Nigeria Content Online

With
the transfer of N1.036 trillion worth of nonperforming loans (NPL) to
the Asset Management Corporation of Nigeria (AMCON), there is optimism
that the banking industry will play a leading role in boosting economic
growth this year. Nigerian banks have been bogged down by huge NPLs
which have limited their ability to lend to the economy and led to
massive job cuts in the sector.

According
to analysts at FSDH Securities Limited, a financial services and
advisory firm, subject to having a successful general election and
smooth transmission of power in the country, the economy will do better
this year. “Looking at the reforms in the financial industry and the
policy initiatives of the Federal Government, we are inclined to
believe that the financial market and the economy will enter a phase of
real growth in 2011,” stated its weekly financial market report.

Following
the sack of nine banks’ chief executives in 2008 and the injection of
about N627 billion to save the institutions from collapse, the
financial sector has been wavering. This resulted in the near crash of
the capital market. However, with the asset company taking over the
banks debts, there is confidence that the economy will rebound.

Profitable and rewarding

AMCON
last Friday signed an asset purchase deal with 21 banks that saw the
transfer of the banks’ NPLs to AMCON, thus freeing the banks from the
burden of carrying such huge debts in their books. The banks were
issued with bond certificates covering the amount of NPLs in their
books. The bond was issued to the eligible financial institutions for
AMCON to acquire the eligible banks assets comprising almost all the
NPLs in the nine banks rescued in 2008 as well as margin related NPLs
from the non rescued banks.

The
initial bonds will be replaced with longer tenured bonds to bring the
sector back to minimum capital adequacy levels and bring net asset
values to zero before new acquirers will come in to inject sufficient
further capital to meet minimum capital requirements.

AMCON
executive director, finance and operations, Mofoluke Dosumu, said the
initial consideration bonds were the first instrument rolled out to
absorb the non performing loans in the banking system.

“Within
the first quarter of 2011, we will be swapping these with another set
of tradable bonds. We will be issuing more bonds as we buy up more non
performing loans, which is up to N3 trillion in total.” Interventionist
regulator

Analysts expect that funds will be directed to critical sectors of the
economy, in order to achieve growth. Razia Khan, Regional Head of
Research, Africa, at Standard Chartered Bank, UK said tighter
regulation will be required to prevent a repeat problem. “While few
policy changes are anticipated at the outset, this raises the
possibility of a more interventionist regulator, looking to boost
lending to strategic sectors such as power and industry, and to fulfil
broader financial inclusion aims,” Ms. Khan stated.

Since the
announcement of the proposal to delist the Nigerian Bottling Company
(NBC) from the daily official listing from the Nigerian Stock Exchange,
a consensus amongst investors, is that the move is in bad faith and ill
timed.

One of the key
questions is why does the board think this is a good idea? Nobody has
given any good reason that warranted the decision. Let me state
clearly; this is not illegal, our laws provide for it, but there is
also a requirement that regulators must approve such moves to make sure
that minority investors are fairly treated. The fairness of the timing
of this proposed delisting is initial grounds to question this
transaction. Everyone knows that in a recession when the stock market
is down, most stock prices are adversely affected even when there is no
fundamental issue with the particular stock. NBC is in this category, a
good stock with the right fundamentals affected by the current
environment of low prices occasioned by low economic activities.

Many in investors
see the move, as profit motivated resulting from the need to take
advantage of the current low prices which puts the minority investors
at a disadvantage. The majority investors already have controlling
interest; they already have 66.4 per cent, why do they want 100 per
cent control? And what other benefit are they going to get other than
to make and keep all the profits.

It is also bad
timing because of the position of NBC as one of the top 10 quoted and
listed companies on the Nigerian Stock Exchange. Why after over 30
years of being listed on the Exchange does the company suddenly want to
be delisted at a point the market is in crisis? What message is NBC
sending to other listed companies? What about the Nigerian investing
public? Is the message demonstrating confidence? If they have a
complaint that needs to be addressed, this is not the way to do it.
Further, the speculation that they may be aggrieved by the recent turn
down of their request to be exempted from the quarterly requirement to
put out earnings forecast, as now required of all quoted companies, is
not tenable. This is a requirement that even its parent company is
complying with in other jurisdictions wherever they are listed, to
expect different treatment here in Nigeria is taking us for granted.

