The Nigerian capital market has experienced remarkable growth in recent years, with significant increases in corporate and subnational bond issuances. Mrs. Kemi Awodein, the Managing Director of Investment Banking at Chapel Hill Denham Advisory Limited, shared insightful information during the Association of Corporate Trustees’ 2023 Business Luncheon. In her address, she highlighted the substantial growth in bond issuances and the expanding role of corporate trustees as ombudsmen in the debt market.
Impressive Growth in Corporate and Subnational Bond Issuances:
Awodein unveiled astonishing statistics, revealing a staggering 502.4% increase in corporate and subnational bond issuances between FY 2017 and FY 2022, covering a span of five years. This growth is a testament to the flourishing Nigerian capital market. Additionally, the Federal Government of Nigeria (FGN) domestic debt stock witnessed a notable surge of 76.4% during the same period, underlining the market’s robust growth.
Recent Bond Issuances:
Highlighting the ongoing momentum in the Nigerian bond market, Awodein shared the latest developments. In May 2023, the FGN successfully issued bonds worth N368 billion across four tenors, with stop rates ranging from 14.10% to 15.80%. Furthermore, the Lagos State Government raised N115 billion through a 10-year bond issuance. Additionally, they achieved a significant milestone with the debut N19.815 billion Sukuk issuance, marking the second registered subnational Sukuk and the largest Sukuk issuance in the domestic capital markets.
Pension Funds as a Major Investment Source:
Pension funds play a pivotal role in driving investments within the Nigerian capital market. Awodein emphasized that pension funds represent the largest pool of investible capital, with assets under management (AUMs) reaching an impressive N15.4 trillion. These AUMs have grown at a compound annual growth rate (CAGR) of 17.0%. Notably, 65% of the funds are invested in government securities, while 22% is allocated to corporate securities and money market funds.
Growth in Commercial Paper Issuances:
Awodein highlighted the growth of the commercial paper market, a key segment of the debt capital markets. The market for commercial paper issuances has expanded at a compound annual growth rate (CAGR) of 31.3% since FY 2017. This growth has been facilitated by the establishment of the FMDQ Group, which introduced suitable regulations aligned with the SEC Rules and Regulations. At the beginning of Q1 2023, the value of quoted commercial papers on the FMDQ Exchange stood at N251.46 billion, and the total outstanding value of commercial papers rose to N744.73 billion as of May 25, 2023.
Expanding Role of Corporate Trustees:
In recent years, there has been a growing interest in broadening the role of corporate trustees to include acting as ombudsmen in the debt capital market. This move aims to enhance transparency, governance, and investor confidence in the market. Awodein acknowledged the significance of this development and emphasized the potential benefits it can bring to the debt market.
The Nigerian capital market has demonstrated remarkable growth, particularly in corporate and subnational bond issuances. The surge in bond issuances, coupled with the expanding role of corporate trustees as ombudsmen, highlights the market’s vibrancy and potential. With increasing investor interest and favorable regulatory frameworks, the Nigerian capital market is poised for continued growth and represents an attractive avenue for both domestic and international investors seeking opportunities in Africa’s largest economy.