… as shareholders allege ‘executive recklessness’
- Govt’s economic rebound tale is propaganda – Analysts
Following Nigeria’s challenging business environment, 10 companies listed on the Nigerian Stock Exchange recorded N1.66trillion total liabilities at the end of the third quarter of this year, The Point’s investigations have revealed.
According to data obtained from the Exchange, the total liabilities of the companies rose by over N50 billion, increasing from N1.162 trillion at the end of Q3, 2016, to N1.66 trillion at the end of Q3, 2017.
Further analysis shows that most of the firms are top manufacturing, construction, oil and gas, insurance and mortgage firms that are, ordinarily, expected to perform better than smaller companies in the respective sectors.
But this does not stop them from having more liabilities, according to experts.
The companies are Transcorp Nigeria Plc, Lafarge Plc, Unilever Nigeria Plc, Omoluabi Mortgage Bank Plc, BOC Gases Plc, Seplat Petroleum Development Company Plc, NEM Insurance Plc, Fidson Healthcare Plc, Skye Shelter Funds Plc, and Transnational Express Plc, among others.
Total liabilities are the aggregate debt and financial obligations owed by a business to individuals and organisations at any specific period of time. They are reported on a company’s balance sheet and are a component of the general accounting equation. Common examples of liabilities are loans and bonds payable, and interest and income taxes payable.
While Omoluabi Mortgage Bank’s liabilities increased from N872billion in 2016 to N1.078trillion in 2017, the total liabilities of Transcorp Nigeria, Lafarge and Unilever rose from N26.82billion, N175.99billion and N60.80billion to N180.55billion, N310.75billion, and N62.71billion, respectively, in the same period.
In the oil and gas sector, BOC Gases’ liabilities also increased from N1.46billion to N1.81billion; Seplat Petroleum (N288.3million to N298.18million); and NEM Insurance (N14.53billion to N16.53billion) in the period under review.
Fidson Healthcare, Skye Shelter Funds and Transnational Express reported N10.22billion, N284.24million and N127.44million liabilities in the third quarter of 2017, respectively.
THEY’VE MORTGAGED OUR ROI – INVESTORS
Reacting to The Point’s investigation, some minority shareholders of the companies have described the board of directors of the companies as careless and reckless managers.
They argued that there were no tenable explanations for the ‘reckless’ exposure of the companies to huge liabilities like loans, and fines (being sanctions for the delay in submitting their financial statements), among other offences.
The Chairman, Progressive Shareholders Association of Nigeria, Mr. Boniface Okezie, explained that, though he understood that the cost of running business in Nigeria was so high, the managements had failed to be proactive in some of their decisions as they were not the only companies doing business under a harsh economic environment.
He said, “You must factor in taxation, cost of operations and other levies while taking decisions, because these factors create overhead cost for companies in the course of running their businesses. Before you borrow money, you must weigh the options to know if you will be able to pay back the loan on time.
“For instance, one of them borrowed to do business, paid dividend and planned to pay back from the profit it hoped to make at the end of the financial year. But it failed to remember that aside from the loans, it would also pay dividend. After building huge liabilities for a few years, it would stop paying dividends and shareholders would be on its neck. In most cases, some firms go back to borrow to sustain dividend payout and such is like mortgaging the future returns on investments of shareholders.”
Another investor, Mr. Mathew Okeke, observed that the stock market was heavily laden with low investor confidence; poor market depth in terms of limited securities and products on offer; poor savings and investment culture, which he attributed to the dwindling fortunes of most quoted firms.
“The nation’s low per capital income, low market liquidity, excessive market concentration, with over 60 per cent of trading activities on bank stocks as well as legal constraints, are factors traceable to the lull in the economy that had besieged Nigeria in the last one year,” he said.
For the projected economic growth envisioned by the Federal Government to be realised, he insisted that it must ensure more highly capitalised firms were listed on the floor of the Exchange, as it was imperative to get the capital market back to desirable heights.
TREAD WITH Caution OR GO BANKRUPT
Meanwhile, financial analysts have expressed their displeasure over the high level of liabilities incurred by the firms, as they warned that companies must tread with caution and weigh options of paying back loans or risk being insolvent.
An economist, Mr. James Oghene, said policy inconsistency and propaganda by the Federal Government, claiming that the nation was technically out of recession, were the major factors responsible for the huge liabilities recorded by the firms.
He said, “How can a government be so embedded in lies and propaganda by saying that Nigeria is out of recession without positive evidence in the lives of the people? If they feel that Nigerians are fools, that they can easily be deceived, they sure cannot deceive the international communities.
“This attitude gave rise to mistrust for investment, as the boards and management of companies are finding it difficult to meet expectations. Investors do not trust government policies to put in their money.So, companies went borrowing to keep business running and some times, it became difficult to pay back borrowed monies. Until government policies are well structured and enforced, doing business in Nigeria will be unstable.”
The Chief Executive Officer, APT Securities Limited, Mallam Garba Kurfi, also cautioned companies’ executives against owing more debts than their companies’ worth.
If that has been done already, he urged them to take fast action to reduce debt and increase the value of the company. Apart from that, he expects to see improved performance in the fourth quarter if the economy grows faster than what it recorded in the first half of the year.
A financial analyst and Fund Manager at Global Investment Company, Mr. David Ajulo, also said, “If the company is borrowing money for investment and to increase assets, then it can bring profitability in the future. But if they are just borrowing money for frivolous means, then they must be cautious, as it will lead to collapse.”
BORROW WISELY – NSE
Reacting to the persistent increase in companies’ total liabilities, the Chief Executive Officer, NSE, Mr. Oscar Onyema, advised companies to manage their indebtedness so that monies borrowed for the purpose of business could contribute to its profitability in the future.
He, however, noted that the negative performance of some companies was a reflection of the domestic economy and, to some extent, international economic performance.
“It would have been more worrisome if the economy is going down and the stock market is going up. But what is currently happening is a reflection of the health of the nation’s economy on company’s performance,” he said.
He, therefore, advised investors to invest through portfolio approach in the market, saying the current state of the market created both challenges and opportunities for investors.
“We believe that taking a portfolio approach to investing provides the best risk adjusted alternative for participating in the capital market,” he added.
ANY HOPE FOR MKT REBOUND IN Q4?
Based on the performance of the stock market in Q3, some analysts have predicted that amidst cautious trading, higher activities will spur the market, as investors’ reactions will be influenced on earning releases by companies on the floor of the stock exchange.
In their contribution, financial analysts at Vetiva Capital Management Limited, a Lagos-based investment house, said, “We expect stronger activities in the last quarter of the year. Similar to earning performance, the impact of prudential guidelines and monetary policy reflected on balance sheet and capital adequacy of banks.
“Following the devaluation in June, capital adequacy level took a hit as foreign exchange denominated risk, weighed assets were revalued upwards, while the CBN gave banks a soft-landing by relaxing prudential rules.”
The Managing Director, High Cap Securities Limited, Mr. David Adonri, said, “So far, based on what has been released, the companies’ results are not as impressive as what the banks are declaring. We are seriously worried in the market that the bear run has not been reversed so far. The Gross Domestic Product had been on a decline, but we thought that some other things could be done by the government to restore investors’ confidence.”
