‘E-dividends is a major game changer for our markets’-Mounir Gwarzo

Following the end of the Capital Market Committee (CMC) meeting for the third quarter of 2016, Anthony Osae-Brown, BusinessDay editor, Bashir Hassan, GM, business development, North and chief economist Patrick Atuanya met in Lagos with Mounir Gwarzo, director general of Nigeria’s Securities and Exchange Commission (SEC) for an in-depth interview. Excerpts…

You mentioned a review of the Securities and Exchange Commission (SEC) act, I would like to know, are there specific areas the operators and regulator would like to see amendments? We also just got the proposed draft for the company and Allied Matters Act (CAMA); are you also looking at areas you will amend here?

The reviews of those laws are still a work in progress. What we agreed on at the Capital Market Committee (CMC) is that the various committees representatives give an update of what they have done, and they highlighted some sections and expressed their opinions about those areas.

The intention is to have the buy in of the entire CMC so that we speak with one voice, to avoid one part of the capital market agreeing on one thing, and the other part disagreeing. That informed us, ensuring that the composition of the committee cuts across everyone. So for the first time, we have a committee that has regulators, and within the regulatory side we had lawyers and operational group.

The committee also had representatives from the Self Regulatory Organisations (SROs), the exchanges cutting across the operational and the legal. The committee also has a preponderance of market operators from the legal side and operational side. So they just locked themselves in a hotel room for 4 days and debated. There are major game changers in the amendment but we agreed that the secretariats will fine tune some of the teething issues. These will be on our website and we will invite members to make comment, and we will give two weeks. After those two weeks, the secretariat will go back and look at it again before we unveil the document.

So I am a bit cautious about mentioning those things because as SEC, anything I mention can be seen to be the decision and I do not want to pre-empt as I want the document to be a market document and not SEC document, which is why I am a bit hesitant. The main thing is that this market has never experienced amendment of a law that is as robust and inclusive as we have now.

There was a lot of commitment, and we could not have asked for better people to lead those committees.

What is the position of SEC on the Financial Reporting Council (FRC) code of corporate governance, which was supposed to be mandatory and has been a bit controversial?

SEC has a position on it, but the moment the code was suspended by the government, we decided to put it on hold. We had actually intended to share our view with the market, but because the government has suspended the code, there was no need for that. Also, the FRC act is going through the process of amendment, we needed to hold on.

The mistake we always make in this country is that we actually do not sit down to look at relevant laws. FRC is very strong as the law setting it up has given them a lot of powers. Jim Obaze is a very smart guy. He comes up with guidelines that are supported by his law and we sit down and start crying or complaining why he is doing that. But if you have an issue, it is the law that we need to amend, that is why we also have a committee looking at the FRC law.

There has been a dearth of corporate bonds and IPOs in the market. What is SEC doing to bring new listings from the debt or equity side to our market? On the issue of corporate bonds, it has been down for quite a while. In the year 2000-2001, SEC started the process of re-activating the corporate bond market. And at that time, we were calling on government to come back to the market and provide a yield curve.

We also recommended that there is a need to look at the liquidity aspect and suggested the setting up of the Pension funds. The Government came back and now they have been doing fine. The corporate bond market has not picked up largely because the entire economy is going through difficult times and companies are declaring losses.

The market has gone down and investment managers are lazy now with respect to the corporate bond and are spoilt by state or sub-national bonds, where you have the irrevocable standing payment order (ISPO), which gives you some level of comfort. It is important for us to now find a way to rejuvenate it. SEC has done a lot of work in that respect, such as our rules on book building to ensure that whenever you are coming to the market you have the right price.

So, for instance, when you are doing book building and my intention is to come to the market in June, I will now file my documents and seek the approval to do book building by contacting potential investors to see what price you think is fair for this instrument. This will avoid a situation whereby you issue an instrument in the market and it is not subscribed.

Shelf registration is also supposed to facilitate some of these transactions by filing all the necessary documents and whenever you are ready, all you need to do is fill in the blank space.

We are also trying to shorten the issuance process with the support of the Minister of Finance. We have been able to come up with a process for identifying the processes that SEC will go through and the timeline for SEC and also what the issuing houses need to do and their timeline as well. For instance, we have agreed that once an issuer files an application with SEC, within 10 days we should be able to finish reviewing that application, and identifying deficiencies.

