Data from the Security and Exchange Commission show Nigerian corporates have only been able to raise a total sum of N319 billion in IPO since 1999, when it ushered in democracy.
This is as the country awaits the listing of Africa’s largest telecom giant, MTN on the floor of the Nigerian Stock Exchange.
The data shows (see chart) since 1999, IPO’s have only taken place just 6 years out of a total of 19 as businesses continue to shy away from the stock market. The data also reveals some start details.
In fact between 1999 and 2007 Nigeria did not record a single IPO.
They year, 2007 and 2008 were very active IPO years in the stock market as it coincided with the stock market bullish run at the time. Even though the total amount raised at the time was just under N200 billion the number of companies that IPOed were much more than it was in the latter years.
The IPO market will resume again after a 4 year hiatus in 2013 and lasted all through to 2015 with about N125 billion only raised. Seplat and Transcorp Hotels Plc were the two notable IPOs that took place during this time.
Thus in total Nigeria’s IPO market has only been able to raise just N319 billion since 1999.
Why the dull IPO market
The apathy towards IPO in Nigeria is an indication of many things. However, some things do standout as the major reason.
Unwillingness of founders/owners to get diluted – Most Nigerian owners or early investors in Nigerian business do not consider an IPO as an option, especially because they do not want to dilute their ownership. In fact, for most profitable private companies, an IPO is hardly an option as early investors, who are mostly private equity, will rather hold on to these investment than go through the rigours of selling to the public. If they are pressed to exit, they will rather sell in block to another strategic investor
Companies not in need of capital – Most companies also do not see the equities market as the place to go when in need of capital. In fact, the common belief is that, companies who go to the capital market for IPOs is a sign of their corporate weakness in the eye of institutional investors.
Fear that they might not raise needed capital – Some also fear that they might not be able to raise adequate equity via IPOs. Due to the lack luster attitude Nigerians have towards IPO, it is highly unlikely that it will be successful.
Regulatory requirement – The regulatory requirement of being a listed company, especially in Nigeria is also seen as a massive deterrent against IPOs. Nigeria is knows for its poor ranking in ease of doing business, so having an extra regulatory bottleneck to surpass is just too much stress for most companies to handle, Therefore, they rather just stay private.
The implication of Nigeria’s poor IPO market is wide ranging considering that we are entering a new era where local startups are beginning to exert influence and court recognition. As new wave of unicorns start to emerge in Nigeria, many will look forward to when we will see new IPO’s launch in Nigeria.
SEC’s data is just another clear reminder, that we may have to wait a while longer to see early investors exit via an IPO. For now, they only have the option of exiting when another strategic investor comes knocking or during another round of private placement.