Dangote IPO in Nigeria should not be seen as a measure of the economy’s state — Premium Times Nigeria
Nigeria is undergoing the initial public offering of Dangote Petroleum Refinery and Petrochemicals FZE, but its potential success should not be regarded as definitive proof of the healthy state of the country’s entire economy. As Premium Times Nigeria writes, the company offered 4.1 billion ordinary shares at a price of 525 naira each.
The minimum application is 10 shares, or 5,250 naira. The offering opened on September 14 and is scheduled to close on October 13. If fully subscribed, it could raise about 2.15 trillion naira. The shares are expected to be listed on the Nigerian Exchange in November after the offering is completed, shares are allocated and the necessary approvals are obtained.
Demand does not equal prosperity
Column author Bolutife Oluwadele notes that strong demand for the shares may be driven not only by confidence in Dangote or the refinery’s prospects. Among potential participants in the offering, he names pension funds, asset managers, insurance companies, foreign and diaspora investors, as well as traders expecting to resell the securities after listing.
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In the author’s view, demand exceeding supply is in itself a limited economic indicator. It may reflect a shortage of attractive savings instruments, speculative interest or the concentration of liquidity among a relatively small number of wealthy investors. Investors may also finance share purchases not only with savings, but with loans, asset sales or funds set aside for household and business needs.
What data will matter
To assess the IPO’s results, the article says, the number and average size of applications from retail investors, the share allocated between retail and institutional buyers, the concentration of shares among the largest applicants, the ratio of domestic to foreign capital and the volume of credit-financed purchases will be important.
The use of the funds raised, the company’s valuation relative to its earnings, cash flow and assets, as well as the liquidity and stability of the share price after listing, should be assessed separately. A successful completion of the offering could broaden the shareholder base, attract long-term capital and strengthen requirements for transparency and corporate governance. At the same time, the significance of the deal will depend on the structure of demand, the allocation of shares, the purpose of the funds and the refinery’s subsequent operating results.
