The unsettling market probe
•This is a kangoroo court – Oteh
•No, it is not. Public is taking note – Hembe
By KELECHI MGBOJI
Monday, March 19, 2012
• Oteh
Investors reacted sharply to the high drama at the on-going probe of the crash of Nigerian capital market, as the investigation derailed into the mundane, as opposed to the topical issues of public interest as far as the capital market is concerned.
As the probe assumed amusing twist Wednesday after commencement on Tuesday, March 13, investors who hitherto looked up to the probe panel quickly took to the sidelines.
And by Thursday, the market capitalisation which measures value of the equities fell sharply by N131 billion to close at N6.519 trillion, while Nigerian Stock Exchange (NSE) All-share Index depreciated by 1.9 per cent to close lower at 20,658.28.
The 1.9 per cent dip which forced the year-to-date (YTD) performance of the market to negative 0.35 per cent however eased slightly on Friday as stocks recovered some points.
Before Thursday, the market had shed N49 billion the previous day, a development market operators interpreted to mean that many investors were holding on to their investments to watch the proceedings and outcome of the probe of the crisis that hit the nation’s capital market since 2008.
The probe, according to the House of Representatives, is intended to address some of the issues discouraging many investors from returning to the market since after the crash.
Thus the Index which opened the week at 20,950.02 depreciated by 125.77 points or 0.6 percent to close on Friday at 20,824.25 while the market capitalization of the equities depreciated to N6.572 trillion.
Also, the NSE-30 Index depreciated by 8.33 points or 0.8 percent to close at 946.60. The week before the probe, the All Share Index and the NSE-30 Index had appreciated by 1.7 per cent and 1.9 percent respectively. In fact, the market had recovered all losses recorded in the year with YTD growth of about 1.7 per cent the week before the market probe began on March 13.
That was how much the Hon. Herman Hembe House Committee on Capital Market probe has hurt the capital market which has been crying for concrete intervention to lift it from the market crash hang-over.
Now the Nigerian capital market is down 0.6 percent year-to-date. As a matter of fact it has started increasing consistently in March until the debate started. It had been down in January and February after the nationwide strikes that crippled activities.
Compared to the rest of the world, the US stock market has gained 10.9 percent this year; South Africa has gained 13 per cent this year; Brazil has gained 23 per cent this year; Singapore has gained 12 per cent, and the entire emerging market index has gained 16 percent.
In terms of stock market capitalisation to GDP, Nigerian capital market is at 18 per cent, Singapore 372 per cent, Brazil 46 percent, South Africa at 178 percent, while USA stands at 91 per cent.
Against this background, investors at the capital market had keenly looked up to the market probe as silver lining behind the dark clouds but just as the panel was about to settle down to the third day of proceedings, it swiftly derailed to the mundane.
The Director General of Securities and Exchange Commission (SEC), Ms Aruma Oteh, accused the House of Representatives Committee on Capital Market of demanding N44 million from the apex regulator of the capital market.
According to the SEC boss, the committee demanded the money as the agency’s contribution towards funding the public hearing.
According to her, the demand came in two tranches of N39 million two weeks to the public hearing and N5 million 24 hours to the commencement of the investigation.
She explained that her refusal to part with the money had angered members of the panel and resulted in their seeming bias against her in the conduct of the investigations.
Oteh also alleged that Hembe had last year collected from SEC an undisclosed amount of money and a business class ticket to travel to the Dominican Republic for a conference, but said that Hembe neither made the trip nor returned the money.
Second day into the probe, the panel had quickly veered into some extraneous issues relating to the recruitment, conditions of service, qualification, competence and personal integrity of the SEC boss, a turn of event that incensed her and brought her sense of aggrievement.
She said: “This has been a kangaroo court. Not even in Idi Amin’s Uganda did we have this type of public hearing. None of the documents before the committee came formally from SEC and this is of great concern to me. I do not think that it is appropriate for you to have gathered information from the SEC without even asking us to verify that information, to respond to those issues that you already made the judgement that you made.
“You had implied that as a regulator, that by having people on secondment from the private sector, it could undermine the capacity of the regulatory functions of the commission. In asking the SEC to contribute N39 million for this public hearing, don’t you think that you are undermining your capacity to carry out your duties?
“When I took this job, I was warned that when you fight corruption, it will fight back but I did not know that the fight would come from the House Committee on Capital Market.”
