High Regulatory Fees Making Nigeria’s Capital Market Unattractive To Investors, Stakeholders Lament

… SEC Promises Review Of Policy

The Nigerian capital market is becoming unbearable for operators who are lamenting that the fees paid to different regulators before raising money on the country’s stock market is close to N2bn.

The fees are paid to the Securities and Exchange Commission, the Federal Competition and Consumer Protection Commission, the Nigerian Exchange Ltd and Central Securities Clearing System Plc  (CSCS).

They also said cost from fees earned by professionals is making the capital market unattractive for operators.

The stakeholders who said these  on Thursday during the NGX Chief Executive Officer Roundtable also accused the capital market regulators of acting like ‘tax collectors.’

The theme of the event was ‘Creating the enabling ecosystem for accessing capital from the Nigerian capital market’.

Asue Ighadalo founding partner of the law firm Banwo-and-Ighodalo, who spoke during the second panel session decried the exorbitant fees charged by the regulators including the SEC.

He said,  “We need to look at all of these issues and then the big elephant in the room really is the cost. Cost from the perspective of fees earned by the professionals and that is fundamental.

“For me, as important is the issue of the fees charged by the regulators. It is not an imaginary transaction. Real life transactions, not two long ago in the last two years, you pay N385m to FCCPC; you pay N289m to SEC processing fees; N339m to Central Securities Clearing System Plc  (CSCS); on the Exchange you pay N574m; you pay stamp duty and proxy N306m, you are paying nearly N2bn.

“That is preposterous, so, we need to find a way to deal with all of these issues. If you want companies to access the  market; if you want to create jobs this issues need to be addressed.

“The issue of authorised share capital, we need to review it, it is in CAMA. So, those legal things that make it easy for people to access the capital market and it takes too long. So we need to collapse accessing the capital market to definitely not more than four weeks to six weeks.

“It is unattractive to come to the Nigerian market. Major multinationals are choosing other markets if they have to play in Africa. It is too expensive and SEC is charging too much. When you talk about the cost of transactions, SEC is taking the chunk. You double dig. You take when we come to you, you take at the exchange point. SEC has overlap with FCCPC on certain issues, you have to deal with that.”

The President of the Association of Issuing Houses of Nigeria and the Managing Director of Afrinvest West Africa, Ike Chioke, noted that the  policy constraints faced in trying to expand access to capital in the market include fees caps which are disincentives to Advisers.

According to him, the fees cap discourages advisers from engaging with many smaller companies which in turn reduces the number of issuers coming into the market.

 
Chioke said, “When I think of the issues the industry that is the Association of Issuing Houses of Nigeria face as a trade group, perhaps the biggest challenge will be time to market for transactions.

“Potential issues perhaps will decide not to come to the market because the conditions and time table for approval will stretch far beyond the event that they want to actually use that capital to do.

“They then decide to go first to the bond market and then come back to us to refinance and so at that point, you have really lost a good opportunity to introduce new participants into the market.

“The second and quite fundamental issue which I had mention is also the fees chargeable. Whereas in the bond market the fees can be very thin because you do quite a lot of bond issuance in the billion of naira on a daily basis and the trading of bonds run in the trillions of naira.

“On the equity market side, because of the nature of diligence required, it takes a lot more effort to prepare the company, to write the story to make sure investors are protected, the regulator here has imposed effectively the same kind of fee threshold for equity transactions as it is for bond transactions. Whereas in the United States for example, an IPO could easily be costing the issuers as much as 7 per cent.

“In Nigeria where I believe that the sweep spot for bringing transactions into the market  to be sort of deals between N5bn to N10bn size. If you are charging one per cent fees that is N15m and you have two or three parties on the transactions and you re going to run the project for six to nine months and you can see immediately it is not profitable.

“Therefore most Advisers will prefer to the bigger ticket transactions like MTN where the deal size is a N100bn rather than N5bn or the Dangotes and the BUAs and this then effectively crowds the smaller issuers from the market.”

He urged SEC to “disaggregate the cost of transactions and remove professional advisers from that cost, because if I engage a client he he tells me it is going to cost 5 per cent of the capital, that is a personal relationship between me and the client it has nothing to do with the cost of the issue and same thing with the law firms.”

Owen Omagaifo,  the President and Group Chief Executive Officer of Transnational Corporation of Nigeria advocated for policies that will bring more players in the market.

“I will also like to see this year some more discussions and partnership around float requirement on corporates from regulators taking note of the situation of our market and the situation of the economy,” she said.

Reacting to the issues raised, the  SEC’s Head Registration, Exchange, Market Infrastructure and Innovation, Abdulkadir Abbas, said the issues raised will be reviewed.

Abbas said, “Those are issues that are well noted and I know that we are still into conversation especially the issue with FCCPC. We can still do the engagement and we will get in touch with all the stakeholders.

“I will talk on two issues; policy or regulations around cost of issue, time to market and other regulation that we have in place that will attract and enhance listing.

“The SEC didn’t just sit-down to come up with the transaction cost. The market was engaged, the issuers were also engaged and inputs were received before the SEC came up with this position.

“We are reviewing the Investment and Security Act to now allow even entities incorporated under free trade zones that were hitherto not allowed to list in our market.”