Dangote Refinery IPO is not for you, by Dele Sobowale
Alhaji Aliko Dangote said he wants millions of Nigerians to share in the wealth which will be generated by the Dangote Refinery by buying at least ten shares priced at N525 each. That amounts to N5250 for each minimum investor. The impression was given that wealth sharing is guaranteed once the investment is made. Even Dangote knows that nothing can be further from the truth. Dangote might become immensely richer personally; and a few large investors – those buying about 2 billion shares. But, the poor or middle class risk taker will certainly not become rich on account of Dangote Refinery shares.
Show me anyone claiming to have gone from rags to riches on any Dangote company’s shares; and I will show you a liar. Several hundred Americans have actually become rich by investing very early in Apple, Microsoft, Amazon, DELL, Tesla, Nvidia etc in the US by investing very little funds. But, to the best of my knowledge, nobody who has ever invested N5,250 in Nigeria has ever become rich solely on the investment. Obviously, Dangote was wildly exaggerating when he claimed the IPO is democratizing wealth. What it is doing is democratizing risk at all levels of income.
Dangote’s business models, however, have invariably made it almost impossible for mini-investors to receive more than a small token for their investment in his companies. Individually and collectively, they would have no say in how the funds they “donated” would be disbursed and the reasons why. The company might even be sold without their consent to a third party; and there is a track record of this happening repeatedly. The Annual General Meeting, AGM, invariably is a hollow ritual. With Dangote holding over 50 per cent of the shares, every important decision affecting the companies would have been made before the meeting. Others either endorse or shut up. The only investor certain to emerge from whatever happens hereafter is Alhaji Aliko Dangote. That poor and middle class people will participate in this jolly ride represents a triumph of hope over experience.
Poor, middle class and senior citizens stay away
“It is unthinkable that wisdom should ever be popular.” Johann Goethe.
Before explaining why, contrary to Dangote’s deliberate ploy to separate millions of Nigerians from their senses, let me point out what happened elsewhere in the world – when a global IPO was issued. Saudi Arabia’s Aramco, was once the most valuable company worldwide, on account of IPO in 2019. The shares sprinted to SAR38.7 from SAR32 initially, and remained so for a while. Today the price has fallen to SARS27 – despite exceptional performance by Aramco. Those who bought the shares at SAR32 have lost 16 per cent of their investment; those who bought at SAR38.7, hoping it would continue to appreciate, have thrown away 30 per cent of their funds. More concerning for the shareholders is the possibility that SAR27 might not represent the bottom. Circumstances beyond control, globally, might push the share price further down.
Dangote’s IPO arrives on the world market at the time of the greatest uncertainty for the petroleum sector – as I intend to explain later. But first, certain classes of people are advised, in their own interest, to ignore Dangote, and stay away – the poor, the middle class and senior citizens; for three reasons. First, all investments in the capital market are risky and speculative. The investor might benefit immensely – if performance surpasses expectations. He might also lose a considerable percentage, if not all, his investment. Those who bought Skye Bank Plc shares, after banking consolidation, if alive, are still licking their wounds. Unlike putting your funds in savings, with guarantees of money back, shareholding offers no limits – up or down. Second, as a general principle, people are advised to invest in the capital market funds they are prepared to lose. With 63 per cent of Nigerians living in multi-dimensional poverty, ab initio, 138.6 million Nigerians cannot participate in Dangote’s IPO.
With no money in the bank or elsewhere, they are out of it. They are not the only people for whom the general offer is a cruel joke.A recent report revealed that 90 per cent of Nigerian account holders have less than N50,000 in their accounts at any time. Even if such individuals are unreasonable enough to want to participate, 90 shares is all they will receive; and the money is not coming back soon. Anybody who would have to borrow, sell real estate or other income-yielding properties in order to purchase 1000, 5000 or 10,000 would need to consult his doctor about his mental health before taking the plunge – which could lead to vast rewards or prove fatal. The World Health Organisation had declared 65 as the beginning of old age. For Nigeria, with life expectancy still at 52, anybody 65 is on sudden death.
That is not the time to take risks which might not pay off for years. Expansion of the existing refinery to produce more fuel and an assortment of new products is the cardinal purpose of the IPO. It will be wonderful if everything works out as envisaged by Dangote. But, if he is honest, Dangote would be the first to admit that several developments in the world – more electric cars, more widespread use of solar energy, and, most especially, the end of the wars in Ukraine and Iran, would certainly crash the price of crude oil. Most senior citizens might not live long enough to recover their initial investment; let alone, the returns promised. So, advice to grandpas and grandmas – stay out; unless.
Unless the investment is short term
A broad overview of investment in Dangote companies would indicate that for those with little funds to risk, short term investment in the IPO is the best option. Short term is defined as between three and five years. Expecting good dividends is out of the question. One report stated the investment required to earn a N10 million dividend from an existing company. A quick arithmetic indicated that the return on investment was 4.5 per cent. Granted, N10 million is a lot of money; but, the same amount placed on Fixed Deposit, FD, at 8 per cent would yield N18 million annually. Added to the N8 million gap is the fact that the capital and interest in the FD are guaranteed, none of the investment in Dangote shares is secured by anything. Better still, a recent advertisement by O’Pay is offering 18 per cent for N1 million or more in savings deposit. With such options available elsewhere, it is baffling why there is a rush for Dangote shares – when the price of crude tumbling to $50 per barrel for a year or more could turn the venture into a nightmare for everyone – except Dangote.
Beware false prophets
False prophets inevitably speak at times like this. They helped to lure Nigerians into the financial quagmire associated with banking consolidation in 2006 – until the roof caved in after Soludo left office. Millions of Nigerians who were lured into paying good money for Oceanic, Intercontinental, Skye, Union, BankPHB etc, after borrowing heavily or selling houses, never recovered. That is the nature of investment during periods of uncertainty – such as we are experiencing now. Remember the age long admonition: look before you leap.
LAST LINE: Don’t ask a Stockbroker. He gets paid for selling the shares!!!
The post Dangote Refinery IPO is not for you, by Dele Sobowale appeared first on Vanguard News.