SEC moves to reduce costs of primary offers

Director-General, SEC, Mr. Munir Gwarzo

Securities and Exchange Commission (SEC) has commenced the process of reviewing downward the costs of issuance in the primary market with a view to encouraging companies and governments to increase the use of capital market for their financing.

A circular on proposed new rule and sundry amendments to the rules and regulations of the Commission obtained yesterday indicated considerable reduction in the costs of issue in the primary fixed income market and equity market.

Under the proposed amendment, the total cost of issue for equities shall not exceed 2.833 per cent as against the existing ceiling of 3.17 per cent. Also, the total cost of issue for bonds shall be reduced to a maximum of 2.293 per cent from the current ceiling of 3.9375 per cent.

“The total cost of issue shall not exceed 2.833 per cent for equity and 2.293 per cent for bonds of the total gross proceeds excluding underwriting commission and registrars’ fees from the issue or such percentage of the gross total proceeds as the Commission may prescribe from time to time,” the proposed amendment stated.

In a demonstration of its commitment to a virile primary market, SEC will be reducing its fees on both primary equity and fixed income issues as well as fees payable to the Nigerian Stock Exchange (NSE) and the Central Securities and Clearing System (CSCS) Plc.

The amendments also seek to remove ambiguities and block loopholes by specifying limits for previously unspecified items. Under the proposed amendments, the cost of underwriting for both primary equity and fixed income offer shall not exceed 2.3 per cent of the offer size while the cost of printing in either case shall not exceed 0.2 per cent as against the existing practices where there are no ceilings for such items.

Also, as against the current rule where the bid and offer prices of units in a collective investment scheme are calculated on a weekly basis by the scheme manager, an amendment seeks to make such calculation on a daily basis.

“The closing unit price of closed-ended funds shall be published on a daily basis on the fund manager’s website,” a new rule stated.

In its bid to enhance regulations for Nigerian and foreign-denominated debt issues, the Commission plans to introduce a new rule that makes it mandatory that: all debt securities issued in Nigeria by the Federal Government of Nigeria Subnationals -State and Local Government, Supranational and Corporate entities, shall be bought, sold or transferred in the secondary market only through a SEC-registered trading facility or Securities Exchange.

“All exchange of debt securities traded-including foreign currency securities of Nigerian entities listed in other jurisdictions like Eurodollar bonds, in the Nigerian capital market shall be executed on or reported to a SEC-registered Securities Exchange or trading facility,” another new rule on regulation of trading in foreign currency securities of Nigerian entities listed in other jurisdictions stated.

Chief operating officer, GTI Capital Group, Mr. Kehinde Hassan, said the move by SEC was in the right direction noting that the reduction of costs will address the agitation of issuers for reduction in cost of issuance.

He added that the reduction in cost of issuance would encourage issuers to float more offers, which could help to enliven the largely dormant primary market.