Regulators plan stricter rules for rising OTC debt market deals

The increasing issuers’ interests in accessing Over-The-Counter (OTC) liquidity on their debt instruments may prompt Nigerian market regulators into weighing more strategies to safeguard  integrity, other than the usual catch-up roles.

While the conventional fixed income market seems to have adjusted downward in valuation and liquidity, sector watchers see the liquidity-awash OTC platform filling the gaps.

BusinessDay trend watch shows that year-to-Date (ytd), the FMDQ OTC platform has attracted listing/quotations in excess of N9trillion in corporate and government debt instruments.

More Nigerian institutions, particularly the banks, have headed to the OTC debt capital market in search of liquidity on their various debt instruments to boost their level of capitalisation.

Amid this development, the apex and self-regulators are still committed to quadrupling the OTC debt market deal size, as fixed income issuers realise it as their port of call for liquidity.

“Liquidity is the only real measure. All valuations are  on paper,” said Bill Gurley, partner at San Francisco-based early stage venture capital firm, Benchmark.

Many issuers are now leveraging the opportunities on the provisions of Nigeria’s OTC securities exchange to meet their short and long-term funding needs, particularly as the platform helps create liquidity for their debt instruments in a more transparent manner.

“As a debt-focused securities exchange, FMDQ has an unwavering commitment to facilitating growth and development in the financial market through its efficient platform for the registration, listing, quotation and valuation of bonds.

“Listing of debt securities on FMDQ provides a wide range of benefits across the debt market value chain to include global visibility and transparency to the listed debts, improved secondary market liquidity, price formation and benchmark pricing”, Bola Onadele. Koko, MD/CEO, FMDQ OTC plc said at the listing of N30bn Fidelity Bank bond recently. 

Companies recently listed on the OTC debt capital market platform include the Nigeria Mortgage Refinance Company PLC (NMRC) N8bilion Series 1, 15-Year 14.9% Fixed Rate Bond under a N140billion Medium-Term Note Programme (the NMRC Bond) on its platform; and the quotation of the Wema Bank plc N8.154billion Series 1 Commercial Paper (CP) Notes under a N20billion Commercial Paper Issuance Programme (the Wema Bank CP).

Other listings and quotations on the OTC debt securities exchange show its franchise continues to grow. They include a N30.5billion UBA Bond; N15.54billion Stanbic IBTC Bond, N4.8trillion FGN Bonds, quotation of N2.8trillion Nigerian Treasury Bills respectively; and the listing of a sub-national bond, the Benue State Government N4.95bn, 7-Year 16.5% 27-Feb-2022 Bond.

This week (October 30 to be precise), the OTC platform will play host to listing of the N295.42bn Local Contractors Receivables Management Limited Bond (LCRM) Bonds.

Last month, the OTC debt capital market platform recorded total turnover in the Fixed Income and Currency Markets (FIC) was N11.48trillion; though there was a drop of N11billion (0.97percent) month-on-month (MoM) there was a 20.95percent (N1.99trn) increase year-on-year (YoY). 

The turnover on all products traded on the FMDQ secondary market include: Foreign Exchange (FX), Treasury Bills (T.Bills), Money Market (Repurchase Agreements (Repos)/Buy-Backs and Unsecured Placements/Takings) and Bonds (Federal Government of Nigeria (FGN) Bonds, Eurobonds & Other Bonds (Agency, Subnational, Corporate & Supranational)). FX and Money Market Derivatives are embedded in the FX and Unsecured products categories respectively.

The FMDQ OTC Securities Exchange (FMDQ), in collaboration with the International Finance Corporation (IFC) supported by the Securities and Exchange Commission (SEC) will this Tuesday and Wednesday organise a pioneer Nigerian Debt Capital Markets (DCM) workshop with the theme “The Nigerian Debt Capital Markets –Towards a Brighter Future: Issues and Prospects”.

The DCM workshop brings together domestic and international financial market experts in a focused and interactive forum to deliberate on and proffer solutions to the challenges facing the Nigerian Debt Capital Markets.  It also aims to be a catalyst to stimulate the growth of the Nigerian DCM, while focusing on the issues hampering its development and drill down to practical and implementable solutions.

Iheanyi Nwachukwu