Investors neglect N129bn dividends 11 years after stock market crash
NEWS DIGEST–The Nigerian stock market, between 2004 and 2007, witnessed a boom as the economic reforms that began in 2003 led to the write-off of $18bn debt and the creation of pension funds with several billions of naira that were invested in Nigerian securities.
The capital market became a haven for profit-taking as stocks were more than tripling in value in less than a year, thus igniting the confidence of investors and lifting the stock market.
However, in 2008, the market witnessed a crash as investors lost about N6.96tn within a space of nine months.
The market capitalisation of equities listed on the Nigerian Stock Exchange, which opened the year 2008 at N12.6tn, had hit an all-time high of N13.5tn in March but fell to a record low of N6.54tn at the end of the year.
Over 60 per cent of the slightly above 300 quoted securities were on constant offer (supply exceeding demand) on a continuous basis, creating illiquidity and trapping shareholders as they could not convert their stocks to cash.
This scared new investors away and made existing investors develop apathy for the market.
Eleven years after, many investors are still counting their losses and sceptical about bringing their funds to the market.
“I was convinced to invest in the stock market back then in 2004. I invested over N3m in shares and then all of it went down the drain during the stock market crash,” a shareholder, Mr Abraham Owoeye, told our correspondent.
Owoeye, a business owner who deals in plumbing materials, roofing sheets and cement, is one of many Nigerians who suffered huge losses after the crash.
He said, “I just decided not to think about it because at 69, I have realised that there is more to this life. A lot of people committed suicide during that period because some of them borrowed money to buy shares.
“As bad as it is, I do not read anything that has to do with numbers or calculation, except my salary payslip. I do not follow market updates and I don’t want to even hear anything about it. There is nothing that can be said or done that will change my mind.”
When asked about how and what he intended to do with the dividends of the shares he bought, Owoeye said he couldn’t be bothered to claim the dividends.
He said the stock market crash left him distraught and he had yet to get over it.
The Chairman, Capital Bancorp Plc, Mr Olutola Mobolurin, said the 2008 market crash caused local investors to develop an aversion for the Nigerian stock market.
“Since 2008, Nigerians have developed an aversion for the Nigerian stock market, as many of them have not recovered from their losses; it is almost impossible for them to come back and invest because people lost money. I understand some even committed suicide, while others had a stroke as a result of the shock,” he added.
Market performance from 2009 to 2019
The stock market, after the 2018 crash, has been unstable, as it struggled to recover from the downturn.
The market capitalisation of equities dropped to N7.9tn in 2010 and N6.5tn in 2011.
The stock market saw 34 new listings in 2011 valued at N2tn.
In 2012, the market capitalisation grew by 37.31 per cent to N8.9tn and closed the year with two new listings.
In 2013, the market capitalisation grew to N13.2tn but dropped to N11.5tn in 2014. It dipped further in 2015 to N9.9tn.
In 2016, the market extended its two-year losing streak as the market value declined to N9.3tn.
The market rallied in 2017 as the market value surged to N13.6tn but fell to N11.7tn in 2018.
Causes of the market crash
A lecturer at the Department of Banking and Finance, University of Nigeria, Nsukka, Dr Chuke Nwude, in a paper titled, ‘The crash of the Nigerian stock market: What went wrong, the consequences and the panacea,’ said the downturn was caused mainly by fears of contagion effects of the then rampaging global financial crisis.
According to him, many investors lost heavily in terms of capital employed, confidence in the market and the capacity of pension funds to meet their obligations as they became due.
He said, “The global financial crisis of 2007 to 2009 caused many stock markets of countries to fall. Consequently, the Nigerian capital market was not insulated from this global malignant cancer.
“The upward trend in the stock market, which resulted in the market capitalisation peaking at an all-time high of N13.5tn in March 2008 was slowed down by the massive decline in the global economy to less than N4.6tn by the second week of January 2009.
