The Financial Markets Dealers Association of Nigeria (FMDA) has called on financial sector regulators to institute policies that would help in deepening the Corporate Bonds Market.
The depth of any market is dependent on the quality and size of its product offerings, said Adetoun Dosunmu, in her opening remarks at a webinar organized by the FMDA Bond Workgroup, FMDA President, said.
She said the webinar, with theme: “Growing a Liquid Market for Corporate Bonds” organized by the Bonds Workgroup of the Association and sponsored by the FMDQ Group.
Dosunmu said the ability to meet the diverse needs of each market participant and/or stakeholder, creating/engineering products and services that allow businesses and even the government to function in an ever-changing world amongst many other needs cannot be over-emphasised.
“Today we see more complex business concepts evolving, and at the heart of this evolution is the need for funding, finance, capital – whatever name we choose to call it. The Nigerian financial market has to rise up and be the powerhouse of evolution in any sphere of this economy,” she said.
Dosunmu called for proper Regulation and Risk Management adding that a market without regulation as seen in times past, is a ticking time bomb that will eventually explode.
“The responsibility therefore is on the Central Bank of Nigeria (CBN), Securities and Exchange Commission (SEC), FMDQ and the FMDA to come up with processes and policies that will encourage and not stifle growth,” she added.
The Webinar’s anchor, Nnamdi Nwizu of Comercio Partners used his wealth of experience as the moderator, to provide opportunity for Delegates and Stakeholders to discuss ways of fostering a faster and more efficient issuance process – timely regulatory review, lower issuance cost, especially the regulatory costs, increase in issuance sizes which should encourage bigger trading volumes, efficient settlement system for corporate bonds which could be mirrored after the FGN bonds settlement process, a two-way quote market for corporate bonds and last but not the least, the creation of counter party limits and issuance of specialized products like high yield bonds, sukuk and convertible securities, among others.
To achieve these, Dosunmu advised that financial markets participants/stakeholders should be a part of the policy formulation and periodic review process. While providing insights on the development of the domestic bond market as a key priority for a successful financial sector development agenda, Chief Executive Officer, FMDQ Group, Bola Onadele
Koko, noted that this year, the primary market for corporate bonds in Nigeria has recorded strong and commendable growth on the back of increasing awareness amongst corporates to match long-term financing requirements with long-term funds.
He explained that with several areas of the economy, such as infrastructure, education and health care sectors, requiring funding to promote development, the capital market holds the potential to meet these needs, and the Nigerian Government has a key role to play in providing the enabling environment, through key policies that would support financial market infrastructure such as FMDQ Group, as well as encourage corporates, government parastatals and others, to explore the debt capital markets for their funding needs.
The keynote speaker, Patience Oniha, Director-General, Debt Management Office (DMO) said the return of Federal Government of Nigeria to the bond market after an absence of 30 years, in 2003, when the DMO resumed the issuance of Federal Government of Nigeria (FGN) Bonds market the beginning of the creation of a very active and liquid Nigerian bond market.
She said the DMO is pleased to have pioneered this development and remains grateful for the active support and participation of key stakeholders, one of which is the FMDA.
Oniha, who spoke on the theme: “Growing a Liquid Market for Corporate Bonds” said the liquid market was boosted by transparency in the FGN Bond Auction process through the issuance of a quarterly issuance calendar, monthly offer circular and publication of the auction results.
According to her, the licensing of Primary Dealer Makers by the DMO to actively trade the Bonds and creation of benchmark FGN Bonds for standard tenors, among others were also supportive of the ongoing bond market liquidity.
Also speaking, Herbert Wigwe, Group Managing Director /CEO Access Bank Plc, who was represented by Executive Director, Retail Banking, Victor Etuokwu, said that by lowering the Monetary Policy Rate (MPR), widening the discount window and lowering the official savings rate, Monetary Policy is clearly nudging domestic savers to seek Naira-denominated risk assets.
He disclosed that since the beginning of the pandemic, the household sector has come under severe pressure between the accelerating inflation and grim labor market conditions adding that yields in the fixed income space have dropped significantly and are the closest we have seen to zero per cent.
“The corporate debt market in Nigeria is still in its infancy stage and has only begun to pick up in the last two to three years. Prior to now must corporates have favored private placement transactions when raising debt outside of bank loans. The FGN remains the dominant issuer in the market today and proponents of corporate bonds argue that government bonds and the rate of issuance have a tendency to constrain corporate bonds issuances in Nigeria,” he said.
Wigwe, however, insisted that the corporate issuer segment of the market is beginning to witness significant uptick due to initiatives such as the Short Term Bond issuance and the recently launched Private Company Notes Market windows of the FMDQ.
He aded that the initiatives have provided issuers with a variety of options and structures that have improved time-to-market and therefore access to much needed capital.
He said that Corporate bonds are less costly than receiving a bank loan, including deb service, fees and expenses, longer term financing when compared to bank loans to meet their needs or to have a better asset/liability tenor match and tax waiver putting corporate bonds on equal status as government bonds, for issuers and investors.
