FG bails out 84 stock firms with N22.6bn

Ngozi Okonjo-Iweala
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In a fresh bid to restore confidence in the stock market, the Federal Government is bailing out 84 stockbroking firms with N22.6bn.

Justifying the government bail-out, Minister of Finance, Mrs. Ngozi Okonjo-Iweala, said at a press briefing in Abuja on Monday that the bail-out was the first step in government’s intervention and that the move was necessary in order to clear the debt overhang in the sector.

Okonjo-Iweala said the government could no longer watch the sluggish recovery of the capital market, adding that the stock exchange was essential to the Federal Government’s economic transformation agenda.

The minister did not give the names of the beneficiary companies but she said any firm benefiting from the N22.6bn bail-out would be disqualified from providing professional service for the Asset Management Company for three years.

She said that a committee, headed by the Deputy Governor, Financial Systems Stability, Central Bank of Nigeria, Dr Kingsley Moghalu, recommended the bail-out as well as the elimination of stamp duties and Value Added Tax on stock market transaction fees.

The minister said, “The first measure is a forbearance of about N22.6bn on the margin loans of 84 stock brokers, in accordance with Section 6(5) of the AMCON Act. AMCON had purchased these margin loans from banks for about N42.6bn, but the value of the underlying assets or collateral is worth only N19.96bn today.

“In furtherance of AMCON’s cleanup of the banking sector, it is necessary to wipe off the debt overhang in the capital market, as this is dampening market activity. But let me state clearly that this forbearance will be accompanied with sanctions to discourage excessive borrowing behaviour by capital market operators in the future.

“Brokers benefiting from forbearance will not be allowed to provide any professional services to AMCON for a period not less than 3 years; firms will be required to reveal to the SEC, any dealings in any security valued at a minimum of N25m executed in a single deal or multiple deals on the same day on behalf of their clients.

“As part of their net capital requirement, no broker that has received forbearance shall permit his aggregate indebtedness to exceed 100 per cent of his net capital; details of the firms will be forwarded to the Credit Bureau Agency.

“A strict requirement that imposes separation of assets and control for brokerage services and/or future margin facilities through the use of custodians; and finally, the brokers will be prohibited from taking proprietary positions or trade on their own account for one year.”

For other stock brokers who did not partake in any market infractions, including over-exposure to margin loans, and who managed their stockbroking businesses well, Okonjo-Iweala said they would be celebrated by the Federal Government in due course.

On Stamp Duty and VAT, Okonjo-Iweala said taxes on stock exchange transaction fees would henceforth be waived.

She said, “The second measure is the elimination of stamp duties and VAT on stock market transaction fees. Taxes on stock exchange transaction fees are as high as 12 per cent – much higher than in other jurisdictions and these constitute a major disincentive to invest in the Nigerian capital market.

“I would like to announce that the Federal Government has consented to waive the 0.075 per cent stamp duties payable on stock exchange transaction fees; and exempt from VAT, commissions earned on traded values of shares, payable to the SEC, and payable to the Nigerian Stock Exchange and the Central Securities Clearing System; by including these commissions in the list of VAT-exempt goods and services.”

These measures, according to her, would re-emphasise the government’s renewed commitment to making Nigeria’s capital market one of the most vibrant markets in the world.

 The Nigerian Stock Exchange was rocked by crisis in 2008 with investors losing majority of their investments as the prices of shares crashed in an unprecedented manner.

For instance, the All Share Index, which measures activity on the NSE plummeted from a peak of about 66,000 points in March 2008 to less than 22,000 points by January 2009, wiping out over N8tn (about 70 per cent) of the total capitalisation of the exchange within the same period.