“The shrinkage in the foreign economies orchestrated capital flight from the Nigerian capital market as most foreign investors sought to make up for the deficits in their home countries. The pull-out of many foreign investors that already have troubles in their home economies from the Nigerian stock market led to the dumping of shares beyond the ability of domestic investors to contain. In consequence of this, the supply of equities overwhelmed demand, which led to price fall.”
Mobolurin, on his part, said the market crashed in 2008 because it was largely oversold and not properly sold.
He said stocks were sold to people and they were made to believe that the market would never come down, with some people selling their properties to buy shares.
He said brokers and bankers also introduced margin lending and sold shares to different categories of people, including market women, who knew nothing about investment,
“People were not warned that should the market drop, they would lose,” Mobolurin added.
According to him, because of that experience, a lot of Nigerians have stayed away from the stock market.
He said, “We must ensure that we rebuild the confidence of people in the market. Operators and brokers must ensure that they sell to people in a rational manner. They must also consider their understanding and ability to take risks.
“The stock market is long-term; people should not put money in it and expect returns in three to six months. Nigerians should also develop local capital formation institutions; else, we will always be at the mercy of foreign investors.”
According to Mobolurin, the interest rate is going up in the United States, and this makes it more attractive to invest there.
“Portfolio investors are not dedicated to any country; they look for where money can be made; that is why they can leave the Nigerian market at any time,” he added.
Dividends in limbo on the back of losses
Over the years, many investors have not claimed their dividends, even as new dividends are issued every year.
Findings by PUNCH correspondent revealed that some of the shareholders are dead while some have vowed never to have anything to do with the market after the 2018 crash.
In 2015, the Securities and Exchange Commission launched the e-dividend mandate management system to enable investors to complete their bank mandate with company registrars with ease and less stress.
The acting Director-General, SEC, Ms Mary Uduk, said the system was launched to reduce the quantum of unclaimed dividends in the system.
Under the system, investors are required to register for the e-dividend with their banks or registrars to enable them to receive their dividends directly into their bank accounts.
Uduk said, “The essence of the e-dividend mandate management system is to eradicate or reduce to the barest minimum the incidence of unclaimed dividends. Unclaimed dividend is an undesirable feature of the Nigerian capital market which denies investors/shareholders the gains of participating in the capital market.
“It denies the economy access to the huge amount of money that should have accrued to shareholders and will have gone into circulation to oil the wheel of the economy.
“The previous paper dividend warrant regime has limitations such as system inefficiency, change in investors’ addresses, poor fidelity and human fallibility in dividend payment processes, among others.”
She added that the e–dividend regime bypassed the limitations by ensuring that dividends that did not exceed 12 years of the issue were credited directly to an investors’ account after declaration by the paying company and within a stipulated payment period through simple interbank transfer.
However, since the launch of the system in July 2015, the amount of unclaimed dividends appears not to be decreasing.
Data obtained from the SEC website showed that immediately the e-dividend system was introduced in July 2015, unclaimed dividends dropped from N101.96bn to N97.79bn in September of the same year.
The amount of unclaimed dividends, however, started rising subsequently as it increased to N98.14bn as of December 2015.
The unclaimed dividends rose to N117.15bn in December 2016 and increased further to N129.62bn in December 2018.
Uduk, in a recent press briefing, revealed that the unclaimed dividends had reduced to N100bn as of September 2018.
The Managing Director, Afrinvest Securities Limited, Mr Ayodeji Ebo, told our correspondent that the apathy investors had developed for the market was adversely affecting the reduction of unclaimed dividends.
He said, “Some shareholders don’t have many shares, and they have given up on all the processes and the rigour.
“Some shareholders have ignored the efforts of trying to indemnify and getting insurers to verify that they are the owners of the dividends. Imagine paying N5,000 for indemnity and your dividend is just N1,000. So, at that point, they just decide to forget about everything all together.”
Other factors hindering the reduction of unclaimed dividends
The Head, e-Dividend Technical Committee, SEC, Mr Henry Roland, who is also the commission’s acting Executive Commissioner, Corporate Services, said many investors had not claimed their dividends because they bought shares in different names.
