EXPLORING OPPORTUNITIES IN THE LOWER TIER SECURITIES MARKET: AN ALTERNATIVE TO BANK LOANS

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EXPLORING OPPORTUNITIES IN THE LOWER
TIER SECURITIES MARKET AN ALTERNATIVE TO BANK
LOANS

• PAPER PRESENTED AT THE ANNUAL GENERAL MEETING OF
  THE NIGERIA EMPLOYERS CONSULTATIVE ASSOCIATION
  (NECA) S NETWORK OF ENTREPRENEURIAL WOMEN (NNEW)
  
• HELD AT THE FUNCTION SUITE, LAGOS SHERATON HOTEL
  TOWERS, 30, MOBOLAJI BANK-ANTHONY WAY,
  MARYLAND-IKEJA, LAGOS.
• THURSDAY, 27TH NOVEMBER 2008
• BY
• MR UZOMA H. ONYEKURU
• GENERAL MANAGER / HEAD,
• COMPLIANCE AND SPECIAL PROJECTS,
• THE NIGERIAN STOCK EXCHANGE

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Introduction -1

• The "capital market" is generally defined to
  include the entire financial system, including
  the commercial banks and other financial
  institutions providing short, medium and
  long-term loans to finance both consumption and
  investment.
• The domestic capital market plays a key role in
  financial intermediation which guarantees the
  channeling of idle funds to investments for
  sustainable economic growth.
• In the narrowest sense, the capital market
  involves the problems and prospects of equity
  investment. This involves the issue and market of
  shares, bonds and debentures using the services
  of brokers, dealers and under-writers.

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Introduction -2

• There are two markets within the Nigerian capital
  market for publicly held securities the primary
  market and the secondary market.
• The primary market operates when the initial
  capital raising takes place. The Securities and
  Exchange Commission, SEC and The Nigerian Stock
  Exchange, NSE are involved in primary market
  activities. The Issuing houses and Stock brokers
  also play prominent roles. Methods commonly used
  to raise such new issues include
• Offer for subscription - Sale of Shares
  Debentures Stocks or Bonds to investors. Proceeds
  of the offer to the Company or Government which
  offers the Shares and/or Bonds.

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Introduction -3

• Offer for Sale Sale of shares by existing
  shareholder(s) to the public proceeds go to the
  seller of such shares.
• Right issues - Sales of new shares to only
  existing shareholders. Proceeds go the Company.
• Private Placement. Shares are sold to few
  individuals and institutions.
•  
• The secondary market operates after the issue has
  been completed and-the Security listed on the
  stock market. Secondary Market(s) are vehicle(s)
  for providing liquidity to investors. Securities
  traded include the Federal Government Stocks,
  debenture stocks, preference shares, state
  government bonds and equities (ordinary shares of
  quoted companies).

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WOMEN AND DEVELOPMENT

• The Role of Women in Economic Development has
  been widely celebrated worldwide
• UN studies indicate that empowering women leads
  to faster development since their expenditure
  programmes have more direct impact on their
  families and children
• Entrepreneurship is a very critical factor of
  production that brings together the other
  factors of production, namely , land, labour and
  capital.
• Hence the combination of entrepreneurship and the
  role of women in development is one that should
  be harnessed and encouraged for meaningful
  national development. Most of the women
  entrepreneurs operate as SMEs

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SMEs

• SMES are companies whose head count or turnover
  falls below certain limits. Every country have
  their own definition of SMEs. in most economies,
  inclusive of developed and the most
  industrialized countries, the importance of SMEs
  contributions to economic development, cannot be
  over looked, in their contributions to economic
  growth and social stability.
• In Nigeria, the SME sector has expanded greatly
  since the mid 1980s, thanks to the development of
  the structural adjustment programme SAP, which
  forced many large corporation to lay off a large
  proportion of their work force. It is estimated
  that the number of registered SMEs in Nigeria is
  close to 450,000 and representing a whooping 80
  of the country's work force
• This not withstanding, they have not been able to
  make the required impact in the Nigerian
  industrialization process, this is caused largely
  by a combination of factors emanating from the
  companies administrative structure and business
  modules through operators attitude and stringent
  regulatory measures in government policies,
  which are considered to be unfriendly to small
  scale business growth are responsible for the low
  level of transparency, confidence and poor level
  of participation in the sector

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FUNDING OF SMEs

• SMEs can generally be funded via
• Private sources family, friends, savings, etc
• Banks loans, overdrafts, equity investments etc
• Capital market private placements, public
  offers etc
• Funding through private sources are usually
  limited and restrictive
• Funding through banks are usually herculean since
  more often than not, SMEs cannot meet with the
  lending and disbursement requirements of banks
  in addition to the usually high interest costs
  which most SMEs cannot bear.

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Benefits of the Capital Market

• The Capital Market serves as a means of raising
  long-term funds
• The Capital Market provides means of efficient
  allocation of Nations resources between
  suppliers and users of such resources
• It provides avenues for government to procure
  funds from sources, other than taxes, through
  bonds and development stocks
• It provides a means for wealth storage, serves as
  a hedge inflation for the individual investor
• It provides liquidity for investment funds in
  respect of the individual investors through the
  secondary market
• It creates public confidence in the economy and
  serves as an indication of economic activity.
• It provides opportunity for growth in investment
  through capital appreciation as compared to money
  market

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Benefits Cont.

