As corporates, investors and other players seek new opportunities in the country’s capital markets, Banjo Adegbohungbe, Managing Director and Chief Executive Officer of Coronation Merchant Bank (CMB) believes Nigeria’s fixed-income and equities segments are ripe for innovation to access capital more effectively.
Global Finance: How are the capital-raising needs of Nigerian corporates evolving against today’s economic backdrop?
Banjo Adegbohungbe: COVID-19 has created an urgent need for corporates everywhere to rethink how they finance their business operations. Amid the macroeconomic headwinds and lower growth prospects, the focus has shifted to finding ways to de-risk, re-strategise and, most importantly, cut costs.
In Nigeria, corporates have seen benefits in the fixed income landscape from the combined impact of the Central Bank of Nigeria’s interventions and the drop in yields. Issuers have been able to access the capital markets with instruments priced below 10%, versus the 15%-18% range before the pandemic.
The picture hasn’t been as bright within equities. While valuations fell significantly, public offerings of all types on the Nigerian Exchange Limited dried up. And the outcome of private placements and rights issues have largely been flat.In Nigeria, corporates have seen benefits in the fixed income landscape from the combined impact of the Central Bank of Nigeria’s interventions and the drop in yields. Issuers have been able to access the capital markets with instruments priced below 10%, versus the 15%-18% range before the pandemic.
As a result, demand is growing for innovation domestically, such as the launch of a Special Purpose Acquisition Companies (SPACs) framework. We believe today’s challenging times call for change, especially within Nigeria’s equities market.
GF: What are the main opportunities and challenges in Nigeria’s debt and equity markets?
BA: With the bond market playing an increasingly important role in Nigeria’s emerging economy, the scope for further development is widening. This includes enabling companies to source reasonably priced medium- to long-term funding, as well as secure financing that is stable, bespoke and off-balance sheet. There is also potential for enhanced corporate governance structures, liquidity and accountability.
Yet the country’s capital markets face multiple challenges, too. There is the possibility of crowding-out in the debt space, concern around equity dilution and the perception of over-regulation.
To tackle these, discerning issuers are appointing knowledgeable and experienced issuing houses and advisers to guide them through the process.
GF: How is CMB positioned to service all these needs?
BA: We are strategically positioned to take advantage of opportunities across the capital markets. In addition to being licensed by the Securities and Exchange Commission of Nigeria to conduct Issuing House and Financial Advisory business, we are a Transaction Sponsor and Dealer on the FMDQ Private Markets and FMDQ Exchange, respectively.
This enables us to be active in debt and equity, M&A, financial advisory and structured finance. Our consistency in supporting issuers, for example, has led to a top-five ranking by transaction value on the FMDQ Exchange.
GF: What differentiates CMB as a leading investment bank in Africa?
BA: Our focus is on continuing to innovate and develop solutions that position our clients as market leaders in their sectors.
For instance, we have aligned ourselves with Nigeria’s Capital Market Master Plan. This includes an initiative to embrace emerging products such as Islamic finance and other non-interest based products, and to develop progressive capital market products. There are also significant opportunities to harness acquisition financing via leveraged buy-outs, special purpose acquisition vehicles and technology-led capital aggregation.
GF: What do current transformation trends across Africa indicate for the future of the capital markets?
BA: The capital markets in Africa will continue to play pivotal roles in domestic economies across the continent. Among these is bridging the infrastructure gap: from road to rail to maritime, we cannot overemphasise the need for long-term capital. Technology infrastructure also requires private sector inflows to bolster existing governmental support.
These are areas where forward thinking institutions can position themselves to drive cross-border transactions.
African economies will also leverage internal opportunities to boost capital raising efforts. While foreign portfolio investments will continue to be important, local solutions will gather pace to lead change.
For the time being, the heavy discounts available in most African markets are incentives for discerning investors to take positions in key sectors such as infrastructure, education and health. M&A activity offers further attractive entry points to the continent and innovative funding mechanisms could unlock significant capacity in several sectors across Africa.
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