He noted that the investors were scared to come forward to regularise their shares for fear of prosecution.
A shareholder, Olalekan Oregbesan, who spoke at a recent Annual General Meeting of a quoted firm in Lagos, accused registrars of frustrating efforts to register for e-dividend.
He said, “Once you fill the e-mandate and the bank certifies you, registrars will still demand signature specimen from brokers. This is a hitch in the registration process.
“To me, after the bank has verified you and you have provided your bank verification number and passport, I do not think there is any basis for further certification; it is not needed.”
According to him, banks are more co-operative than registrars.
Oregbesan added that the e-dividend system was, however, better than the paper system.
The National President, Constance Shareholders’ Association of Nigeria, Mr Shehu Mikali, said the liquidation of companies with unclaimed dividends and the lack of enough stakeholder engagement with SEC were also hampering the reduction of unclaimed dividends.
He said, “The systems SEC has implemented is fair enough, but they are not doing enough in terms of stakeholder engagement. SEC has never called on any shareholder group or broker, registrar and the Central Securities Clearing System to have a joint meeting.
“The rate at which registrars trouble shareholders is also worrying. Also, the court should try and make it doable for relatives of deceased people to do probate documentation.”
According to Mikali, SEC should have a rapport with all courts so that once the relevant information is received on probate registry, the approval will not be delayed.
He stated that once the processes were followed, the amount of unclaimed dividends would reduce drastically.
The President, Institute of Capital Market Registrars, Mr Bayo Olugbemi, explained that the identification process that shareholders were made to go through was a necessity.
He said, “Someone with the intent to defraud can falsify records from the beginning to the end. That you have a bank account does not mean that the signature attached to your bank account is the same as the one with the registrars.
“Some people have more than one signature; different signatures for shareholding, banks and other purposes. So, it is a registrar’s duty to compare the records with him with that of the bank. Signatures need to be checked and confirmed.”
He stated that the only thing that might cause a delay in the registration process was the presence of discrepancies.
“This has been going on between us and SEC, and we are looking to find a way out,” Olugbemi added.
According to him, any investor experiencing a challenge should seek assistance instead of making it a general problem with registrars.
He said, “Up till today, we have issues of identity theft by falsification of records. If we do all that is expected of us, and one still defrauds us, it will be known that we have done our part, according to operations and procedures.
“Though identity theft cannot be completely eradicated, it can be reduced to the barest minimum; and by the time the BVN is fully adopted, it will bring down the issue of identity theft.”
The way forward
Mikali said registrars should introduce biometric devices to give a true picture of who the real owners of shares were.
He said SEC should also keep funding the registration of e-dividend to reduce the amount of unclaimed dividends to the barest minimum.
According to him, liquidated companies with unclaimed dividends should be reported so that the dividends will be sorted.
The Afrinvest expert, Ebo, said as seamless as the e-dividend process might seem, there was a need for more co-ordination and a central platform for registrars, banks and brokers to upload the e-dividend mandate for effectiveness.
He added that there ought to be full automation of the process of e-dividend registration, without involving any printing of forms whatsoever.
Ebo said SEC should also partner with stockbrokers to make the whole process easier.
SEC’s initiatives aimed at boosting investor confidence
SEC said it was doing a lot to boost investors’ confidence in the capital market.
It had earlier set a December 21, 2017 deadline for the regularisation of shares but shifted it to March 31, 2018.
The deadline was further extended to December 31, 2018, and then to December 31, 2019, to give room for more investors to regularise their shares.
The SEC boss noted that investors’ fears were as a result of two reasons.
She said they could be afraid because they felt that capital market operators would mismanage their investments or they might be looking at the volatility of the market, which was making them sceptical.
She stated that the e-dividend mandate system, the direct cash settlement and the regularisation of multiple subscriptions were put in place to boost investors’ confidence.
Uduk said, “We also protect investors through the National Investors Protection Fund Risk-Based supervision that enables us to supervise the operators to ensure that they do not do what they are not supposed to do.
