Will CBN’s regulation of corporate bonds awaken investors’ appetite?



Precisely this month, the Central Bank of Nigeria (CBN) will as part of its ongoing reforms agenda in the nation’s financial system issue regulations which cut across margin lending by banks, corporate bonds issues, and development bonds issues.
Expectedly, the questions market watchers are now asking is whether this yet to berth regulations will help to further deepen long term lending, boost dwindling stock market activities, as well as provide long term funds for projects financing which will on the long run drive economic development.
Sanusi Lamido Sanusi, Central Bank of Nigeria (CBN) governor had last month said that the apex bank will take a lead step further in deepening the nation’s capital market saying that it will issue regulations in margin loans, corporate bonds and development bonds, information analysts say may increase investors’ appetite for corporate bonds.
Followers of the bond market in Nigeria will be fair to say that the demand for bonds in this part of the world has not been encouraging, a trend which made the leadership of the Nigerian Stock Exchange to review downwards the charges and fees associated to bonds transaction. This move according to market watchers is to encourage more players to participate in this segment of the market.
In a review of market performance in 2009 and the outlook for 2010, Ndi Okereke-Onyiuke, director general Nigerian Stock Exchange said that Nigeria may likely experience a lesser participation by international investors in its bond market going forward, adding that this make it even more important to open this segment to the retail investors, especially at a time when “we anticipate several sovereign, state and corporate bond issues coming to the market in the near further.”
According to NSE, the issue of bond trading and investment has taken on more importance recently as a result of the problems suffered in Dubai. As a result of the near default by DubaiWorld, bond investors worldwide are starting to review their exposures to sovereign and quasi-sovereign debt in order to avoid any potential default or liquidation issues.
Not a few market watchers are still of the view that even till today that is the last month in the first quarter of 2010, fixed-income managers as well as equity investors still see tremendous value in corporate bonds. They are also worried how banks intension to raise money through debt capital calmed down for some time now after few banks fired the first salvo in the past.
No doubt that the domestic corporate bond market had been quiet since 2006 when Access bank plc for instance tapped the market with N13.5billion bond issue.
Diamond Bank plc had said that it will raise fresh N200billion capital (through bonds) to strengthen its local operations and further international penetration, which investors still await as the bank said the fund will be sourced before the second quarter of this year.
The shareholders of the bank had last year at their annual general meeting given approval for the capital raising. Also, the USD1.31billion (about N200billion) bond offer by GTBank plc already has the nod of its shareholders. Amongst others, another is the First Bank plc N500billion of tier 2 capital purportedly to finance infrastructural projects such as the Lagos-Ibadan highway. Again is that of United Bank for Africa plc (UBA) plans to raise N500billion.
Investigations have revealed how all these banks’ plans on bonds are now in the cooler. In a typical emerging marketplace like Nigeria, corporate bond is still a mystery to many investors. This is largely because companies seem to prefer equity as a more viable funding option than bonds due to the cost implications but the global financial crisis which had taken toll on the equities market best explains why the declining interest in that direction.
The Nigerian bond market has been largely a mono-product market - only the Government bonds being traded. For instance, in 2009, turnover on Federal Government bonds on the Nigerian Stock Exchange was said to be idle, while a turnover of N18.51trillion in 134,120 deals was recorded in the over-the-counter (OTC) market for Federal Government Bonds, as against N10.44billion in 78,248 deals in 2008.
According to DEAP Capital, market insight had noted that though corporate institutions float bonds from time to time, information on them have not been very forthcoming to the public, since they are mainly marketed privately to institutional investors and high net-worth individuals.
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