FMDQ positions to quote private companies’ bonds

FMDQ OTC Securities Exchange (“FMDQ”), in its unwavering commitment to support efforts to galvanise the development of the Nigerian economy, is establishing the building blocks to redefine access to long- term debt capital for private companies and ventures in Nigeria. 

FMDQ is promoting the market structure that will facilitate the injection of credibility and transparency to the quotation of private companies’ bonds that, by law, can only be issued through private placements. Some of the Nigerian, significantly important, private companies in oil & gas, power, telecommunications, manufacturing and infrastructure require long-term funding.

Currently, their long-term funds are structured as loans and funded by banks thereby putting their balance sheets under significant risk management, liquidity and capital adequacy pressures. Going forward, regulatory standards would limit the banks’ appetite in such long-term assets.

It is therefore imperative that the financial market is re- positioned to drive such loans to be structured as securities i.e. bonds that can be sold to investors. FMDQ therefore intends to establish the requisite market governance over these private companies’ bonds as part of its investor protection standards in making the Nigerian debt capital market globally competitive to attract pension funds and foreign capital.

FMDQ ensures regulatory oversight over the activities and business conduct of its diverse Members, with a view to promoting market credibility and protecting investors’ interests. As a market organiser of the Nigerian fixed income and currency (FIC) markets, FMDQ provides a platform on which all secondary market trading activities for debt securities can be executed, presenting a unique opportunity for current and likely inefficiencies hindering the development of certain areas of a fledgling debt capital market (DCM) like Nigeria’s to be addressed. 

The Nigerian market for bonds of private companies is undeveloped and currently not under any market governance, implying the absence of an oversight and proper governance on the activities in that space. Consequently, FMDQ, in its capacity as an over-the-counter (OTC) securities exchange as well as a self- regulatory organisation, is fulfilling its responsibility and has taken up the challenge of tackling the attendant inadequacies evident in any unregulated market by developing Quotation Rules for bonds  issued by private companies (“Private Companies’ Bonds Quotation Rules”) with the aim of providing adequate governance over the registration, quotation and trading of bonds of private companies on FMDQ, thereby potentially serving as the benchmark for how this market is regulated in Nigeria as a whole.

Trading of debts of private companies, either as securities or straight loans, is not novel to the Dealing Members (i.e. banks) of FMDQ. The Private Companies’ Bonds Quotation Rules will outline the regulatory framework to govern the quotation of private companies’ bonds on FMDQ, providing also for post-quotation compliance requirements which include a quarterly Compliance Report in respect of the private companies’ bonds securities quoted on the platform. 

Worthy of mention is the existing secondary market trading of debt securities issued by large and credible private companies in Nigeria by FMDQ Dealing Members, therefore the quotation of such debts on FMDQ will formalise the current arrangement, bringing, among other benefits typical of an FMDQ quotations service, the expedient visibility to the securities, consequently providing numerous benefits to the issuers, investors, Dealing Members, regulators etc. and ultimately deepening the market for debt securities of corporates in Nigeria and improving the Nigerian financial market as a whole. Benefits of the FMDQ quotations service include inter alia, secondary market trading liquidity, unique and global visibility, high- level transparency, price formation and competitive pricing, credible benchmark pricing for appropriate portfolio valuation, improved market credibility and continuous information disclosure, enabling issuers build a strong corporate image in the capital market, laying the foundation for sustainable financing.

As evident from the aforementioned new initiative of FMDQ and even all the other initiatives embarked upon, the OTC Exchange recognises the inherent possibilities for growth and development in Nigeria’s financial market, maintains an unwavering resolve and focuses its efforts to lead the revolution in the Nigerian DCM. Most recent of these efforts were displayed in the just concluded Nigerian Debt Capital Markets Workshop organised by FMDQ, in collaboration with the International Finance Corporation (IFC) and supported by the Securities and Exchange Commission (SEC), Nigeria, on October 27 – 28, 2015. The 2-day Workshop, themed “The Nigerian Debt Capital Markets – Towards a Brighter Future”, was designed to be a catalyst to stimulate the growth of the Nigerian DCM by diagnosing the issues hindering the empowerment of the markets and propounding practical and implementable remedies to the issues.

In line with the OTC Exchange’s agenda to stimulate the Nigerian DCM and upgrade the markets to international standards, the Workshop focused on identifying and proposing solutions to pertinent issues affecting the Nigerian DCM, ranging from infrastructure development (power, transportation, housing), social welfare (education, health, wealth and employment creation), through to individual prosperity, amongst others. By highlighting the role and impact of the DCM to the government, regulators, issuers, investors, market operators, and economy as a whole, FMDQ, with a mission to empower the financial markets to be innovative and credible, in support of the Nigerian economy, presented an accountable advocacy platform, through the provision of a high-level forum for stakeholders of the Nigerian DCM, as well as subject-matter experts from global model markets, to interact within focus groups, with a view to providing actionable solutions towards bridging the developmental gaps and fostering sustainable growth in the Nigerian DCM. 

In order to promote Nigeria’s vision of becoming one of the top twenty (20) economies in the world by the next decade, FMDQ, in collaboration with financial market regulators, including SEC, Central Bank of Nigeria (CBN), National Pension Commission (PenCom), National Insurance Commission (NAICOM), FSS 2020 and other key DCM participants will oversee the implementation of the resolutions identified during the Workshop, with the aim of impacting the real sectors of the Nigerian economy in the immediate to medium-term. With over N110.0 billion corporate and mortgage bonds, in addition to circa N4.8 trillion Federal Government of Nigeria bonds, listed on its platform, FMDQ remains resolute to promoting an efficient, transparent and well-regulated bond market, which will attract and retain investors (domestic and foreign). The OTC Exchange’s ongoing initiatives, such as the quotation of private companies’ bonds and the introduction of Fixed Income Specialists to provide secondary market liquidity to these issues, amongst others, will contribute immensely to the growth of the domestic bond market thus providing issuers the opportunity to meet their long-term funding needs even as the Nigerian DCM become aligned with global standards.