By Thompson ABISOLA
Capital market operators on Monday urged stockbroking firms operating in Nigeria, to embrace mergers and acquisitions in line with economic realities to tackle illiquidity and investors apathy.
Illiquidity is the state of a security or other asset that cannot easily be sold or exchanged for cash without a substantial loss in value.
The capital market operators made this known in Lagos, while reacting to the expulsion of 35 firms by the Nigerian Stock Exchange (NSE) over corporate governance issues.
The exchange had expelled the 35 firms for non-compliance to corporate governance rules and regulations.
Prof. Sheriffdeen Tella, Professor of Economics, Olabisi Onabanjo University, Ago-Iwoye, Ogun State, said that the industry should be encouraged to seek mergers and acquisitions through policy shift.
Tella said that the industry needed to change stakeholders’ perceptions on partnership or joint stock business.
He said that expulsion of the affected firms was long overdue as many of them had been moribund and existed only on paper to deceive investors.
According to him, the action is like cleaning up the table and is expected to strengthen the faith of investors in the market.
“Before the expulsion, the stocking firms have been given opportunities to update their records, renew their licenses and comply with other directives, but they were unable to meet up.
“Most of the stockbroking firms had sole proprietorship which can make it difficult for expansion, efficiency and effectiveness,’’ Tella said.
He said that the NSE needed to be more decisive and fast in taking actions on stakeholders’ activities on the market to minimise infractions and loss of confidence by the investing public.
Mr Sola Oni, a chartered stockbroker and Chief Executive Officer, Sofunix Investment and Communications, said that mergers and acquisitions, or any form of business combination was a better alternative.
“It is good to own 10 per cent in a viable firm than 100 per cent in a sinking one.
“But business combinations also have its challenges and possibility of creating oligopoly on the market in the future.
“However, it appears as the quick win at the moment,’’ Oni said.
He described the expulsion as part of the oversight functions of market regulators to protect investors and uphold market integrity.
“Investors in the embattled firms called inactive houses, shall move to any of the active firms within a short period.
“There is a procedure for this and the exchange’s Clearing House, the Central Securities Clearing System (CSCS) Limited, plays a pivotal role in this regard,’’ Oni said.
Also speaking, Mr Ambrose Omordion, the Chief Operating Officer, InvestData Ltd, commended the NSE for the action aimed at sanitising the market.
“The NSE action is a welcome one, since their client’s and investors are not losing anything because all their holding records are with CSCS,’’ Omordion said.
He said that the development showed that the economy was still shaky with more people losing their jobs, thereby increasing the insecurity situation in the country.
Omordion advised investors to investigate operating firms’ capital base, operations, research team, online presence or platform, staff strength and volume of transactions before opening an account with them.
“Mergers and acquisitions option is left for the firms involved if they want to continue operations,’’ he said.
