Deputy Managing Director of FBNQuest Merchant Bank, Mr Taiwo Okeowo spoke to Goddy Egene on the potential of the Nigerian capital market and the role his firm is playing to facilitate funding of infrastructure in the country. Excerpts:

The N100 billion Sukuk issuance was the first attempt by the federal government to raise funds through a non-interest instrument in the capital markets for infrastructure development and it was oversubscribed. What do you think was responsible for that high level of subscription?

The success of the FGN Sukuk may be attributed to several factors. The Sukuk is secured by the full faith and credit of the Federal Government of Nigeria (FGN) and is equivalent in all respect to an FGN Bond. It also qualifies as investment securities for trustees, pension funds, banks, individuals and various investors. A significant factor in its success was the utilisation of the proceeds for specific projects, in this case the construction/upgrade of sections of 25 key roads and bridges across the country. This was backed by a commitment to private monitoring and reporting of the disbursement to the project.

This gave a lot of comfort to investors who can identify with the specific public goods being created with their investment. The positive public perception of the issuance was clearly instrumental to its success, as the investing public was receptive to its purpose of infrastructure development alongside the transparency and accountability offered by the Sukuk structure. In addition to this, the issue was competitively priced at a premium of at least 20 basis points compared to issuances with a similar tenor. Income on the Sukuk is tax-exempt and tradable on the Nigerian Stock Exchange thus creating an exit for investors if the need arises. To drive success, the attractive structure and features of the investment security were a key plank of our communication strategy. We also leveraged on our extensive distribution network both in-house and through the FBN group to achieve result.

Given your experience in the capital market, would you advise government to raise additional funds through Sukuk and why?

A Sukuk offers an accountable and transparent basis of funding. It also enables the FGN manage its debt profile by using funds raised to execute specific projects.
Nigeria is estimated to have a US$100 billion infrastructure gap over the next six years. Prioritising projects and accessing the liquidity pool via a Sukuk structure could offer the sovereign and sub-nationals a competitively priced source of funding, which may be fully harnessed for targeted infrastructural development as a complement to their traditional financing sources. On a mid to long term basis, the Sukuk bond issuance should form a key part of government’s plan to fast-track the development of infrastructure and engage in project-tied capital raising.

In all, do you think the Nigerian debt market is deep enough to support infrastructure development?

The debt capital market remains a competitive source of funding for infrastructure development. After many false starts, we have finally succeeded in creating a large pool of long-term investment funds which can be deployed in a structured manner for long term infrastructural development. In addition, the recently implemented multi-fund structure in pension administration is expected to increase the amount of funds available to the debt capital market. Statistics from the Pension Commission (PENCOM) shows that over 70 per cent of Pension Fund Administrator (PFA) assets are invested in Government-issued medium and short-term securities. An increase in the quantum of funds mandatorily allocated to long-term debt funding will certainly assist in deepening the capacity of the debt capital market for long term financing.

FBNQuest Merchant Bank is one of many subsidiaries under FBN Holdings. How are you leveraging the holdco structure to enhance your performance?

Given the natural synergies and cross-selling opportunities that exists between the subsidiaries in the FBN Holdings Group, there is a strong drive to continually increase collaboration. This is in pursuit of our relentless focus on providing a comprehensive suite of solutions to every financial challenge our clients may face.

As FBNQuest Merchant Bank, we are in a prime position to leverage our relationship with the commercial banking and insurance businesses of the Group, not only to provide complementary services to the Group’s expansive client base of retail, high net-worth and institutional customers, but offer a broader choice in financing, investments and transaction execution. By expanding clients’ choice, we enhance their preference for our brand. By engaging and delivering through multiple channels, we deepen affinity for our service propositions. Through the ongoing delivery of innovative initiatives, we continue to enhance our positioning to deliver shareholder value across the Group.

In what ways is FBNQuest Merchant Bank supporting firms to meet their funding needs?

FBNQuest Merchant Bank is a fully-fledged merchant and investment bank with strong expertise in corporate and investment banking, wealth management, and trading of securities, currencies & asset management. The expansion of our subsidiary group’s product platform into merchant banking afforded us the capability to offer a broader set of products and services that not only deepened our existing relationships, but opened up new opportunities for our clients. We are now able to leverage our balance sheet to provide clients a range of products aimed at expanding their business and boosting their growth. Our debt capital market franchise has a rich pedigree in offering alternatives to the traditional bank debt products and has a renowned reputation for successful execution of several big-ticket capital market and commercial debt transactions. In the last 36 months, the bank has raised in excess of N200 billion for clients through commercial paper and bonds.

In addition, despite the economic headwinds, we have raised about US$500 million in equity from the public and private capital markets and closed six mergers and acquisition (M&A) deals in the past three years. Our commitment to quality in execution is validated by the multiple local and international awards we have received. In 2018, we were awarded the “Best Naira Bond”; “Best Social Development Bond”, “Best Local Currency Bond House”, “Best Refinancing in Africa”, “Best Local Investment Bank” and “Best Structured Finance House” by EMEA Finance.

We have an active Client Coverage team with strong sector expertise; and a well-connected Institutional Sales team with strong relationships with PFAs), asset managers, banks, insurance companies and other institutional investors – both domestic and international. Our distribution capabilities thus enable us lead marketing efforts on transactions, given our strong relationships with both strategic and financial investors.

The government is the biggest spender in the economy. How has FBNQuest Merchant Bank played a part in providing funding for the government to contribute to the economic growth of the country?
FBNQuest Merchant Bank has assisted the FGN by advising on a wide range of creative, landmark funding mechanisms. We have focused particularly on diversifying the pool of investors addressable by the FG and tapped into a hitherto inaccessible pool of investors in the local and foreign capital market. For instance, the N100 billion Sukuk was the first Islamic investment security issued by a Sovereign in Sub-Saharan Africa outside of South Africa. The offer was not only oversubscribed but attracted over N30 billion from retail and high net investors, thereby reflecting the latent interest and desire of a unique pool of investors for a product that was previously unavailable in the market. It is also a testament to FBNQuest Merchant Bank’s strong and diverse distribution and sales network.

FBNQuest Merchant has also successfully assisted the FG in raising funds in the international capital market through the $500m Eurobond issuance in 2011 and the $300m Diaspora Bond issuance in 2017. The Bank has advised key revenue generating Ministries, Department, Agencies (MDAs) of the FG, making their operations and activities more attractive in order to attract private funding. These initiatives are aimed at driving efficiency, reducing over-dependence on allocations from the FG, increasing profitability of MDAs and most importantly, increasing revenue generation for the FG.
At a Sub-National level, the bank has played a key advisory role aimed at improving state governments’ Internally Generated Revenue.

How is FBNQuest Merchant Bank positioned to contribute to socio-economic growth of Nigeria now and in the near future?

Although Nigeria has been predominantly a commercial and corporate banking market, there is an important need for merchant banking and asset management services as the conduit between commercial banks and the capital markets.
Through the deep and diverse expertise of our team, we can create bespoke solutions. We have strong expertise and an admirable track record in advising on world-class project finance deals. Since 2008, we have raised over $10.8 billion on behalf of our clients.

As a part of the FBN Holdings group, we remain committed to our role of being a leading institution in financing, investing, trading, and advisory. Our positioning is enhanced by our strong track record of delivery, stronger balance sheet as a merchant bank, and access to a wider universe of funding sources, which all enables us to generate real value for our clients.