“The Complaints Management Framework enables investors to know where to complain to and how long it takes for such complaints to be resolved. For those of the investors that are averse to risk, they should get their financial advisers to advise them properly on where to invest.
“We also advise retail investors to invest in collective investment schemes and mutual funds because those are managed independently by professionals and they are diversified thereby reducing risks. We are committed to protecting investors in the work we do.”
She appealed to investors to take advantage of the ongoing e-dividend registration so as to reduce unclaimed dividends as well as increase liquidity in the capital market and the economy.
Uduk described the unclaimed dividends as a consequence of the bottlenecks inherent in the erstwhile paper dividend warrant regime such as postal system inefficiency, change in investors’ addresses, poor fidelity and human fallibility in dividend payment processes, among others.
She said, “I’ll not say investors are hesitant because it is in their interest to come forward and consolidate their holdings. We are aware that during the banking and insurance sector consolidation of 2005-2007, a lot of investors completed more than one application form for particular companies and they did that by juggling their names and sometimes using fictitious names.
“What they fail to realise is that the capital market has a way of checkmating such violations. To be able to claim these shares, they have to be able to identify themselves. For those juggled and fictitious names, they do not have identities that are traceable to these individuals and so they were not able to claim their shares. Therefore, they cannot trade and are also unable to claim dividends and other benefits that may accrue to them.
“We also realised that a lot of the unclaimed dividends are as a result of this issue because investors cannot claim their shares and are unable to claim their dividends.”
She noted that a lot of people bought shares in companies that were doing well and wanted to increase their holdings, which pushed them to use multiple and fictitious names.
Uduk said there was no penalty attached to the multiple accounts regularisation, urging investors to visit their stockbrokers, registrars, bankers or any other capital market operators through whom the shares were purchased on guidance for the steps to take to regularise them.
Implementing the Capital Marker Master Plan
The SEC boss said the commission was implementing a number of Capital Market Master Plan initiatives, which were aimed at making the market deeper, vibrant and more effective.
She said the commission launched its 10-year capital market master plan in 2014 to identify challenges and opportunities to help catalyse the market to a world-class capital market.
She added that the implementation of the 10-year master plan would transform the Nigerian capital market, facilitate the diversification of the economy, encourage savings and create wealth.
Uduk said, “This will, no doubt, grow investors’ confidence, improve the breadth and depth of the market in terms of product offerings, engender market integrity, and contribute to the country’s economic growth.
“We have also developed a two-pronged approach to addressing the intractable challenges associated with the transmission of shares related to the estate of deceased investors.
“The first step will involve engagement with and enlightenment of the probate registry with a view to providing solutions to the cumbersome process of transmitting shares. Secondly, rules will be developed around the time frame for the transmission of shares and the fee structure.”
According to Uduk, the commission is working with other major stakeholders to set up a committee that will look into and proffer solutions to problems around identity management in the Nigerian capital market.
The Chief Executive Officer, Central Securities Clearing System, Mr Haruna Jalo-Waziri, said he believed the success of the e-dividend mandate initiative would help to improve retail participation in the capital market.
On the issue of identity theft, he said the CSCS had deployed a biometrics system, known as the CSCS Enrolment and Verification System, to provide the capital market with the benefits of having a central database of all capital market investors and reinforce identity management across the market.
He said, “This measure is still in place and has helped tremendously in reducing fraudulent activities as some fraudsters have been behind the bars since its deployment in 2014.
“We have also embarked on a data enhancement drive alongside the stockbroking community. The purpose of the drive is to encourage brokerage firms to improve the level of know-your-customers documentation and concurrently provide the CSCS with the enhanced data.
“The enhancement drive by brokers will address the loopholes, which identity thieves take advantage of. Additionally, the market is in discussions with various bodies about the need to cross reference data. This data cross-referencing will enable the CSCS to verify and validate information based on nationally-accepted parameters and will ultimately reduce the incidence of fraud.”