Following uncertainty surrounding access to fresh capital for expansion, companies have found solace in the Nigerian debt capital market. Kayode Tokede examines how Nigerian Exchange Limited (NGX) and FMDQ Exchange have facilitated growth and development in the Nigerian debt capital market and economy at large.
Aside from creating wealth and facilitating liquidity flow, Exchanges across the globe also play a vital role when companies seek to raise capital either through debt or equity financing.
Another major function constitutes a commitment to promoting an efficient, transparent, and well-regulated market, which attracts and retains both domestic and foreign investors, through the provision of a world-class listing and quotation service, amongst others, in line with the mandate of capital market regulating body, Securities and Exchange Commission (SEC).
Specifically, The Nigerian Exchange Limited (NGX) and FMDQ Exchange have championed economic reforms in various ways as local and foreign companies have accessed these markets to raise fresh capital instead of borrowing from banks that come with high-interest rates.
Both Exchanges have listed numerous issuance this year and the outcome has further enhanced corporate earnings and as a result, drive stock prices and boost investors’ confidence.
The Debt Management Office (DMO) has consistently supported the federal government in raising capital in both exchanges to bridge the budget deficit.
An investigation by THISDAY revealed that in the first half (H1) of 2022, companies and the government have listings/quotations size totalled at N185.8 billion and N689.48 billion on the FMDQ Exchange, which include bond and Commercial Paper (CP), respectively.
The FMDQ in its monthly financial market monthly report announced N5.9 trillion and N2.00 trillion total outstanding value of corporate bonds and CPs, respectively as of June 30, 2022.
The report also disclosed that the total amount of Treasury bills sold between January and June of 2022 was N2.31 trillion and N1.84 trillion FGN Bonds total amount sold in the period under review.
Among the notable issuance, this year was the listing of FGN’s $4 billion Eurobond and MTN Nigeria Plc’s N127 billion CP.
FMDQ Exchange in February announced the listing of the Federal Government of Nigeria 6.125 per cent $1.25 billion SEP 2028, 7.375 per cent $1.50 billion SEP 2033 and 8.250 per cent $1.25 billion SEP 2051 Eurobonds under its Global Medium-Term Note Programme on its platform.
The listing of these foreign currency-denominated debt securities is yet another commendable feat for the Federal Government of Nigeria (FGN) through the Debt Management Office (DMO), and demonstrates the government’s unrelenting commitment to supporting the development of the nation’s debt capital markets (DCM) towards sustainable economic development.
These issuances represent the FGN’s seventh Eurobond issuances, following the issuances in 2011, 2013, 2017, and 2019.
However, the telecommunication giant led with the issuance of a historic N127 billion Series 1 & 2 CP under its registered N150 billion programme.
The issuance consisted of two tenors – a 184-day series issuance priced at a 7.50% yield and a 254-day Series 2 issuance priced at an 8.50 per cent yield.
FINANCING OPTIONS
According to MTN Nigeria, the issuance was in line with its strategy to diversify financing options, with the proceeds being deployed towards working capital and general corporate purposes.
Speaking at the signing ceremony, the Chief Executive Officer, MTN Nigeria Communication, Mr Karl Toriola explained that the N127 billion CP issuance would go into the record books as the largest CP issuance in Nigeria.
According to him, “The success of our CP issuance is a clear demonstration of the strength and acceptance of the MTN brand, and the trust placed by the investor community in MTN Nigeria’s company’s leadership, strong financial performance and corporate strategy.”
He noted that MTN Nigeria with the completion of the N127 billion CP aimed at improving customer services and high-quality bouquet services that included 5G spectrum that awaits regulatory approval.
On the flipside, the NGX has listed new issuance worth N1.08 trillion and Eurobonds of $4 billion on its platform in H1 of 2022.
These issuances listed across both the bonds and stock markets are essential in deepening the market, tradability, and improving liquidity as well as increasing access to capital to fund growth returns.
In the stock market, NGX started the year with the landmark listing of BUA Foods’ 18 billion shares listed at N40 per share, adding N720 billion to the NGX market capitalisation. Abbey Mortgage Bank also listed its right issue of about N3.028 billion, while Access Holdings, following its merger and acquisition listed new shares of 35.545 billion shares valued at N353.675 billion.
On the NGX’s bond market, the Federal Government of Nigeria dominated issuances, raising about N2,494,110,547,000.00 locally and listing $4 billion in Eurobonds.
Furthermore, NPF Microfinance Bank listed 3,107,001,335 ordinary shares of 50 kobo each arising from the offer of 2,286,657,766 ordinary shares of 50 Kobo each at N1.50 per share via a Rights Issue on the basis of 1 new ordinary share for every 1 ordinary share held and public offer of 713,342,234 ordinary shares at N1.50 per share made by NPF Microfinance Bank Plc amounting N4.66 billion while other memorandum listing stood at N2 billion.
According to the NGX, capital is critical for business growth either in form of debt through bonds, or equity through shares.
SUPPORT FOR SHAREHOLDERS
In delivering on its mandate as a market organizer, FMDQ Exchange over the year expressed that it remains committed to articulating and pioneering, with the support of its key stakeholders, innovative ways to improve and make the Nigerian financial markets globally competitive, operationally excellent, liquid, and diverse.
According to FMDQ, “As is the corporate tradition for FMDQ Exchange, these Eurobonds shall be availed of all the benefits of FMDQ Exchange’s prestigious listing and quotation service, including global visibility through the FMDQ Exchange website and systems, governance, credible price formation, and continuous information disclosure to protect investor interest, amongst others.”
Comnenting, Vice Chairman, Highcap Securities, David Adonri said: “Issuance of CPs in H1 2022 has improved because interest rate fell drastically to lower single digit. Cost of borrowing via CPs was to the benefit of corporate borrowers more than traditional bank credit. There was also an incentive for investors to invest in CPs due to their higher rates than deposit rate and Treasury Bill rate.”
The Chief Executive Officer, NGX Limited, Temi Popoola noted that the NGX being a significant component of the capital market would continue to play a significant role in the capital formation process because of the tremendous opportunities that ensue from its activities.
“It is expected that a thriving exchange will continue to mobilize long-term savings to finance long-term investment by providing risk capital in the form of equity or quasi-equity to entrepreneurs, a role NGX continues to prioritize, “he said.
It will be recalled that the NGX earlier in the year highlighted five major focus areas in 2022 in its efforts to deepen access and attract new generation of investors to the market.
Popoola had said the NGX would seek to consolidate its historic status with a new verve of digitisation by creating innovative and automated access to the market while ensuring overall quality of listed companies and ease of capital raising process.
According to him, The Exchange would deploy strategic initiatives to attract financial technology (Fintech) firms to the stock market, including launching of a Nasdaq-style board for the listing of tech companies.
“Today, there are lots of capital raising from tech companies globally. Our market can be a source to raise this capital. SEC has already taken the leadership. It will help to drive economic growth and mobilise capital from sectors of surplus to deficit, ”Popoola said.
He added that the NGX would also accelerate the digitisation of its processes and operations to attract more investors, especially the millennial and youths, who are increasingly turning to alternative investment options.
He said NGX would work to integrate the market to digital banks and other transactional channels in order to make the market a viable and accessible investment option.
