Steps to build the Nigerian debt capital markets

By Lasitha Perera, Executive Director, Frontier Markets Fund Managers

At the recent Africa Debt Capital Markets Summit (ADCM 2014) in London I had the privilege of moderating a panel focussed on Nigeria’s Debt Capital Markets. I was joined by some of the key actors currently working to build deep and active debt capital markets in the country, including representatives from the Nigerian Sovereign Investment Authority (NSIA) and the Securities & Exchanges Commission (SEC).

The following were highlighted as the main challenges:
1) A need for improved coordination within the Federal Government of Nigeria (FGN) to ensure that the FGN’s own bond-issuance programme and rate-setting policies do not crowd out sub-sovereign and corporate borrowers from accessing the debt capital markets.

2) Greater efficiency, transparency, and lower transaction costs thereby encouraging more sub-sovereign and corporate borrowers in Nigeria to use the debt capital markets.

3) More financial education and capacity-building for all participants in Nigeria’s debt capital markets to enable better understanding of risk, facilitate better pricing decisions and improve liquidity.

The panel gave examples of initiatives that have been or are being developed to overcome these challenges:
1) The Nigerian Mortgage Refinancing Company, in which the NSIA is a shareholder, was highlighted as an example where different agencies of the FGN have successfully cooperated to build an initiative that will play a significant role in developing Nigeria’s debt capital markets.

2) When GuarantCo, a development finance fund that my firm manages, credit-enhanced one of the earliest Nigerian corporate bonds in 2011 it took nearly 18 months to obtain SEC approval. With the benefit of technical assistance from GuarantCo, the SEC can now approve in 2 weeks.

3) GuarantCo is also partnering with the NSIA, to develop a Nigerian Credit Enhancement Facility that will credit enhance infrastructure bonds, improving their credit ratings to investment grade, thereby enabling the debt capital markets to finance critical infrastructure.

The story of how Nigeria’s debt capital markets develop will be one based on marginal gains such as those above. It remains however a story full of positives and potential.

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