Following in the footsteps of dual-listed Seplat

Six years ago, a Nigerian oil and gas firm, helmed by a former trauma surgeon and cobbled together by a merger of smaller local players, took its first tentative steps in a difficult market.

Its goal: to step into the vacuum left by departing oil majors disillusioned by years of escalating reputational and business costs.

The endeavour paid off, with Seplat establishing itself as a $1bn oil and gas pioneer. But now, senior stock market executives and bankers hope the company will prove just as influential in another trailblazing role – that of being Nigeria’s first dual-listed company.

A year after the firm raised a record $538m in London and Lagos, Oscar Onyema, chief executive of the Nigerian Stock Exchange, told African Banker that Seplat’s heady debut has encouraged other firms to seek a listing on the exchange.

“The success of Seplat has really opened many doors including interest from other exploration and production companies in Nigeria to raise capital through capital markets. They all want to replicate the success and we’ve explained to them how we went about doing the transaction,” he said.

The need to attract new capital to the exchange is pressing if the Nigerian Stock Exchange (NSE) is to keep up with Johannesburg, its main continental rival. According to a fact sheet reviewing the NSE’s performance in the first quarter of this year, the bourse listed 188 companies with a total market capitalisation of $81.6bn – down on comparable figures for the second quarter of 2013. 

As part of a strategy to attract new listings and investors, the NSE has been building links with the London Stock Exchange (LSE). In early 2014, the bourses agreed to a settlement process designed to make the listing and trading of shares more efficient. Following Seplat’s successful adoption of the process and its oversubscribed IPO, the exchanges signed a further memorandum in support of dual-listings late last year. Addressing delegates at the London & Lagos Capital Markets Day, John Millar, global head of primary markets at the LSE, spelled out the benefits of Nigerian firms seeking a dual listing.

“If they [Seplat] just went public in Nigeria, they wouldn’t have been able to raise as much money as they did – the market is developing quickly but it isn’t as deep, there isn’t as much capital.”

Yewande Sadiku, chief executive of Nigerian investment bank Stanbic IBTC Capital, told a panel at the same event that the dual-listing support offered to Seplat needed to be extended to other Nigerian firms looking to raise capital.

“The capability for Nigerian companies to access capital across markets is one of the first things that needs to be entrenched. To get Seplat through, there were new doors that had to be opened – those things need to become institutional.”

Sadiku said that such an approach would explore new ways of interacting with domestic investors, particularly mutual funds representing Nigerian retail investors. Given that 48% of the funds that bought into the Seplat IPO were domestic, the attraction of such an approach is obvious.

According to Sadiku, much of that domestic demand focuses on established companies able to pay high dividends – or high-profile firms that interact with a wide number of Nigerians.

“I think there’s a lot of interest in seeing business-to-consumer companies list so that shareholders can participate in the wealth of these companies,” she said.

That view is supported by Onyema, who lists fast moving consumer goods, telecoms, industrials and recently privatised power companies as sectors showing significant potential for listings.

And having successfully marketed Seplat to both domestic and international investors after a challenging and drawn-out listing process, there is renewed confidence that the exchange is ready for a wave of activity in Nigeria’s crucial oil and gas sector – which, perhaps surprisingly, currently accounts for a small proportion of current listings.

Overcoming hurdles

Despite optimism around the prospect of more dual listings, Onyema admits there are still significant barriers to firms hoping to imitate Seplat’s impressive debut – an initial public offering that was years in the making.

“Market conditions aside, just getting your documentation right, having your corporate governance ready and all that is a process in and of its own, and a number of these E&P [exploration and production] companies are going through this right now.”

But aside from boosting their own internal processes, there is a feeling among business leaders that some parts of the listing process should be expedited by both the exchange and its regulator, the Nigerian Securities and Exchange Commission.

“I think that generally the benefits outweigh the costs, but it’s also important when regulatory authorities are talking about reducing costs,” said ABC Orjiako, chairman and co-founder of Seplat. “If you have a process that should take two weeks, if you extend it to four to six weeks that is okay. By the time it reaches 10 weeks that is too much,” he added.

NSE’s Onyema acknowledged that the exchange’s documentation approval process had increased to around two weeks, but stressed that extensive scrutiny is essential for maintaining the exchange’s standards.

“Whichever way you look at it, it’s a lot more efficient than before. But we must not sacrifice quality for speed, we must make sure that companies reach the highest corporate governance standards, that their documentation is full and timely.”

That is important when negotiating the fraught process of a dual listing – especially when it has to accommodate the sensitivities and reputation of an established senior partner. Onyema refused to be drawn on how many dual listings the exchange could ultimately launch as a result of its tie-up with the LSE.

But with the launch of a Premium Board planned this year, a platform aimed at “the largest blue chip companies”, it seems the NSE is beginning to set itself some ambitious goals. And given competition among bourses on the continent and the NSE’s struggle to compete with Johannesburg, the chief executive is unafraid to set himself some challenging targets for the years ahead. “We want to see an exchange that has started realising its potential and that has a market cap that is a much bigger percentage of GDP than we have today. With a rebased GDP its about 16% – we are looking to more than double that by 2019.”

David Thomas