OBG talks to Oscar Onyema, CEO, Nigerian Stock Exchange (NSE)

Interview: Oscar Onyema

In what way will the new corporate governance metrics and rankings influence investor behaviour?

OSCAR ONYEMA: The Convention on Business Integrity is helping us to develop the metrics and rating system that we can then use in creating an index for quoted companies. We aim to have an index by the end of 2013 and a premium listing board by the beginning of 2014. One of the standards we will be looking at is whether a company belongs to the corporate governance index.

The index will be similar to BOVESPA in São Paulo, but will differ in the sense that the criteria will fit the Nigerian context and support our specific aims for companies exceeding a minimum capitalisation. We would like investors to view companies that are part of the index as the largest companies on the exchange and those willing to take a stance as upholding the highest standards. This will resonate with both local and foreign investors looking for well-managed companies.

How can the Alternative Securities Market (ASeM) provide a viable arena for small and medium-sized enterprises (SMEs) to list and investors to trade?

ONYEMA: Following the relaunch of Nigeria’s ASeM in March 2013, there is a home for every size of company. We have put in place a number of programmes to enhance the possibility of smaller companies listing, as well as introduced the nominated advisor concept, whereby professionals advise these companies both before and throughout their stay on the ASeM board. Value-added services have also been introduced and will be critical to SMEs, including investor relations services, equity research, corporate services helping small companies to properly institutionalise, corporate governance, and corporate access services. Choosing to list will take into account the lower cost of capital offered via the exchange. The government is also developing various other incentives like tax breaks to further entice emerging companies to list.

While the NSE is complementary to what private equity and venture capital funds are doing with SMEs, it is also a viable alternative. With private equity there is a fixed time horizon when a company can take steps toward the public market. By contrast, the stock market gives a company an indefinite time horizon and the currency to grow both organically and inorganically. A public listing allows visibility not possible through private equity. Listed companies ultimately have a chance to brand themselves as having met a certain standard.

To what extent do you expect to see a change in volatility as liquidity on the exchange rises?

ONYEMA: Because the NSE has increased trading bands from 5% to 10% and the market has become more globalised, we have seen a rise in volatility. As the NSE introduces the next generation trading platform towards the end of September 2013, new players will be attracted to the market, owing to its low latency and high response times. As the market is more responsive to information, all of this will drive volatility, albeit while boosting trading opportunities. In fact, additional volatility has enhanced the opportunity for traders to make money.

How do greater listings from the oil and gas industry affect commodity sensitivity?

ONYEMA: A good stock market should be reflective of the economy in which it operates. If you look at agriculture, which currently makes up 40% of GDP in addition to oil and gas, utilities, and telecoms, which are the fastest-growing sectors of the economy, we want that to be reflected in the exchange. When well represented, a stock market can be a strong barometer for a national economy. Greater representation of the oil and gas industry in particular will not necessarily align the overall market with global commodity price movements. It is well known that the Nigerian economy is highly correlated with the movement of oil prices. Market players already factor these considerations into their risk models regardless of the investment. Greater listings from oil and gas companies are thus unlikely to work as a key driver in higher commodity sensitivity.