Interview : Ibukun Adebayo
Could the Nigerian diaspora bond issued on the London Stock Exchange be considered a model for other diaspora bonds?
ADEBAYO: The Nigerian diaspora bond was the first to be listed on an international exchange, and it was groundbreaking for several reasons. First is its size, which was just over $300m. Second, as well as being listed in London, it was also registered with the US Securities and Exchange Commission, allowing individuals in both the US and the UK, which together account for the largest proportion of the Nigerian diaspora, to invest in the bond. That diaspora is estimated to constitute about 15m people, and is responsible for approximately $21bn of remittances and investment in Nigeria. The diaspora bond forms an excellent conduit for those overseas to invest in big government-supported infrastructure opportunities in Nigeria. It is an interesting bond because it can also be bought by non-Nigerian individuals and institutions, which makes it a flexible product. Replication of the bond in other African markets is very viable, and is being discussed in countries across West Africa.
What changes do you expect to see in relation to Nigerian eurobonds over coming years?
ADEBAYO: In the short term there will be a continued propensity by the sovereign and corporates to issue eurobonds to raise capital in the primary market. Nigeria has a huge infrastructure spending gap, reflecting Africa’s growing annual infrastructure gap of over $90bn. Nigerian sovereign eurobonds are currently being issued with coupon rates of about 7-7.5% for a 30-year paper, which is a typical tenure for infrastructure investment, and considerably cheaper than raising debt domestically. Nigerian authorities have expressed a desire to reduce total debt service costs. This strategy seeks a rebalancing of sovereign debt, currently 30% international and 70% domestic, to a 40:60 balance. With market conditions allowing, some Nigerian domestic debt will be retired, sparking an increased issuance of eurobonds on international markets, which will on face value reduce servicing costs – provided that currency risk is managed.
How are LSEG and the Nigerian Stock Exchange working to promote dual-listed equity shares?
ADEBAYO: Africa and the UK are inextricably linked, and the success of the one stock market is of vital importance to the success of the other. Nigeria has also recognised that the best way to achieve the goal of increasing value, wealth and job creation is to have a well functioning equity market. We signed a partnership agreement in 2014 to create a harmonised approach to dual listing stocks, and this partnership is working very well. In addition, efforts are under way to promote closer relationships between our respective regulators – the Nigerian Securities and Exchange Commission and the Financial Conduct Authority. We renewed our partnership in 2017, and are now looking beyond the large cap to smaller firms, with a specific focus on engaging with pre-initial public offering firms at the small and medium-sized enterprise level.
What are the most promising sectors for UK investors in Africa going forward?
ADEBAYO: The sectors that were covered in our “Companies to Inspire Africa” 2017 report range from agriculture to technology, and demonstrate the breadth of opportunities across the continent. Despite the fact that there are some very interesting areas of development in Africa, including in financial services and financial technology, the greatest opportunities for investment still reside in more traditional sectors, such as agriculture, where there is a lot of scope for more mechanisation and industrialisation. This question is closely related to the emphasis on the need for food security; African governments are increasingly making this a cornerstone of their economic agendas.
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