growth and development of a nation, SMEs in Nigeria face a range of challenges that undermine full economic benefits.
“Micro, Small and Medium Enterprises remain the backbone of the development of any economy and the driving force of national growth. In Nigeria, there are currently over 17 million Micro, Small and Medium Enterprises in the country, employing over 31 million Nigerians. They account for over 80 per cent of the total number of enterprises in Nigeria and employ 75 per cent of the total workforce,” – Mr. Olusegun Aganga, Minister of Trade & Investment, 2012.
• SMEs are expected to act as catalysts for the socio-economic transformation of Nigeria;
• SMEs represent the avenue through which the Federal Government of Nigeria can achieve poverty reduction and employment generation;
• Export and foreign exchange earnings can be boosted through support for indigenous manufacturing capabilities;
• SMEs can build capacity to provide inputs for the industrial sector of the economy on a sustainable basis.
History of SME Support in Nigeria
Government Initiatives in Developing SMEs in Nigeria
Late 1950s: Nigerian Industrial Development Bank
1970 – 1976: Indigenization Decree (1972) & Nigeria Enterprises Promotion Act (1977)
1980 – 1989: Incentives to maximize exploitation of natural resources.
1990 – 1999: SME development strategies through NDE and PBN
Dec. 21, 1999: SMIEIS Scheme approved at 246th Bankers’ Committee of the CBN
May 2012: Partnership being proposed between FGN and Commercial Banks
2nd Tier Market Characterized by inferiority perception
Emerging Market No clear definition and purpose
Alternative Securities Market (ASeM) Tailor-made board for SMEs
Clearly defined for SMEs with high growth potential who are able to meet our listing standards.
SMEs in Nigeria: Diagnostics
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Challenges of SMEs in Nigeria
• Difficulty in accessing low cost, long term capital due to high cost of funds as a result of perceived high risk and high interest rates;
• Increased cost of operations due to inadequate basic public infrastructure, including access roads, power, security, etc;
• Inability to build capacity required to deliver results due to high turnover;
• Informal nature of operations, which undermines strategies, policies, processes and corporate governance;
• Lack of proper accounting standards, controls and management of financial resources;
• SMEs are highly volume driven due to high cost of operations, which results in thin margins on products or services offered.
6 The Nigerian Stock Exchange 5/17/2012
NSE Vision and Goal
“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
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TERM
2011 2012 R
EF
OR
MS
Wit
hin
NSE
Co
ntr
ol
- 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)
- 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
Ou
tsid
e N
SE C
on
tro
l - AMCON Debt Resolution - Advocacy
- 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
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NSE All Share Index
22,422.43
Equity Market Capitalization
N7.15 tn
• Total Market Cap = N12.65tn
• 22.60% 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 N7.15tn.
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 15, 2012
Overview of The Nigerian Stock Exchange
8.47% (YTD)
9.78% (YTD)
The NSE ASI was at an 8- Month high on May 04, 2012 indicating a market rebound.
Our Markets Cover Blue Chip & Growth Companies
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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 N7.15tn equity market capitalisation as at 15/05/12
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 15/05/12
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 2 of those
years. N600mn within 1 or 2 years
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
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 for equity 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
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The Alternative Securities Market (ASeM)
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The Alternative Securities Market (ASeM) is a specialized board for small and mid-sized companies with high growth
potential. It creates the platform for these companies to access low cost,
long term capital.
Dedicated to SMEs
Challenges of SMEs in Nigeria
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• Difficulty in accessing low cost, long term capital due to high cost of funds as a result of perceived high risk and high interest rates;
• Increased cost of operations due to inadequate basic public infrastructure, including access roads, power, security, etc;
• Inability to build capacity required to deliver results due to high turnover;
• Informal nature of operations, which undermines strategies, policies, processes and corporate governance;
• Lack of proper accounting standards, controls and management of financial resources;
• SMEs are highly volume driven due to high cost of operations, which results in thin margins on products or services offered.
Leveraging the Capital Market through The NSE
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• The ASeM Board of The NSE provides a platform for raising low cost, long term capital for SMEs in Nigeria;
• Reduction of financial burden and spreading of risk amongst shareholders in raising capital to embark on developmental projects;
• Post listing requirements ensure proper accounting standards and controls for proper management of financial resources and corporate governance;
• Membership of a global platform that affords brand visibility and credibility enhancement;
• Capacity building through access to a bouquet of discounted value added services that enhance operational effectiveness;
• Professional guidance (Designated Adviser) to ensure organisation benefits from and maintains its listing status.
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Agriculture
Construction/Real Estate
Consumer Goods Financial
Services
Healthcare Industrial Goods
ICT
Natural Resources
Oil & Gas Services
Utilities
Conglomerates
Sector Classification on the ASeM
A company seeking to list on the Alternative Securities Market (ASeM) will be grouped in one of the 12 sectors shown above.
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 Small
and Medium Scale Companies in Nigeria, looking to grow and
develop into sustainable institutions.
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.
Benefits of Listing
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XYZ Co. Plc
Access to Capital for Growth &
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
First Steps to Listing on the ASeM
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•Appointment of a Designated
Adviser and discussions to develop roadmap and milestones to listing;
•Appointment of other parties to listing;
•Conversion to a PLC with amendment in MEMART to reflect transferability of shares.
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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
Designated Adviser
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
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Pre IPO Guide – Parties & Responsibilities
The NSE Listings Sales & Retention Department is available to provide guidance through the whole process
LISTING
Common Concerns About Listing
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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.
PARTNERING FOR LISTING SUCCESS
Listing Mindset
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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)
LISTING IS A PART OF A COMPANY’S STRATEGIC BUSINESS PLAN
Q&A
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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
www.nse.com.ng