As part of efforts to stimulate the Nigerian capital market, the Federal Government will divest its holdings in petrochemical companies through the stock market. In addition, the government through the Bureau of Public Enterprises (BPE) plans to encourage companies that buy privatized assets to list 20% of their equity on the NSE.
Whilst we remain cautious about this decision, the move could be seen a positive one both for the financial markets and Nigerians generally.
Here is a quick take on the likely positives of this move.
For the Government
- An exit to sell shares in viable businesses, thus unlocking cash flows which it can channel towards development projects in the economy.
- It also provides a form of transparency for a government that had in the past been accused of selling assets to billionaire businessmen that are close to the administration in power. Some of these businessmen were unable to run the companies, and proceeded to strip them of their assets.
- It also provides closure to aspects of a privatization process that dates back to the Babangida administration
For the stock market
- Listing these firms also increases the market capitalization of the Nigerian Stock Exchange (NSE). Market capitalization is the total value of shares traded on the exchange.
- A bigger market capitalization makes the Nigerian stock market more attractive to international investors.
- Stock brokers and other parties that will be involved in each transaction will earn fees on each transaction.
- Companies that are listed tend to be transparent and better run.
- It also provides liquidity and improves the number of investable companies available to Nigerians
Investors (Nigerians and abroad)
- An opportunity to directly own some of the most viable government own enterprises in the country.
- It also gives Nigerians an opportunity to partake directly in the privatization process. Before now, only rich Nigerians had to opportunity to own these businesses.
- Foreign investors looking to acquire proven cash generating entities of the Federal Government will have an opportunity to do so.
- Government listing its holdings, also reflects its confidence in the markets and will encourage Nigerians to also invest.
- Many Nigerians retain negative memories of the stock market due to the last crash where they lost billions of Naira.
- As more interest shifts towards the stock market, more accountability and transparency will be sought from a much maligned stock market.