The fact that the capital market crisis has dragged on for so long without any sign of prompt recovery, suggests that the local burse may be looking at the broad range of policy responses needed to solve this crisis.
Some operators in the nation’s stock market have in difference fora reiterated the need for an intervention fund from the government to help mop up the excess shares in circulation to facilitate market stability.
They agreed that the market could only regain its past glory if the authorities would provide a bailout fund to stabilise the market as it was done in the banking and textile industries adding that the fund would boost the market and help restore and sustain investors’ confidence which have been eroded since the global financial meltdown set in.
Across the economy the macroeconomic authorities have responded to the effect of the global financial crisis on the domestic economy by taking action to put a floor on the losses of key sectors. Accordingly, to take but two prominent examples, both the banking and aviation sectors have benefited from quasi-fiscal operations by the Central Bank of Nigeria (CBN).
There is no doubt that the intervention by the Asset Management Corporation of Nigeria (AMCON) was instrumental in the quick recovery of the sector from the adverse environment created by the details of the August 2009 Special Audit of the nation’s banks. Similarly, we have seen evidence of the positive impact of the Aviation Fund on the health of the nation’s airlines.
Recently the Coordinating Minister of the Economy and Finance Minister’s reiterated the Federal Government’s plan to work out a forbearance package for stockbrokers as part of measures to stimulate confidence in the Nigerian stock market and increase liquidity.
Although details of this package is still being worked out, it is believed that estimated debt overhang, arising from margin loans incurred by stockbrokers that stood at about N300 billion will be taken care of the way AMCON did to banks toxic assets.
Speaking recently the Group Managing Director/Chief Executive Officer of First Bank of Nigeria Plc Mr. Olabisi Onasanya said the forbearance package must include two ingredients. First was the provision of funds at concessionary rates. These new levels of liquidity would help brokers begin the balance sheet adjustment necessary to return to functional levels of liquidity in the market.
“Nonetheless, funds at concessionary rates would still be inadequate to address the over N300 billion operators’ debt overhang. In order to address this, the capital market would need forbearances on the debt owed by operators, including long-term restructuring of margin facilities. AMCON has addressed the bulk of margin lending driven by bank debt. But the bulk of the outstanding debt is owed on proprietary positions, and the obligations attendant upon this has been the single most important cause of industry operators’ insolvency,” he said.
According to the Managing Director, Lambeth Trust & Investment Company Limited, Mr. David Adonri, “the proposed forbearance is a welcome development. However, for several badly damaged Stockbroking firms to be rescued, outright debt cancellation may be necessary.
AMCON has already taken over the stocks upon which most of the Margin facilities were granted, therefore, the means of repayment no longer exist. Forbearance can only assist those with means of repayment. The debt crisis can only be resolved on case by case basis”.
He noted that the function of the primary segment of the market is to provide long term capital whether in form of equity or debt to finance acquisition of assets, adding that unless the market is revived; meeting such function to the economy might be a mirage.
“Government as a fiscal authority has a lot to do in respect of reviving the market. The function of the stock market is to form capital for the economy. Stakeholders are worried because the duty of the primary market segment is to provide long term capital and when reverse is the case, it means that the market has failed in its function to the economy”.