Nigerian Capital Market: Urgent Need For Bail-out!

As the country’s capital market approaches the last quarter of 2012, many operators have expressed worry over Federal Government’s delay in rolling out the intervention initiative it promised the capital market to stimulate confidence in the sector.

The market community had long awaited government’s promise forbearance package to stockbrokers as part of measures to stimulate confidence in the Nigerian capital market and increase liquidity.

The Finance Minister, Dr. Ngozi Okonjo-Iweala had said at the Annual General Meeting (AGM) of the African Development Bank (ADB) in Arusha, Tanzania that the Federal Government would release a forbearance package to stockbrokers.

The Nigerian capital market since the onset of the global financial depression in 2008 to March 2012, lost N4.6 trillion due mainly to the effects of banking consolidation and investors’ loss of confidence.

In the same vein, estimated debt overhang, arising from margin loans incurred by stockbrokers also stood at about N300 million.

Okonjo-Iweala said that while government, through the Assets Management Corporation of Nigeria (AMCON), had intervened successfully and safe guarded the banks, the request for forbearance package by the stockbrokers would also be granted.

“We are working on the forbearance; we have now agreed on it, and that we are going to implement it. We are having discussions about how to do it.

Most operators are of the opinion that the subsisting illiquid nature of the market, coupled with public loss of confidence in the market, is a function of the problem surrounding the N300 billion operators’ debt overhang.

They argue that the situation in the market has entered an emergency stage and any panacea that the authorities might have initiated to bring succour to the stock market should be applied as quickly as possible.

They also urged government to jump start the processes involved in its implementation, while other bureaucracy and bottlenecks in administration should be side lined to enable government release the much needed package.

The Managing Director Crane Securities Limited, Mr Okpara Ezeh reacting to the development wondered why the process of the forbearance package should follow the rigorous bureaucracy associated with government decisions contrary to what happened in the banking sector.

“Government should jump start the process. All the bureaucracy and red-tapism should be side lined and the money released as soon and as quickly as possible. When it was the turn of bailing out the banks, an immediate action was taken. The laws were all relaxed and immediate action was taken up to the extent that the Central Bank of Nigeria and the National Assembly are still fighting over the bail-out package from the presidency that scaled through without the knowledge of the National Assembly.

He wondered why government has neglected the capital market, which according to him, is the engine room of every economy.

“It happened in the aviation sector too, the textile sector was also bailed out without red-tapism. Even the Agriculture sector was bailed out by the same Federal government through the CBN. What has the capital market done?

“Federal Government should bring an intervention fund to the Nigerian Capital Market. The lull being witnessed in the economy as a whole is as a result of the fact that government has neglected capital market which is the engine room of any economy anywhere in the world. See the way the American government intervened and reclaimed her own market at the onset of the melt down.

Britain did the same, France, Germany and even some other third world countries like Japan china and even South Africa followed suit,” Eze said.

The Managing Director, Lambeth Securities Limited, Mr. David Adonri, noted that if the promise is fulfilled forthwith, several firms would have sufficient time to trade their way out of their indebtedness and eventually repay.

He added that as good as the forbearance package is, it may be of no benefit to many Stockbroking firms whose balance sheets have been so severely damaged that only complete debt forgiveness can rescue them.

“Because time is of the essence in dispensing these palliatives, as a result of mounting interest on the debts, further delay may worsen the comatose state of market operators affected,” Adonri said.

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Filed under Business, Commentary, Finance, Opinion, Stock Market

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