Hembe dismissed the allegations, stressing that the Economic and Financial Crimes Commission (EFCC) and the Independent Corrupt Practices and Other Related Offences Commission (ICPC) should be able to investigate such allegations and bring anyone found wanting to book.
“The House cannot be said to be unfair. The public is also watching. If what I am doing is because of the fact that I have collected money from SEC to go on overseas trip to study and I didn’t go, the public will take note. But if it is the wish of members of the committee that I respond to the issues, I will go ahead and respond to the issues. I will respond to the issues as much as I can.
“I hope this is not a ploy to distract us from achieving the main objectives of this public hearing. Please let this not be a ploy to distract us from achieving the main objective of this hearing. I believe that we have the representatives of the ICPC and the EFCC with us. The issue of corruption or no corruption we should put it aside. They are here and they will write their report. I think we should concentrate on the major issue here. Let’s see how we can forge ahead with the hearing and achieve something before the end of the day,” Hembe said.
Observers insist that the probe out dwell on the things that need to be done to make the market a destination for capital. According to the Chief Executive Officer, Financial Derivatives Limited, Mr. Bismarck Rewane, the Nigerian economy is such that has 23.9 per cent unemployment rate with graduate unemployment of over 45 per cent.
“The debate about casual labour, accommodation issues for the SEC boss, money spent on hotel bills, and other mundane issues, is ridiculous. Public issues ought to centre on the future and not the past,” Rewane stated.
Rewane who spoke during a local television programme noted that the role of the legislature is to make laws, and there is a thin line between the oversight function of a legislator and meddling, adding that when it gets to the point where people are accused of demanding compensation to carry out their official role as legislators, or all sorts of things, then they ought to quit.
He said: “Basically, in law he who comes to equity must come with clean hands. If you are compromised, if it is alleged that certain things happened, in fact in law if it is alleged that a certain judge has an interest in a case, the judge will excuse himself and they will transfer the case to another judge.
“The question of the credibility of the process and what should be expected as the outcome is important. And the process will determine the outcome. If the process is compromised, the outcome will be flawed. Granted that the committee is properly constituted, what they are doing is line with the oversight function but that is with a view to making laws that could help to move the market forward.
“The oversight function I am talking about is: What is it that we need to do to make sure that companies are motivated to come and list their shares on the NSE? As it is today, the major players of the economy are not listed on the Exchange.
“In telecom, we have only one company listed on the Exchange, upstream oil and gas, there is non listed, and in hospitality, there is one or two marginal players. The question is how do we encourage others to list so that Nigerians as a whole can benefit from the economic success of the companies?
“That is what the committee should be focusing on, but to start debating about mundane issues gives them away as unserious-minded individuals.”
Also speaking, Maxi Okechukwu Unegbu, said that granted that the committee was properly constituted the quality of the debate was far short of expectation of observers, especially, the capital market community.
Unegbu, who is the Chief Executive Officer of Maxifund securities Limited noted that it was unfortunate that the fundamental and basic issues were ignored in preference to the mundane.
On the impact and damage the probe has caused to the market, he said “if I were a foreign investor I will be actually disturbed about the low quality of the debate. I would like to see an elevation of the quality of that discourse.
“The debate should shit from the mundane to a higher level where we can talk about the incentives to lifting the market such as this petroleum industry bill (PIB) that is underway; how do we link it to the capital market activities so that the upstream companies will come to the Exchange and list their shares. “Imagine what will happen if NNPC is listed on the Exchange. Those are the issues that need to be put on the table. How do we list and reorganise NNPC?
Also speaking, the Chief Executive Officer, Lambeth Trust and Securities Limited, Mr. David Adonri, pointed out that there were three core objectives that the probe ought to achieve.
According to him, it should be able address market volatility and bring the market from where it is to a new level. He recalled that at its peak, the market was N12.6 trillion.
“All other markets have recovered; the US Standard and Poor’s was at 13,000 in 2008 when it went down. It has come back; they have recovered all their losses since the global recession.
“All other markets have come back but we are still at 40 percent where we were. What are the things to do to get the market back to where it should be? The broker community are keen on seeing the market bounce back like every other market.
“Our daily trade which used to hit N10 billion per day, is now down to N2.5 billion daily on the average. And meanwhile, the fees have been slashed. Brokers are suffering. These are the issues the probe panel ought to dwell on.
Since 2009, the regulators have done quite a lot to boost investor confidence. They have restructured the market with a new market segmentation, incentives have been put in place to attract new listing as NSE amended listing rules.
