Tuesday, April 02, 2019 9:00AM / Stanbic IBTC
Recently, Funso Akere, the Chief Executive of Stanbic IBTC Capital during an interview with Businessday shared insights about Investment Banking in Nigeria and how Stanbic IBTC Capital is positioned to serve its clients better and drive Nigeria’s growth agenda.
Q: Give us an overview of investment banking in Nigeria.
A: Investment banks in Nigeria specialise in the provision of advisory, capital markets and financing services to corporate and government entities. Most investment banking transactions in Nigeria are under the purview of the Securities & Exchange Commission, which is the apex regulator of the Nigerian capital markets. The volume and value of transactions undertaken yearly are largely influenced by clients’ growth plans and investor sentiment, which are both positively correlated with political stability, economic activity, and a stable foreign exchange market.
Sector themes also play a big role in driving investment banking activity such as the privatisation drive in the early 2000s, the banking sector recapitalisation in 2004/2005, the insurance sector recapitalisation in 2007, the opening up of the domestic debt capital markets to state governments and corporate issuers in 2009/2010 as a result of tax waivers, the divestments of assets by international oil companies in 2011/2012, the power sector privatisation in 2013 and the establishment of FMDQ in 2014.
Investment banking in Nigeria is very competitive, with firms competing on heritage, breadth of offering, sector and product expertise, talent and connectivity. On large transactions, it is common to see a mix of “briefcase” global investment banks, regional/global investment banks with a strong local presence, domestic investment banks and boutiques, etc., competing for available roles.
Q: Give us an insight into Stanbic IBTC Capital.
A: Stanbic IBTC Capital is the leading investment banking institution in Nigeria, which offers a complete suite of innovative advisory, capital raising and debt structuring solutions to a diversified client base that includes leading local corporates, multinationals and government entities operating in Nigeria.
We are a wholly owned subsidiary of Stanbic IBTC Holdings PLC (“Stanbic IBTC”), an end-to-end financial services company listed on The Nigerian Stock Exchange with a market capitalisation of about N492 billion as at 7 March 2019. Stanbic IBTC is a member of Standard Bank Group, Africa’s leading financial services group with a track record of over 150 years and a presence in 20 sub-Saharan Africa countries.
Q: To what extent was your institution affected by the recession?
A: Our institution is built around serving our clients who operate across various sectors of the Nigerian economy, so whatever affects our clients also affects us. I like to say that we are “joined at the hip” with our clients. The foreign exchange liquidity challenges in 2015 and 2016 on the back of the sharp drop in crude oil prices and the resultant recession negatively impacted most sectors. Our clients had to deal with issues such as the unavailability of raw materials, rising input costs, rising interest rates and a sharp drop in crude oil prices on one hand, and muted demand for their products as a result of the challenging economic and business environment on the other hand.
That notwithstanding, we had to put on our thinking hats and come up with innovative solutions to enable our clients continue to serve their customers and meet their financial targets, despite the challenging macro and business environment. We successfully completed about 50 transactions for clients in 2016 and 2017, some of which were undertaken to reduce overall financing costs by raising cheaper debt funding from the capital markets, or to reduce leverage by issuing equity to shareholders and using the proceeds to repay debt. For example we were sole Issuing House and Adviser to Rights Issues by Guinness Nigeria Plc (N40 billion) and Unilever Nigeria Plc (N59 billion) in 2017, the proceeds of which were largely used to repay debt.
Q: In the 2018 Emeafinance African Banking awards, you won the following awards: Best Foreign Investment Bank, Best Debt House, Best Equity House and Best Loan House. Please tell us how you achieved this feat? Tell us about other awards too.
A: We have won the Emeafinance “Best Foreign Investment Bank” and “Best Debt House” in Nigeria awards for the last 3 years (2016 to 2018), in addition to winning the “Best Equity House” and “Best Loan House” awards last year. These awards affirm our market leading position and our commitment to deliver innovative and best-in-class investment banking solutions to our clients. We also won 12 other industry awards last year including the Euromoney “Best Investment Bank in Nigeria” award, The Nigerian Stock Exchange CEO awards for the highest number of primary equity issuance, the highest number of corporate bond issuances and the largest transaction by value, the FMDQ Gold awards for the highest value of non-sovereign local currency securities quotations and the highest value of commercial paper (“CP”) quotations, and the Association of Issuing Houses of Nigeria awards for “Best Debt Capital Markets House” and “Best Mergers & Acquisition House.”
Q: Among other deals, you served as advisor to Dangote Cement PLC on a N50 billion Series 1 and 2 commercial paper issuance, the largest ever CP issuance by a Nigerian company, which was oversubscribed. Tell us about this.
