Capital Markets
From The Report: Nigeria 2019
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Despite multiple trading platforms, a variety of debt instruments and a range of institutional investors, both domestic and foreign, Nigeria’s capital markets are relatively underdeveloped, accounting for only 11% of GDP in 2017, compared to a global average of 98.5% in 2016. Additionally, the authorities have not yet solved investors’ liquidity challenge and most domestics firms’ difficulties accessing finance. Furthermore, Nigeria wants to use capital markets to raise funds for infrastructure, the need for which is greater than what the federal budget and funding mechanisms are able to provide. Reforms to the sector are expected to play a role in infrastructure development in the near future, as new rules for pension funds are set to allow individual account holders to select risk-based investment approaches. This chapter contains interviews with Oscar N Onyema, CEO, Nigerian Stock Exchange; Ibukun Adebayo, Head of Middle East, Africa and South Asia, International Markets Unit, London Stock Exchange Group; Kayode Akinkugbe, Managing Director and CEO, FBNQuest Merchant Bank; and Chinua Azubike, Managing Director and CEO, InfraCredit.

Articles from this Chapter

Overview

Greater depth: A raft of regulations to strengthen alternative funding methods
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Despite multiple trading platforms, a variety of debt instruments and a range of institutional investors, both domestic and foreign, Nigeria’s capital markets are relatively underdeveloped. According to a PwC article published in January 2018 titled “External Debt Issuance: Towards Capital Market Development”, Nigeria’s capital markets accounted for only 11% of GDP in 2017, compared to a global average of 98.5% in 2016. Additionally, the authorities have not yet solved investors’ liquidity…

Interview

Expanded horizons: Oscar N Onyema, CEO, Nigerian Stock Exchange (NSE), on harnessing new technologies and gauging demand
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Interview : Oscar Onyema What are the prospects of the NSE broadening its current product offering? OSCAR ONYEMA: The prospects are very positive. Earlier in 2018 we announced our strategic plan for 2018-21, which calls for the NSE to pivot towards a more customer-centric business model. Through the use of data analytics we aim to fully understand the demand for new products, and thus improve on our previous strategy of focusing on the types of products that emerging markets traditionally provide.…

Interview

Leading the way: Ibukun Adebayo, Head of Middle East, Africa and South Asia, International Markets Unit, London Stock Exchange Group (LSEG), on the future of capital markets in Nigeria and Africa
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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…

Analysis

Alternative funds: New bond issuance indicates greater market diversification
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Nigeria’s latest bond issuances reflect the market’s shift away from government debt towards alternative funding instruments, such as infrastructure and green bonds, some of which may come with sovereign guarantees that partially cover default risks. For example, Abuja plans to use eurobonds more frequently for its funding needs, which is likely to lower its cost of finance as well as leave the rest of the market to other would-be issuers. The future is expected to feature a greater diversity…

Analysis

Cautiously optimistic: A performance update in consumer goods and cement, and a projection of the equities market
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After delivering a solid return of 42% in 2017 and gaining a further 16% in January 2018, Nigerian equities have exited their positive run and moved into negative territory. On August 16, 2018 the All-Share Index (ASI) declined by 8.3% year-to-date, compared to a gain of 35.6% in the same period of 2017. The index was still up 8.5%, until the end of the first quarter of 2018. However, the following quarter, in particular, saw significantly weaker numbers as the market sold off by around 7.1%, mirroring the performance of emerging market equities. At the start of 2018 we were bullish on equities and had forecast a market gain of 25% for the year…

Analysis

Narrow range: Outlook on federal government bonds
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Naira-denominated bonds dominate the public debt profile of the Federal Government of Nigeria (FGN). Data from the Debt Management Office (DMO) show a stock of N8.9trn ($28.8bn) at the end of June 2018, equivalent to 11% of GDP in 2017. They also represent 73% of FGN naira debt and 47% of total FGN debt. The bonds are sold monthly at DMO auctions and traded in an active secondary market. Their maturities extend to 20 years. We saw a narrowing of yields between August 2017 and June/July 2018 (see graph). The principal driver of this change was the DMO’s medium-term Debt Management Strategy 2016-19. The strategy’s aim is to bring the FGN’s…

Interview

Building confidence: Kayode Akinkugbe, Managing Director and CEO, FBNQuest Merchant Bank, on how the market is maturing
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Interview :Kayode Akinkugbe How can retail trade be encouraged and investors brought into the market? AKINKUGBE: Retail investors are generally risk averse during market downturns, owing to their experience in the domestic credit market. Many have made ill-informed investments based on promises of specific returns that brokers failed to deliver. In the long term the market needs these investors alongside its institutions, but a fair bit of work must be done to attract them, including raising…

Interview

Appetite for investment: Chinua Azubike, Managing Director and CEO, InfraCredit, on supporting long-term, local-currency infrastructure financing
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Interview :Chinua Azubike What are the challenges in infrastructure financing? CHINUA AZUBIKE: There are multiple and interrelated challenges facing infrastructure in Nigeria, largely due to political and macroeconomic constraints, and a dearth of capacity to develop and finance projects. The infrastructure finance market is also fragmented, with no proper link between project phases. A feasibility study backed by an investor would not necessarily cause a bank to finance a project. The commercial…