Alhaji Aliko Dangote's recent statement encouraging millions of Nigerians to invest in the Dangote Refinery IPO has sparked controversy. According to Dele Sobowale, an expert in banking and finance, the investment may not be suitable for everyone, particularly the poor, middle class, and senior citizens. The minimum investment required is N5250 for 10 shares, priced at N525 each. This has raised concerns about the potential risks and benefits of investing in the refinery.
The expert noted that investing in the capital market can be risky and speculative, with potential losses of up to 100% of the investment. He cited the example of Skye Bank Plc shares, which have not recovered since the banking consolidation. Additionally, 63% of Nigerians live in multi-dimensional poverty, making it difficult for them to participate in the IPO. Furthermore, 90% of Nigerian account holders have less than N50,000 in their accounts, which would limit their investment to just 90 shares.
Sobowale also questioned the potential returns on investment, citing a report that showed an investor would need to invest a significant amount to earn a substantial dividend. For instance, to earn N10 million in dividends, an investor would need to invest a substantial amount, which would yield only 4.5% returns. In comparison, a fixed deposit at 8% interest would yield N18 million annually, with guaranteed capital and interest.
The expert advised senior citizens to be cautious when investing in the IPO, given their life expectancy and the potential risks involved. He noted that those aged 65 and above may not live long enough to recover their initial investment, let alone earn returns. However, he suggested that short-term investment of 3-5 years may be a better option for those with limited funds to risk.
Sobowale also highlighted the potential impact of global events on the price of crude oil, which could affect the refinery's performance. He noted that the increasing use of electric cars, solar energy, and the end of wars in Ukraine and Iran could lead to a decline in crude oil prices, potentially affecting the investment. In such cases, investors may be better off considering alternative investment options, such as savings deposits offering up to 18% interest.
The expert warned Nigerians to be cautious of "false prophets" who may be promoting the IPO without disclosing the potential risks. He emphasized the need for investors to do their due diligence and consider their financial situation before investing. Additionally, he noted that the company's business model has historically made it difficult for minority investors to have a say in decision-making.
In conclusion, while the Dangote Refinery IPO may offer opportunities for some investors, it is essential for Nigerians to be aware of the potential risks and benefits before investing. The expert's advice to the poor, middle class, and senior citizens to be cautious and consider alternative investment options is a timely reminder of the need for prudent financial decision-making.
Key points
- The Dangote Refinery IPO may not be suitable for poor, middle class, and senior citizens due to the potential risks involved.
- Investing in the capital market can be risky and speculative, with potential losses of up to 100% of the investment.
- Alternative investment options, such as savings deposits, may offer better returns with guaranteed capital and interest.
