The sequence of "bad news" -- related to unimpressive earnings releases and regulatory sanctions on companies-- eroded market confidence this week and expectedly led to sell-offs on the bourse as the benchmark equities indicator shed 2.8%.
OANDO Plc - Nigeria's Integrated Oil and Gas operator - listed on the Johannesburg and Nigeria stock markets released its much awaited audited FY: 2014 earnings result last week. The company reported a monumental post-tax loss of N183.9bn, the highest loss ever recorded by any NSE listed company. The company attributed the massive loss to provisions made for the inability of its Joint Venture partners (JVs) to make payments for over lifted oil, the currency devaluation which led to foreign exchange losses in its downstream division as well as impairment and write-downs on its upstream assets. Nevertheless, the inability of the company to efficiently manage shareholders fund - as reflected in bloated administrative expenses, non-issuance of a loss warning and long delays in releasing the 2014 annual reports and Q1 & Q2 2015 results have also raised questions about regulatory compliance level as well as corporate governance practices of the company. OANDO Plc's shares have since tumbled 40.0% this week.
Also, the Financial Reporting Council of Nigeria (FRC) after concluding its investigation of NSE listed Stanbic IBTC Holdings Plc for alleged regulatory breaches; ordered the company to withdraw its financial statements for years ended 31st December 2013 and 2014 and restate them in accordance with relevant provisions of the FRC guidelines. The Council also suspended four directors of the company for alleged negligence and further reported the company to the CBN and the EFCC. The shares of Stanbic Plc which also reported its 9M numbers this week - indicating Gross earnings expanded by 10.0% Y-o-Y to N104.4bn while PAT fell 46.0% Y-o-Y to N13.5bn - have plunged 17.4% to N18.91 per share.
In line with earlier notification by the CBN to sanction Banks that failed to fully comply with the directive to remit all deposits relating to the Federal Government MDAs by 15th of September into the Single Treasury Account (TSA). The market was hit by yet another discomforting news, as the CBN slammed FBN Holdings and UBA with a fine of N1.9bn and 2.9bn respectively. In a swift reaction to this, investors dumped the shares of both Banks as the Tickers fell 14.0% (FBNH) and 3.5 (UBA) this week. While the loses sustained by UBA may have been moderated by its impressive Q3:2015 earnings release which indicated that the Bank's Gross Earnings expanded by 17.3% to N247.2bn even as PBT and PAT surged 34.8% and 44.4% to N57.4bn and N48.6bn respectively for the 9months period, that of FBNH was compounded by the Bank's Audited its 9months earnings numbers which indicated that Gross Earnings expanded 16.9% to N390.0bn but PBT and PAT declined significantly by 19.2% and 9.7% to N59.6bn and N50.2bn respectively.
Although we believe the timing of the above unsettling news flow is rather bad for the market given the mammoth of macroeconomic headaches besetting the capital market at the moment. We opine that the series of regulatory sanction dished out on Monday (26/10/2015) is positive for regulations and corporate governance in Nigeria if these companies are found liable as indicted. While we understand the circumstances surrounding the monumental loss posted by OANDO Plc, we believe the Oil and Gas firm should have submitted this result earlier in accordance with the guideline of the Exchange as waiting for over 7months post - regulatory deadline raises a number of corporate governance questions.
By the NSE rule, contravention of the rule on timely release of accounts attracts a fine of N100,000 per week from the due date until the date of submission. By our estimation, OANDO's 206 days, 176 days and 85 days delays of the three reports would have implied a paltry cumulative fine of N6.7m but the cost in terms of investors' confidence in regulators and corporate governance of quoted companies poses a greater challenge to the capital market performance.