Once those deficiencies are sent back to the issuer, within a period of 3 -5 days the issuing houses should address those deficiencies and also respond. Now we are looking at a turnaround time of 4- 6 weeks. The beauty of this is that if you are an issuer, rather than going to a bank to collect money at 24 – 25 percent, and by the time you start discussing with the bank in about 2 – 3 weeks, you should be done with the transaction and get your funds.

If you can come to the market and get funds at 17 – 18 percent, and you have a turn-around of 4 – 5 weeks, nobody will go to the bank. Part of the reason people do not want to go to the capital market is the time it takes now- which is an average of between 3 – 6 months. Mainly, it is because the types of documentation filed with us do not usually meet our minimum standards and that is why we often do not clear such applications. Additionally, we have come up with the guidelines for short- term instruments or bonds.

This is a situation where if you are issuing an instrument that has a lifespan of one to 3 years, all you need to do is approach the exchange FMDQ or the Nigerian Stock Exchange (NSE), do all your documentation with the exchange, let them do the reviews and all they need is to inform the SEC when they are done and file the document. In contrast to what operates before- where they file with the SEC and the exchange, and this takes a longer process.

These are some of the things we are doing to fast track the issuance process and bring back the corporate bond market.

What targets did you set from the beginning of the year and what have you been able to achieve in terms of your activities? 

I am happy because we have been doing quite well in the implementation of the master plan. We have support from everyone; from the minister of finance, the Capital Market Master-plan Implementation Committee (CAMIC) members, and the entire capital market community. We can see the passion, the respect and commitment. However, the market has been going down and people are going through difficult times. SEC as a regulator relies 100 percent on the market for its finances, which are currently not in good shape; the finances of the operators are not in good shape, the finances of the SROs are also not in good shape.

The returns to investors have also gone down, so I am not happy in terms of how the market is performing, which is a reflection of the state of the economy as well. We are very positive that some of these initiatives that we are implementing will yield positive results in the not too distant future. For the first time in the history of this country, we are implementing electronic dividend system, where if a company declares dividend, investors will get their dividends without the usual delays.

A major game changer is that a dividend you have forgone for the last 5 to 10 years is with ease paid in to your account without you asking. It has never happened in the history of this country that unclaimed dividends were paid within a period of one year to the tune of N29.2 billion. Investors that have forgotten about that money have now received their money and it was because of our resolve to ensure that we drive the electronic dividend mandate system.

I am happy that for the first time in the capital market, we are reviewing our laws robustly, with the commitment of everyone. I want us to go to the public hearing as one family. We will upload the reviews on our website for people to make comments. We do not want anyone standing and saying they do not agree with this.

What targets do you have for next year and how will you be able to  achieve them?

I see the market from the equity side still going through difficult times. I do not see those companies that need foreign exchange (FX) to import raw materials getting that FX easily. I also see that they are not yet prepared or completely ready for backward integration which needs to take 2 to 3 years before you get going.
So for instance, for Lever Brothers, Cadbury, Nestle to start sourcing a majority of their raw materials through backward integration could take up to four years. So, there will still be a huge reliance on FX for now. I do not see the quantum of FX inflows rising significantly. We pray there is going to be peace in the Niger Delta and we pray that the bunkering and pipeline attacks will stop, but one is trying to be very cautious so I anticipate that next year will be a tough year.
There is something we are seeing as Business reporters looking at the environment and this is a proliferation of Ponzi schemes. There has been push back by regulators, but perhaps a lot of Nigerians do not know how dangerous these things are, and maybe if you speak, it could bring a voice right from the top to let Nigerians know that this is not the way to go.

You are right. However, my opinion is that the only way we can prevent the progress these Ponzi schemes are having is for us as Nigerians to stop being greedy. Look at the so-called ‘MMM’ it is actually a web based thing. I cannot see how someone will go and subscribe to something that is online or on the web with no address, just because someone you know out there has participated and gotten money, you feel that is sufficient enough for you to join.

The history of all these Ponzi schemes shows that the first set of people to go in normally get their money but those at the tail end get short-changed and regret. But because some Nigerians are greedy and have refused to learn from the mistakes of the past, there is a limit to what the regulator can do. The regulator can do public enlightenment but a key game changer is that as Nigerians and individuals, we have to stop jumping into all these things that certainly do not make sense.

What we have said several times is that the investing public should stay away from anyone that is selling any investment product that is not listed on our website and registered with SEC. If you are close to any of our zonal offices, go there and confirm if it is registered. If it is not registered, do not participate. This is the best we can do.