Stock valuation

There is also the
issue of the valuation for the stock and the proposal to buy out the
minority investors at N43 per share. The so called premium based on the
current market price should be ignored. Value investors know that the
stock market is not a place for corporate value discovery, but a place
to bet on corporate prospects. N43 offered to investors to buy them out
is a ridiculous price, given the fact that NBC is actually one of the
few stocks that has generated sufficient momentum this year to inspire
an upward trend for its price in the new year. NBC on its own has some
of the best features as a stock that investors look for. It is what can
be described as a consumer monopoly; unique brand that sells anywhere
it is marketed and all year round. This is the reason why investors
stood by it a few years ago, even when it was badly run, they were
content with the consistency and predictability of its earnings. That
is why any valuation that uses the present market price is not a good
starting point.

The current market
price is not reflective of the value of the stock. This has been proven
by the current run up on the stock price even after the announcement
had been made. We should either look to the earnings stream to predict
the future price, or the book value of its assets after a proper
revaluation of all its fixed and intangible assets, which must include
the brand value of its present name Nigerian Bottling Company. If they
don’t agree that there is any value in the name, I will urge the
Corporate Affairs Commission (CAC) to insist that once they do the
divestment, since they are no longer a Nigerian public company, they
should drop the Nigeria in its name, for whatever name they so chose.

We at Partnership
Investment Plc and most analysts have talked to put the price of the
stock well above the N43 offer. A great majority of the analysts think
investors should get more for their stock if they sell at all. They put
the value at anywhere between N67, an earnings basis valuation and also
closer to its peak price during the last bull market, or around N105
using its book value before revaluation.

Meanwhile,
regulators should carefully examine their application whenever they
make one and ensure that no insider dealings have taken place, prior to
making the decision public. NBC board must also know that by making
this low tender offer, they have also put themselves in play and should
watch their back.

Mr Ogiemwonyi is the MD/CEO Partnership Investment Company Plc, Ikoyi, Lagos

Some operators at
the Nigerian Stock Exchange (NSE) have expressed optimism that the
nation’s capital market will perform better this year than last year
because more money is expected to be in circulation during the year.

Tunde
Oladapo-Dixon, chief executive officer, StockPicks Consulting, a stock
broking firm, said the NSE should witness a “fair market in 2011
because the year will be a consolidating year that is higher than the
consolidation recorded last year.” Mr Oladapo-Dixon said, “If you look
at 2009 and 2010, a lot of policies, which have not failed, were made
to mitigate the challenges in the market. The monotony of the banking
industry in the market was diluted when Dangote Cement was listed. The
building materials now take a better percentage in the market in terms
of capitalisation.” “We’ll see a better market in 2011 , the banks can
no longer run the market down again. And with all the policies still in
place and the Asset Management Corporation of Nigeria (AMCON) coming to
play in the first quarter of the year, the market will fare better,” he
said.

He added that with
AMCON kicking off, the banks will do their business as usual and that
will lead to more money in circulation. “And when money is in
circulation, what is expected is that there will be a lot of trading in
the market. Although the market will still oscillate due to the past
feelings that investors have about the system, but am still very
optimistic that the market will be better in 2011 but not to the levels
recorded during the boom era,” he said.

Strengthening regulations

Albert Edun, an
executive member of the Nigerian Shareholders Solidarity Association,
said what is expected in 2011 is the enforcement of the guidelines and
regulations by the Securities and Exchange Commission (SEC).

Mr Edun said,
“There were some improvements in the market towards the end of last
year and such can be only be sustained if the SEC appoints a credible
head at the Exchange.” Bola Oke, a finance analyst at WealthZone
Company, an investment management firm, said the fact that the year is
an election year, it is expected that “more money will be in
circulation and some of the funds should flow to the capital market for
investment.”

Meanwhile, the NSE
closed the year on positive sentiments, ending the last trading week
with aggregate score of 0.33 per cent gain, while month-to-date and
year-to-date performance stood at a 0.34 per cent decline and a 18.87
per cent increase respectively for the year 2010.

The market
capitalisation, during the last trading week, appreciated by N26.13
billion to close the year at N7.91 trillion as against appreciation of
N78.23billion recorded in the previous week to close at N7.88 trillion.

Unseasonal rains in
Ivory Coast’s key cocoa-growing regions last week will support the
development of the main crop as the dry dusty harmattan wind continues
to blow gently, farmers and analysts said on Monday.

Top grower Ivory
Coast is in the dry season, which also brings the harmattan south from
the Sahara, and, if harsh, can kill flowers and small pods on cocoa
trees.

However, farmers reported a mild harmattan for now and said rain in several regions was a boon for the crop.

“We are very happy
with the rain. It gives us lots of hope for the quality of the beans
that we will harvest in February and March,” said Lazare Ake, who farms
near Soubre, at the heart of the cocoa belt.

“I think there will be lots of cocoa this year. Last year, there wasn’t so much rain,” he added.

