Stock Exchange as veritable funding option for businesses

There is no doubt that soaring inflation and prolonged trading inactivity, due to the global lockdown, left businesses with huge inventories and a cash flow problem, which also disrupted funding pipelines.

Currently, large, medium, and small businesses are sourcing for funds to get their businesses back on track and pursue their growth mandate as markets open gradually.

Absa, which offers investment banking and market products through various Nigerian registered subsidiaries, namely Absa Representative Office Nigeria Limited, Absa Capital Markets Nigeria Limited, and Absa Securities Nigeria Limited, advised local businesses to tap into the ample pool of retail and institutional investors on the stock exchange to drive their growth aspirations.

According to Akinkunmi Majaro, Head of Absa Securities Nigeria Limited, “businesses consistently strive to grow. Therefore, continued access to cash flow and other investment resources are crucial for businesses aiming to build the competitive edge necessary to drive growth”.

Meanwhile, the global health crisis and its fallout are strong indications that access to long-term financing with fewer stringent demands is critical to staying resilient in an austere operating environment.

He added, “The Nigerian Exchange Limited (NGX), especially, provides access to long and medium terms finance for structured businesses. Absa Capital Markets Nigeria Limited is positioned to help multinational and local businesses and a wide range of investors gain an overriding view of the capital market as well as guide investors and businesses in making wise investment and finance choices.”

Businesses would need long-term access to finance to strengthen operating cash flow, drive product development initiatives, enhance logistics, expand product promotion coverage, penetrate new markets as well as scale operating capacity to the pre-COVID-19 levels.

The ability of these businesses to access funds readily would positively rub off on economic growth. It would revamp the employment generating capacity of the organised private sector and subsequently impact the gross domestic product level.

Many businesses default to bank loans when they are squeezed financially. But, the stringent requirements by the banks and the high interest rate on such loans remain a big challenge that small and medium businesses sometimes find hard to surmount.

Fluctuating currency exchange rates and inflation trends have further compounded SMEs ability to access cheap funding for their operations.

It has therefore, become apparent that businesses look beyond the commercial banks for their funding needs.

Traditionally, across the globe, capital markets offer an interesting opportunity for businesses that are looking to raise capital for medium to long term financing of their activities. The stock exchange serves as a financial intermediary between investors and businesses listed on its floor.

It is regarded as a trading crucible that links businesses to a large pool of local and foreign investors who are constantly searching for interesting investment opportunities.

These investors are anxious to boost their ROI and will put their money in stocks that have favourable profit projections. The advantage for businesses on an exchange is that they can access large capital at lower cost.

Businesses listed on the country’s stock exchange, like Stanbic IBTC, MTN Nigeria, and BUA Foods, among others have an advantage in terms of access to low cost capital to expand their operations.

BUA Foods Plcs 18 billion shares, for instance, were recently listed on the exchange at N40. The listing on the stock exchange provided a lever for the BUA Foods business to raise capital and deepen its operating capacity in the pasta, edible oil, sugar, and flour segments of the local food value chain as well as drive its export capabilities.

Credit: Daily Independent