Nigerian Bank Nigeria Acces Bank Plc – Corporate Bond Market Rides On Back Of Lending Freeze Reforms

Source Businessday: Godfrey Obioma, 8 April 2010

The corporate bond market which has been dormant for several years due to lack of patronage from companies is breeding life again. And the driving force is companies’ inability to meet their funding needs due to current banks’ lending freeze and the conducive environment created in sovereign corporate bond segment.

Some of the companies planning to access the fixed income securities market include Oando Nigeria plc, First Bank, GT Bank, UBA , Fidelity Bank, Diamond Bank and Crusader Insurance which are angling to float N200 billion, N500 billion, N200 billion, N500 billion, N200 billion, N200 billion and N4.0 billion bonds respectively. Others planning to raise money through the bond market are Access Bank (N214 billion), Zenith Bank (N200 billion), First City Monument Bank (N100 billion), UPDC (N30 billion), National Cargo Handling Company (N5.0 billion), C and L Leasing (N2.2 billion) and Thomas What (N2.0 billion).

In the case of Access Bank, Crusader Insurance, Federal Mortgage Bank of Nigeria and GT Bank, the bonds will either be issued fully or in tranches.

Afrinvest West Africa which made the list of prospective bond issuers available said companies’ yawning financing gap as well as banks’ cautious and stringent rules for risk asset creation for fear of sliding back into the non performing loan trap, especially for the eight banks rescued by the Central Bank, have made it imperative for companies to access the long end of the securities market for long term funds to finance development projects.

Abraham Nwankwo, director general, Debt Management Office (DMO), sees the developing trend as more of reactions to bond market reforms which, according him, has led to a more conducive environment for both bond issuers and investors, than banks’ reluctance to lend. According to Nwankwo, it will amount to fund mismatch to borrow short term bank facilities to finance long tern projects, adding that the best window to finance such projects remains the bond market which is a cheaper means of corporate finance.

The growing interest of companies in the bond market has been described as a welcome development as the long term perspective would reduce pressure on the equities market. It is also seen as a sign of growing confidence in the market.

Kene Okafor, general manager, quotation and listing, Nigerian Stock Exchange, said it is a good development and believes the upbeat in the corporate bond will continue.

Analysts say the growing interest in corporate bonds is a spinoff of the consistent growth in the sovereign bond market .Institutional investors that suffered huge loses from the equities market find the bond market a safe haven for asset preservation. The equities market, until recently, was hit by high volatility with negative returns of 33.8 percent.

Afrinvest Research Group believes the growth trend will continue for some time, an optimism based on the fact that Nigeria’s current local debt at N2.0 trillion, about two percent of GDP, compared to international acceptable benchmark of 45 percent.

Currently, secondary sovereign bonds trade on the over the counter (OTC) and a BusinessDay study of the trading profile show that the higher the tenor the better the yield. For example, the fifth FGN series 3 with three-year tenor trades at 3.71 percent yield. The fourth FGN series 2 10-year bond has 6.28 percent yield while the sixth FGN series 5 20-year bond attracts 7.63 percent yield.

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