Ivory Coast’s cocoa
regulator projected output of 800,000 tonnes during the main crop, down
100,000 tonnes from last season due to black pod disease.

But analysts and
farmers said the forecast is low and said good weather would push
volumes above year-ago levels. Exporters told Reuters on Monday cocoa
output was running near even with last year’s, even while a political
crisis grips the country.

One analyst working for an industrial plantation in Soubre, a western region, reported 14 mm of rain over the week.

“The harmattan has
been blowing for three days in our region. It is not very strong for
the moment, but there is a very dry wind,” the analyst added.

Other regions

In the southern
region of Aboisso, an analyst reported 53 mm of rain over the week,
adding that growing conditions for cocoa remained good despite the
harmattan.

“Weather conditions
have been excellent all year. Over the course of 2010, we recorded
2,005 mm during 123 days of rain. This is better than (in 2009). There
won’t be any problems with the cocoa. The production will be very
good,” the analyst added.

In the
centre-western region of Daloa, which last year accounted for 358,000
tonnes of Ivory Coast’s 1.2 million tonne crop, farmers reported one
good downpour, which they said would help small pods develop during the
dry season.

But farmers said they needed to monitor the wind, given that too much dry weather can lead to dangerous bush fires.

“We have had some
rain. It is good for the small pods. But during the harmattan, we worry
about the bush fires, which have destroyed the plantations,” said
farmer, Attoungbre Kouame.

Similar growing
conditions were reported in the coastal regions of San Pedro and
Sassandra, in the southern regions of Agboville and Divo.

Reuters

U.S. and European
stocks resumed their rally in the first trading session of 2011 on
Monday on stronger global manufacturing data, while oil rose as the
outlook for growth increased optimism about demand.

U.S. Treasuries
prices fell as the data – including a pickup in U.S. manufacturing
growth last month – suggested the economic recovery continues to gain
momentum, encouraging investors to take on more risk.

The Institute for
Supply Management said U.S. manufacturing grew for a 17th straight
month, following news of faster growth in European manufacturing as
well.

In another recent
positive report, China’s factory inflation slowed in December, removing
some pressure from the Chinese Central Bank to slow down the economy.

The three main U.S. stock indexes jumped more than 1 percent on Monday following the data.

“There is a lot of money in cash, a lot of money in bonds that would like out of bonds.

It’s only natural,
with the economic improvement, it’s finding its way to equities,” said
Stephen Massocca, managing director at Wedbush Morgan in San Francisco.

The big test for the U.S. economy lies on Friday when the government will publish its widely watched nonfarm payrolls report.

The Dow Jones
industrial average, DJI, jumped 124.19 points, or 1.07 percent, to
11,701.70, while the Standard & Poor’s 500 Index .SPX rose 16.98
points, or 1.35 percent, to 1,274.62. The Nasdaq Composite Index, IXIC,
gained 49.31 points, or 1.86 percent, to 2,702.18.

In Europe, the
FTSEurofirst 300 index, FTEU3, of top stocks unofficially closed 0.9
per cent higher at 1,131.59 on a broad rally, led by construction and
industrial shares. Trading was thin, with markets closed in Britain and
parts of Asia.

The MSCI
All-Country World Index, MIWD00000PUS, rose 0.9 percent, after
finishing 2010 with gains of 10 percent, back to its strongest level
since September 2008.

Emerging market stocks jumped 1.3 percent, according to another MSCI index, MSCIEF.

Oil extended its
rally on optimism the global economic recovery was gaining momentum.
U.S. crude futures CLc1 rose 0.8 percent to $92.11 a barrel.

Euro starts lower

Worries about the
euro-zone debt crisis weighed on the euro. The euro started the first
trading day of 2011 lower and analysts said it is likely to extend its
downtrend as investors avoid the single currency due to nagging
concerns about the euro-zone debt crisis.

“The euro is
trading with a heavier tone. I think traders are trying to cut back
their exposure on the euro as volumes normalise and given continued
problems in the euro zone,” said Omer Esiner, chief market analyst at
Commonwealth Foreign Exchange in Washington.

The euro EUR= was
down 0.12 percent at $1.3361 from a previous session close of $1.3377,
after hitting a session low around $1.3251.

The dollar rose
0.15 percent against a basket of major currencies, according to the
U.S. Dollar Index .DXY. Against the Japanese yen, the dollar JPY= was
up 0.63 percent at 81.66.

Also supporting dollar gains was a rise in U.S. Treasury yields resulting from investors’ renewed appetite for risk.

The benchmark
10-year U.S. Treasury note US10YT=RR was down 22/32 in price, sending
its yield up to 3.3712 percent. Gold prices held steady.

Reuters