Initial public offerings to headline Nigeria’s stock market rebound

Nigeria is set for an increase in activity on its stock market, with the country’s first initial public offering (IPO) in more than three years expected in the second half of 2018.

In mid-April Rob Shuter, CEO of South African-headquartered telecoms firm MTN, said the company expected to finalise a partial float of its Nigerian unit on the Nigerian Stock Exchange (NSE) by the end of the year.

Local and international media have reported MTN could sell off as much as 30% of its Nigerian operations as part of the IPO, which was agreed to as part of legal action in 2015 that saw the company fined N330bn ($913m) for failing to meet a deadline to disconnect unregistered subscribers from services.

With more than 65m phone subscribers as of April – representing an estimated 41% market share – and pre-tax earnings of R14bn ($1.1bn) last year, according to statements lodged in its home market of South Africa, the company is a major player in the Nigerian market.

Prospects for the float would appear positive, with MTN Ghana’s IPO, which opened at the end on May and will end on July 31, expected to raise some GHS3.5bn ($743m), according to press reports.

If carried through, the MTN Nigeria float would be the first IPO on the NSE since January 2015, and comes after the country exited a 21-month recession at the beginning of the year.

New share offerings to boost bourse activity

The interest generated by MTN’s listing on the NSE could also be followed by the prospect of further activity in the near team, as other companies look to deepen their capital holdings.

For example, on May 16 Tinuade Awe, the NSE’s executive director of regulation, told local media the exchange was in talks with Skyway Aviation Handling and an unnamed financial technology firm on the possibility of them listing on the exchange.

This came after shareholders from domestic company Med-View Airline approved the board’s plans for recapitalisation in April.

Med-View, which first listed on the NSE in January last year, will offer some 2.2bn shares for subscription, with the capital generated to help the company expand into new domestic markets.

These moves should boost capitalisation on the bourse and attract both domestic and foreign investors. While strong, total capitalisation of the NSE has eased in recent times, sliding from an all-time high of N16.2trn ($44.8bn) on January 18 to just over N14.1trn ($39bn) by mid-June.

With more than $6bn in capital inflows entering the country in the first quarter of the year, a 600% year-on-year increase on 2017, industry officials believe the improved economic climate could lead to an increased flow of IPOs onto the market.

“Improved corporate earnings are driving increased institutional investor interest in the equities market, and this should provide a supportive environment for IPOs and follow-on equity offerings,” Funso Akere, chief executive of investment bank Stanbic IBTC Capital, told OBG.

“Supportive macro conditions, including declining inflation and interest rates, should lead to bond and commercial paper issuances, with companies looking to take advantage of low interest rates to raise both short- and long-term funding from Nigeria’s debt capital markets,” he added.

Streamlined exchange process to encourage more IPOs

To further incentivise listings and public buy-ins in the future, the NSE and market regulator the Securities & Exchange Commission have been working with partners to streamline the IPO process.

A special committee has been established to look at the proposed full automation of the primary issuance process, allowing for the processing, approval, documentation, subscription and allotment of all issues – such as IPOs and public offers – to be carried out online.

If adopted, automation is expected to increase transparency in the issuance process, reduce processing time and boost investor confidence in Nigeria’s capital markets, which could translate into increased foreign investment.