• Impact may linger
•Debts to worsen gearing ratios
• Companies to battle hostile acquisitions
Taofik Salako, Deputy Group Business Editor
The Coronavirus pandemic will hamper corporate growth and may stall the realisation of business growth and development plans estimated at more than N5 trillion for the 2020 fiscal year.
Financial experts agreed at the weekend that notwithstanding the spirited national and global efforts to contain the ravaging Covid-19 pandemic, the virulent disease will have lingering medium to long-term adverse impact on companies.
While the extent of the impact is yet to be fully ascertained, many analysts said the immediate threat may be more than N5 trillion citing recent corporate issues and capital market records.
Total value of new equities issues on the Nigerian Stock Exchange (NSE) had jumped to N3.35 trillion in 2019. Value of supplementary equities issues stood at N105.02 billion, less than half of N240.83 billion recorded in 2018.
Already, total new listings on the NSE, including supplementary and new issues, in the first quarter stood at N1.386 trillion, largely driven by pre-Covid-19 activities.
Nigeria recorded its first Coronavirus index case on February 27, 2020 and has since witnessed increasing spread of the virus across many states, with total number of confirmed Covid-19 cases topping 190 at the weekend.
Governments’ containment programmes had seen shutdowns across several sectors as continuing spreading of pandemic Coronavirus is compelling governments and companies to introduce stricter restrictions and reduction of human and operational activities.
Nigeria’s major economic and political centres – Federal Capital Territory (FCT), Lagos State and Ogun states are under a 14-day lockdown ordered by President Muhammadu Buhari. Several states have also ordered separate lockdown and closure of their borders.
There are indications at the weekend that ongoing recapitalisation of the microfinance banking sub-sector and insurance sector as well as proposed recapitalisation of capital market operators may be delayed as financial services regulators consider fiscal and monetary measures to mitigate the impact of the pandemic on the economy.
The National Insurance Commission (NAICOM) had initially extended the deadline for insurance sector recapitalisation to December 31, 2020.
But with several insurance companies unable to fully activate their recapitalisation plan, NAICOM has indicated a possible reconsideration of the recapitalisation timeline.
The recapitalisation of the microfinance banking sub-sector had been scheduled for April 2020. Traditionally, financial services regulators use waivers and extension of deadline to redress disruptions occasioned by unforeseen national issues.
Market pundits said there may be increased recourse to debt issues by companies while the steep undervaluation of several Nigerian quoted companies may lead to hostile acquisition bids.
With the apathy in the primary market, delay in corporate earnings and investors’ fatigue may hamper companies’ surviving strategy of shareholders’ recapitalisation. Nigerian equities lost N2.56 trillion in capital gains in March 2020, the first month of the Coronavirus impact.
Several companies that had scheduled shareholders’ meetings for consideration of corporate growth plans and capital raisings have been forced to postpone their meetings due to governments’ orders on social distancing, restriction and cancellation of all public gatherings and meetings and total lockdown of key economic centres.
The Corporate Affairs Commission (CAC), which activated a crisis-response measure of annual general meeting (AGM) through the use of proxies, stated that such proxy meeting must be limited to “ordinary businesses”, a reference to normal business decisions with no bearing on capital structure and other organisational changes like mergers and acquisitions.
Nigeria’s apex capital market regulator, Securities and Exchange Commission (SEC), at the weekend said all public companies are required to continue to make material disclosures to investors on the impact of Covid-19 pandemic on their business operations.
According to SEC, companies should disclose the trend and outlook for their businesses as well as provide updates on implementation of their business continuity plans. Public companies are to publish these disclosures on their websites and on other relevant media.
The Commission noted that debt issuers are also expected to continue to engage trustees to ensure that relevant disclosures are provided while trustees are required to provide updates to the Commission accordingly.
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The Commission added that all capital market operators are required to continue to monitor the real and potential risks of Covid-19 on their business operations and the discharge of services to investors and clients.
Market analysts agreed that the extent of the impact depends on the duration of the restrictions or lockdown, the containment strategy and government’s economic recovery strategy.
Despite some silver linings for companies in the healthcare sector, most analysts agreed that Coronavirus will have a generally negative impact on the corporate growth, capital market and the economy.
Chairman, Association of Securities Dealing Houses of Nigeria (ASHON), Chief Onyenwechukwu Ezeagu, said the lockdown of Lagos and Abuja, the economic centre and political centre in Nigeria, would have a significant adverse impact on the capital market and the economy generally.
“I dare say that it is too early to quantify the actual impact, suffice it for one to say that how long it takes for Nigeria to contain this scourge would determine the extent of the negative impact on not only the capital market, the economy but also on the political and social fabrics of the nation,” Ezeagu said.
According to him, there is need for relevant authorities to put together a crack team of experts to begin to collate statistics on the possible impact and a probable stimulus package to ameliorate the impact of this pandemic on the nation.
“The time is already ticking and there are no rooms for procrastination. Amidst the seeming maze of confusion, there should be a discernible pathway to overcoming and recovering from this malaise,” Ezeagu said.
Managing Director, Afrinvest Securities Limited, Mr Ayodeji Ebo, said the slowdown in business activity and full lockdown will definitely impact on the performance of the companies across the sectors.
He said while the performance of companies in the health sector may pick up due to high demand for vitamins and supplements as well as medical kits, there will be a general adverse impact on major sectors of the economy.
“Despite the proposed loan structuring, impairment charges is also expected to increase, impacting on banks profitability,” Ebo said.
Chief Operating Officer, GTI Capital Limited, Mr. Kehinde Hassan said companies may be overwhelmed by many challenges that may arise due to fiscal and monetary measures as well as general hangovers from the Covid-19 pandemic.
According to him, from declining consumer purchasing power to investable funds and investors’ appetite and the compounded effect of external factors such as crude oil price, companies may simultaneously have to deal with slowdown in macroeconomic environment and significant revision in corporate growth and strategy.
Hassan, who oversees investment banking activities at the tier-one capital market group, said while the effect may differ from company to company depending on the current capital and operational structures of a company, the Covid-19 pandemic is a whirlwind that bears no good for all corporates.
Chief Executive Officer, Sofunix Investment and Communications Limited, Mr. Sola Oni, said operations of quoted companies had already been hampered by tension occasioned by the Coronavirus scourge.
According to him, the pandemic scare is already impacting on capacity utilisation of companies operating in the real sector.
“It will affect their turnover and bottom-line. This is expected to impair their ability to generate anticipated shareholder value. We do not need crystal ball to say many companies will later come up with profit warning,” Oni said.
He pointed out that investors are caught up in a cyclical losing round watching helplessly as the value of their investment is eroded daily at the secondary market and their companies unable to take critical future growth decisions.
“Although real investors can take advantage to beef up portfolio, especially with growth stocks, it is not impossible that many will take flight for safety by selling off to secure money for uncertainties. The overall effect of the current situation is expected to dampen performance indicators on the stock exchanges,” Oni said.
He said the Coronavirus will definitely compound the tough macroeconomic environment in Nigeria, leading to long effect on companies.
“There is no magic wand; the stock market will reflect the effects of the current situation at the end. The economy has been fragile before the news of Coronavirus became real in Nigeria. The banking sector is already taking bashing as tempo of financial transaction has slowed down,” Oni said.