By Rafiq Raji, PhD
I participated in an interesting debate on Twitter this weekend past. In a sharp departure from my usual approach to using the micro blogging site, I reacted almost instinctively to a post by a well-respected business journalist about the upcoming MTN listing on the Nigerian Stock Exchange (NSE). He had it on good authority that all four financial advisers chosen by the South African telecoms firm for the transaction are South African companies. (Pardon the tautology; but you likely see the point.) My view was that the Securities and Exchange Commission (SEC) can and should intervene. Otherwise, what is the whole point of the exercise? (MTN was “advised” to list on the local exchange.) The opposing views, well-informed ones, I might add, were that such an intervention would be an anomaly. Even if the advisers are foreign-owned, are they not properly licensed to operate in Nigeria, one of the grandees in Nigerian (and indeed African) finance wondered. I took the point. But did MTN even ask for issuing house proposals from indigenous houses? Since the journalist relied on sources, I will leave that question in the air. But he did add that MTN “asked local houses to send proposals to bid for…stock brokerage only…” (Note my use of “indigenous” and not “local”. By the former, I mean an issuing house or advisory firm set up and operated by Nigerians. The journalist’s use of “local” means “indigenous”, though. So from here on, if you happen on “the grandee”, “the journalist”, “local” and “indigenous”, you know what I mean.)
Free market intervention
After mulling the issue a little bit, I came to the firm view that SEC should insist on a sizeable local content for the MTN issuance. And “local” must be truly local. Naturally, such an interventionist approach would not sit well with most market participants. Another well-informed participant in the debate reacted with wry humour if not sarcasm (not in a bad way): “I thought we operated…a free market? Perhaps government should also legislate how the book-running and roadshow [should be] conducted and proportional share allocations as well.” Yes, the globalist grandee agreed. But then I added that even as America and Europe are supposedly free markets, when a mergers and acquisitions (M&A) transaction borders on national security or involves strategic sectors or differential technologies, they do intervene or block it outrightly. I cited the recent example of American regulators blocking the US$580 million acquisition bid for a semiconductor company by a Chinese fund. Another example is the blocking of the US$1.2 billion sale of MoneyGram to Jack Ma of Alibaba by US regulators. France also recently blocked the takeover of the Toulouse airport by a Chinese firm.
Practice and law
A rebuttal to my point was that blocking a deal and choosing advisers are two different things. True. But I was not suggesting that the SEC choose the advisers but that the unique nature of the MTN transaction requires that indigenous firms be part of the “cream” (advisory and underwriting) and not just the “crumbs” (brokerage, placement agency, etc.) of the process. Relegating indigenous firms to just brokerage and placement agency was almost disdainful, I thought. (Of course, this is speaking hypothetically; since MTN has not revealed the full details of those it has mandated for the transaction.) Besides, shouldn’t a local content policy apply to all industries? Investment banking is an industry too. And even as the SEC may not necessarily have legal standing (as yet, at least) to compel MTN to include indigenous advisers in its proposed NSE listing, couldn’t it “advise” the firm to include them? My drift here, as I stated then, is that if indigenous advisory firms are not given due consideration on these mega deals, only the foreign-backed local firms would secure them. After all, they have better expertise, wider networks and deeper pockets. Even so, the rhetoric relevance of my examples could be stronger. (The grandee is a skilled debater.) So, I conceded the point. Not for long.
Local content is global
In China, a global law firm would not be able to do legal “work without partnering with a Chinese firm”, goes one article by the Financial Times in February (“Chinese M&A boom provides slim pickings for global law firms”); this was the closest example I could quickly find on how a local content policy could also be germane for the advisory business. What did the Chinese do? I will quote the FT article freely: “Non-Chinese lawyers are not allowed to practice mainland law, although they can provide informal advice. [And] recruiting Chinese lawyers into global firms does not solve the problem as they have to give up their local licenses.” Of course, financial advisory comes with some peculiarities; some mandates involve not just advice but underwriting as well, for instance. Even so, a local content policy is by its very nature interventionist. It is designed to ensure that compliance is not a choice but a necessity. In Nigeria, “local content” tends to be associated with the oil and gas industry. (I will leave the story about how foreign players in that industry circumvent local content requirments for another day; but maybe you should ask your friends there how much they really learn on those long stays at head office abroad.) I assert “local content” is relevant for the financial advisory business in Nigeria (and elsewhere) as well. We are all too quick to note China’s success. But surely, they did not achieve it by taking things easy. They persuaded, cajoled, and spied to get ahead. And when they had it in their power to force their will, they did not hesitate to wield it. Nigerian authorities asked MTN to list on the local exchange. They must also ensure that the process is truly local. (By the way, the debate is still on.)
Also published in my BusinessDay Nigeria newspaper column (Tuesdays). See link viz. http://www.businessdayonline.com/mtn-listing-must-truly-local/