• Investment in a company can afford the investor
  and opportunity to influence control of the
  Company.
• Provides an idea for current costs of capital,
  which helps to govern decision-making.
• It serves as a vehicle for opening ownership base
  of Companies previously dominated by families.

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Role Of NSE IN SME Development

• The Nigerian Stock Exchange in her continued
  efforts to grow and develop the small and medium
  scale industry in the country and to promote
  local content efficiency among indigenous
  entrepreneurs, has further eased up on its
  requirements to give micro-enterprises with
  growth and potentials in respect to industry and
  product.
• The opportunity to source cheap-long term funds
  through the capital market has been enhanced
  through the newly established private placement
  and emerging markets (PRIPEM) investment window.
  This is a result of the restructuring that took
  place at the Exchange mid-2008 regarding the
  financing of small businesses.
• Prior to this, there existed the 2nd and 3rd Tier
  Securities market to address the financing needs
  of small businesses. The 3rd Tier market has now
  been abolished and the listing conditions of the
  2nd Tier relaxed to the level of the previous 3rd
  Tier. This has been tied-in with the use of
  private placements by small firms and the
  subsequent listings by introduction.

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The PRIPEM Market

• The PRIPEM market is an investment window
  designed to accommodate small and medium
  indigenously promoted enterprises and
  start-ups/venture capitals who do not meet with
  the listing requirements of the first-tier
  market.
• The listing requirements of the second-tier
  market have been reviewed to accommodate those
  companies, while not losing focus on the need to
  maintain the market standards with international
  best practices objectivity at the fore front
• The introduction of the Pripem market makes the
  NSE a 2-tier market with two different listing
  requirements to suit every level of business
  operations
• The listing requirements for the Pripem market
  reflects that a company must be wholly
  indigenously promoted and registered as a public
  company with the CAC

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Operations of The PRIPEM Market

• There are two main categories of companies on the
  Pripem market
• The companies that meet the requirements will be
  listed directly on the 2nd market and their
  shares will be traded upon
• Those with short falls are packaged and groomed
  to be listed on qualification. Their shares are
  not traded while listed.

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Purpose

• The purpose of this investment window is to give
  opportunities to
• Firms who dont meet with the requirements of the
  First-Tier Market
• Encourage listing for all manner of businesses
  creating an all embracing capital mobilization
  market
• The window acts as a breeding/ preparation ground
  for onward promotion to the upper market
• Enlighten within the company a sense of direction
  and frugality

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Listing Requirement of the PRIPEM (Second-Tier
Market

• Company must be wholly indigenously promoted and
  registered as a Public Limited Liability Co.
  under the provisions of the Companies Allied
  Matters Decree 1990.
• Must submit to The Exchange financial
  statements/business records of past 2 years.
• Date of last audited accounts must not be more
  than 9 months.
• Amount of money that can be raised may not exceed
  N100 million
• Annual quotation fee is Nil.
• At least 15 of share capital must be offered to
  the public.
• Number of shareholders must not be less than 50.
• After listing, company must submit half-yearly
  and annual Accounts.
• Securities must be fully paid up at time of
  allotment

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Cont.

• Un-allotted Securities must be sold on NSE
  Trading Floors.
• Full listing to Emerging market must be within
  6-18 months of listing.

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Benefits of PRIPEM (Second-Tier Market)

• The companies shall be identified on the
  Exchanges Official List in a separate section
  thereof under the caption Provisional List.
• The companies can advertise to the effect that
  they are provisionally listed on The Exchange and
  that an Offer to the public is to be done in due
  course using one or other of the various
  alternatives to an Offer.
• The companies can hold public meetings, press
  briefings, etc as other listed companies do.
• Effective partnership between NSE and other
  public and private sector institution like
  SMEDAN, NACCIMA, NASSI etc would bring a more
  robust 2nd Tier market.
• The deployment of SMEDANs information monitoring
  and capacity building programmes would give rise
  to a large pool of SMEs that would qualify for
  listing on the 2nd Tier market.

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Cont.

• Through 2nd Tier window, more SMEs would
  appreciate the relevance of the capital market to
  their operations.
• The 2nd Tier market, would enable SMEDAN and NSE
  to ensure that some SME clusters are
  re-organized/reformed for listing.
• Partnership of NSE with SMEDAN would bring
• Sensitization/awareness creation
• Facilitation of entrepreneurship training
• Listing under 2nd Tier will be cheaper than
  accessing funds through Banks because of high
  interest rate.
• The 2nd Tier market is a sort of comfort and
  relief SME companies have been waiting for as
  majority have been frustrated in accessing funds
  from the money market and Small and Medium Equity
  Investment Scheme (SMEIS)

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Conclusion

• In the light of all the above knowledge, it is
  only proper that we all play our roles very well
  to make women entrepreneurs achieve the objective
  of creating a more self sustaining economy,
  wealth distribution and eradicating poverty,
  while building a strong and vibrant economy that
  can be compared with those of the developed
  economies.
• Thank you for listening.
• Uzoma Henry ONYEKURU