24 September 2014, Lagos – Investors targeting initial public offering (IPO) in the primary segment of the Nigerian capital market will have to wait longer as experts have said the IPOs market will not be active until the second half of 2015.
IPOs are made by companies issuing their shares to members of the public for the first time to raise fresh funds. IPOs were very common in 2007 and 2008 before the market witnessed a downturn. Since 2008, companies have been avoiding IPOs, embracing mostly rights issues and bonds.
Many investors prefer investing in IPOs because of their capital gain potential. It is believed that shares offered through IPOs are under-priced and have the potential to rise after listing. Hence, investors always swoop on such shares. However, the IPO market has been dormant since 2008.
Financial experts who spoke to THISDAY said the Nigerian market will remain inactive until second half of 2015. For instance, Head, Equity Primary Markets, Africa, India and Middle East at the LSE, Mr. Ibukun Adebayo, told THISDAY that the driving force for capital raising across Africa now is debt, explaining that equity IPO raising, will become active in 2015.
“It (IPO) is a question of time. The driving force for capital raising, not just Nigeria but across Africa now is debt. Companies are inherently underleveraged in Nigeria so we are going to see more debt issuance before you see equity issuance. Companies have to come because the balance between the interest of the investors and the company moving forward. So we expect more of IPOs taking off from the second half of next year,” Adebayo said.
A stockbroker, Mr. Ayo Oguntayo, said the return of retail investors would encourage companies to issue IPOs in the very near future, hence the expectation that the market will become active in 2015 is not misplaced.
“As you are aware, many retail investors took part in IPOs during the last market boom. Although some of them got their fingers burnt, many others really reaped significant capital gains. Such investors are eagerly waiting for another round of IPOs in the market,” Oguntayo said.
He added that efforts by the Nigerian Stock Exchange (NSE) and Securities and Exchange Commission (SEC) to attract retail investors back to the market would eventually encourage companies to return to the market with IPOs.
Seplat Petroleum Development Company Plc last March braved the odds and made the first IPO in recent time both on the local and international capital market that fetched the company $500 million. The company eventually made a dual listing on the LSE and NSE.
– This Day