A: The Dangote Group is an extremely important client for Stanbic IBTC. We acted as a Lead Issuing House to the first public equity offering by a Dangote Group subsidiary - the N54 billion Dangote Sugar Refinery Plc Initial Public Offering (“IPO”) in 2006, which was 140% subscribed. We were therefore extremely delighted to have acted as sole Arranger and Dealer to the N50 billion Dangote Cement Plc Series 1 and 2 CP issuance in June 2018, which was the first public debt offering by a Dangote Group subsidiary and the debut issuance under Dangote Cement’s N150 billion CP Programme.
180-day and 270-day notes were issued at 12.40% and 12.65% respectively, equating to tight spreads of about 25bps and 50bps above the relevant money market benchmarks at the time. There was record participation from domestic institutional investors and high networth individuals, and the debut issuance was 112% subscribed. Whilst our distribution capabilities played an important role in positioning the transaction appropriately in the market, the overwhelming success of the transaction was evidence of strong investor confidence in Dangote Cement. We subsequently advised Dangote Cement on a N50 billion Series 3 and 4 CP issuance in August 2018, which recorded even greater success with a subscription level of 158%.
Q: What strategies do you advise this government to put in place to bring back foreign investors?
A: In an environment of low savings rates, we believe that foreign direct investment is critical to drive capex expansion for existing companies and the investments in new sectors that government needs to meet their economic diversification agenda. Net FDI into Nigeria has been on a declining trend over the past 8 years (USD1.9 billion in 2018 vs an average of USD5.8 billion over the eight-year period), while Ghana, on the other hand, has been more stable (USD3.3 billion in 2018 vs an average of USD 3.1 billion over the eight-year period). So one may argue that government has to provide a more conducive investment climate to be even in competition for capital coming to Africa. Initiatives such as the Presidential Enabling Business Environment Council (“PEBEC”) which is focused on removing critical bottlenecks and bureaucratic constraints, amongst other things, is a step in the right direction. Laws and a legal system that ensures contracts terms are legally enforceable and protected also help to improve the investment climate. Lastly, the message that government sends to all investors by the treatment of existing investors is very subtle but powerful.
Q: What is your major strength in the industry? How have you handled competition and what are you doing differently?
A: We have a number of unique strengths which sets us apart from the rest of the industry. Firstly, we are part of an end-to-end financial services group in Nigeria which has in its stable the leading pension fund administrator, the leading asset management firm, the leading stockbroking firm, the leading asset custodian business, the leading global markets business, a leading trade finance business, bank branches in every state in Nigeria, and other financial services solutions for various businesses and sectors.
Secondly, as a member of Standard Bank Group we are able to provide our clients with unique access to the 20 African countries which Standard Bank operates in, as well as key regional financial centres including London, Beijing, New York and Dubai. In addition, Standard Bank’s relationship with Industrial and Commercial Bank of China Limited (“ICBC”), the largest bank in the world by total assets, provides further international reach and strengthens our access to China which is a very important partner in trade, investment and infrastructure financing.
Lastly, we have a deep pool of talented individuals who have been with the organisation for a significant part of their professional careers and have developed deep sector insight, regulatory knowledge and execution expertise through working on complex and innovative investment banking transactions. For example, I have been with Stanbic IBTC for 19 years, all of which have been spent in investment banking. Oyinda Akinyemi, who heads our Equity Capital Markets business has been with us for 18 years, while Tola Akinhanmi who heads our Real Estate Finance business has been with us for over 13 years. There are other members of my team who have spent over a decade with us. We are also able to leverage global resources within Standard Bank Group to provide bespoke financial and cross-border solutions to our clients, in line with international best practices.
Q: What are your investment strategies and expectation for the future? What are your plans for this year?
A: We will continue to support our clients to achieve their growth aspirations. We expect an improvement in the macro and business environment in the coming months and this should drive investment banking activity more broadly. We should see an increase in mergers and acquisitions (“M&A”) and capital markets activities driven largely by increased foreign investor interest in Nigeria, while the drive for growth in corporate earnings in 2019 should provide interesting opportunities for investment banking.
Q: Where do you see Stanbic IBTC Capital in the next 5 years?
A: We expect to see a shift in industry dynamics over the next 5 years driven by innovation and digitisation, especially as our clients seek to take advantage of technological advancements to build scale quicker and serve their customers more efficiently. Stanbic IBTC Capital will continue to make the necessary investments in people and technology, so we can provide our clients with innovative and best-in-class advice, execution excellence and thought leadership, and maintain our leadership position in investment banking in Nigeria.
I see Stanbic IBTC Capital as a catalyst for driving Nigeria’s growth agenda in the next 5 years, working with the private and public sectors on critical areas such as attracting FDI into Nigeria, raising equity and/or debt funding for expansion, energy and infrastructure financing, privatisation and real estate financing. We expect to connect Nigeria to the rest of the world and the rest of the world to Nigeria.