The House of Representatives has played a paramount role in correcting malpractices in Nigeria's capital market. Kayode Odunaro reports
In the past couple of years, the capital market witnessed a boom with many companies coming to the market to access funds from Nigerian and foreign investors. Leading the pack were banks and other financial services firms, particularly during and after the post-consolidation exercise of these institutions.
Ordinarily, this trend reflects a vibrant economy, particularly with the success of the initial public offers (IPOs) of most companies that are usually oversubscribed, reflecting a level of confidence in the health of the Nigerian economy. But there is a downside to this positive trend. Usually investors in IPOs should get their share certificates within three months after allotments. For most of the IPOs so far, investors did not get their certificates for upward of eight months.
Equally, when IPOs are oversubscribed, investors' funds trapped in the exercise are supposed to be returned with interest covering the period the fund invested got trapped in the unabsorbed oversubscription. This has however not been the case, particularly with bank's IPOs.
Also, in all the application forms for these offers, provision is made for those already on the Central Securities Clearing System (CSCL) for the share purchase to be credited directly to the respective accounts. Usually nothing like that happens. After six to eight months, subscribers are then sent share certificates to go through verifications with the Registrars of the companies – a process that may take anything from three months to three years with obvious negative investment effects.
Intervention by the House of Reps
It was this scenario and other sharp practices in the capital market that led to a flood of petitions to the House of Representatives under the leadership of Hon. Dimeji Bankole – an economics graduate with cognate knowledge of the capital market. Bankole impressed it on the Hon. Ahmed Wadada-led House Committee on Capital Market and Institutions to get to the root of the matter with a view to see what the regulatory authority, the Securities and Exchange Commission (SEC) and other stakeholders are doing to ensure that the interests of the people are not compromised as well as ensure that the rule of law is operative in the sector.
Preliminary investigations by the House Committee necessitated the suspension of further IPOs pending a full investigation into the ongoing practices in the capital market. This has generated a debate on the propriety, and power of the lower legislature to interfere on the issue.
Most commentators and interested stakeholders have premised their opposition to the House of Representatives Committee's intrusion on legalistic grounds and the possible effects on the upswing of the capital market. Others premised their opposition on the notion that it is for the SEC to enforce the laws governing the capital market.
However, even those opposed to the modus operandi of the House Committee's intervention agreed that some unwholesome black spots existed in the rash of IPOs by banks, which may in the long run affect investors. In this respect one could agree that the House Committee's intervention is desirable even while some wrong procedural steps might have been inadvertently taken. A cursory look at Section 88 of the 1999 Constitution reveals that the House by a resolution can cause investigations into any matter it has powers to make laws. Such at the first instance starts with person, authority, ministry or departments charged with executing or implementing the laws in breach or wrongly applied. Subsequently, another person or body may be involved through the instrumentality of officials or agencies of the executive branch of government.
It is possible that the Hon. Ahmed Wadada-led House Committee short-circuited this procedure but one cannot deny their genuine and patriotic intent on this issue of short-changing investors through sharp practices to which the regulatory authorities have turned a blind eye to.
As Hon. Wadada explained on a television programme, the Committee never ordered a ban on IPOs but a suspension pending the conclusion of investigations which the Committee intends to fast track. His argument was that the House cannot continue to watch while infractions are being committed and the regulatory authority seems incapable of doing anything about it. It is much like granting bail to a criminal for him to continue in his ways committing more crimes while awaiting judgment. If this were to be the case, no judge will grant such a bail. Or if granted, it will be with conditions to prevent further malfeasance.
Following the House Committee's intervention, First Bank agreed to pay a 5% interest on funds trapped in it’s over subscribed issue. Again Wadada would have wanted the stakeholders to justify such a low interest rate for oversubscribed funds. The director general of the Nigerian Stock Exchange, Mrs Ndi Okereke-Onyiuke, in a joint press conference with the SEC, later also set a deadline of 1 January 2009 for the online crediting of shares to CSCL accounts from IPOs.
Equally, the issue of banks, in particular, coming to the market for funds for an advertised purpose and then diverting the money for other purposes requires some looking into. And if the SEC is incapable or unwilling to do it, the onus rests on the legislature to look into the matter for remedies. It is a known fact that banks are shying away from funding the real sector of the economy, preferring "buying and selling" and other avenues with a quick gestation period for profit. Happily on this issue, the Banker’s Committee has decided that banks going for IPOs must present a business plan along with their prospectuses following the intervention of the House. While it is their primary business to make profit, promoting national interest and sustainable development issues for the people is definitely within the purview of the legislature to inquire into by virtue of Section 88 of the Constitution.
In times past, it has been "business as usual" in the House with the House not doing anything on sundry issues affecting the people they represent or just looking the other way. The Bankole leadership however intends to ensure that not only is the rule of law followed by operators in all sectors and enforced by regulators, but the interest of the people must also at all times be protected and advanced. There is no place for mere legalese to manipulate the system as the laws could be changed to reflect the interest of the people.
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