New Telegraph

Reinforcing fixed income to balance investment outlet

As the fixed income market continues to enjoy significant attention recently, there is need to sustain the enhancement of the sector. CHRIS UGWU writes

It is an acceptable fact world over that economy will benefit immensely if the market for fixed income is developed like the equities market. If bonds are given equal treatment like equities, the economy will be better for it and the capital market will experience greater depth. The bond market, if developed, can complement the development from the equities sector of the capital market to the economy. Another benefit of a developed bond market to the economy is the financing of domestic debt with issuance of bonds as against the issuance of treasury bills, which are short-term instruments. The fixed income market can be as active and liquid as the equities market is expected to be if the local investment community understands the critical role the market plays in the economy and more importantly, the stability that the investment product provides to a managed portfolio. This is because there are huge opportunities in the Nigerian fixed income securities market for investors to create wealth. Investment in fixed income securities presents an opportunity for investors with a preference for low risk to generate regular income and reduce the volatility of the return on their investment portfolio. Fixed income instruments are used by governments and corporate organisations to borrow money from the investing public, to finance their activities either on a short-term or long-term basis. The issuers are the borrowers while the investors are the lenders. This is why exchanges world over always fashion out policies that would boost its Fixed Income Securities market segment. This is also why the Securities and Exchange Commission (SEC), the Nigerian Exchange Limited (NGX) (NSE) and the FMDQ Securities Exchange Limited (FMDQ) that are main bodies saddled with the growth and development of the market must ensure that the capital market serves as a balanced investment outlet.

FG, corporates raised N4.58trn from fixed income market

Despite the weak macroeconomic situation, Nigerian Exchange (NGX) Limited recently said it continues to provide issuers with a platform that allows them meet their strategic business objectives as Federal Government and corporates have so far raised N4.58 trillion from the capital market via the fixed income segment from Jan to June 3, 2021. Data obtained from NGX’s XCompliance Report on new listings in the fixed income market in 2021 revealed that the total number of issues within the period under review stood at 41 with 6.812 trillion units admitted till date. The data further revealed that the Federal Government was the most active player in the fixed income segment while the value or market capitalisation of the new listings till date (June 3, 2021) stands at N4.58 trillion, from 12 issuers. According to NGX in a statement, issuers continue to express excitement and satisfaction over the ability to access capital from the market and list the securities on NGX so as to provide liquidity for investors. Some of the issuers that have listed on NGX in the period under review include; NOVAMBL Investments SPV Plc, Federal Government of Nigeria, Mecure Industries Funding SPV Plc, CardinalStone Financing SPV Plc, Fidelity Bank Plc, FBNQuest Merchant Bank SPV Funding Plc, BUA Cement Plc, Etranzact International Plc, Kogi State Government, TSL SPV Plc, Lagos State Government and Flour Mills of Nigeria Plc. The Divisional Head, Listings Business, NGX, Mr. Olumide Bolumole, said the exchange had continued to provide issuers with a platform that allows them meet their strategic business objectives and it is the exchange’s delight to see issuers take full advantage of our products and services to support their growth story. NGX remains committed to driving sustainable products and safe investments in a market that is orderly and transparent, whilst leveraging cutting edge technology. In terms of capital formation on the NGX platform, this year, the exchange has facilitated needed financing of over N4.6 trillion raised by governments and corporates across various asset classes.

Fixed income settlement solution

FMDQ Securities Exchange had in 2018 deployed a fixed income market STP settlement solution through its Proprietary Market System – FMDQ’s Q-ex, a customised integrated multi asset trading system with attendant post-trade services capabilities. The FMDQ management in a statement to newsmen said the achievement was based on the critical support of the CBN and the FMDQ Dealing Member (banks). According to the management, FMDQ’s Q-ex has been integrated with the CBN’s Scripless Securities Settlement System (S4) to provide STP capabilities for efficient settlement in the fixed income market, improving the efficiency of the trading, reporting and settlement processes, whilst further developing, in no small measure, the Nigerian financial markets. “Q-ex provides an unrivalled means through which trades executed by its Members (currently the dealing member (banks), are reported and subsequently settled, with minimal to no human intervention, via the respective channels. “The deployment of the FMDQ Q-ex Settlement Solution operated by FMDQ Clear Limited, a whollyowned subsidiary of FMDQ, will essentially streamline business processes to reduce friction along the fixed income trades settlement value-chain, boost productivity of the market participants and promote efficiency of post-trade services,” it noted. FMDQ explained that with integrity being one of the key ingredients for a successful market, as adjudged by global counterparts, the achievement of STP in the fixed income market via the integration of Q-ex and the CBN’s S4 could not have come a moment too soon, as this integration sets a clear and certain path for market-wide confidence in the Nigerian fixed income settlement processes, and by extension, the fixed income market, to be restored. Bola Onadele, Managing Director/ Chief Executive Officer at FMDQ said: “With the continued collective efforts of the CBN, the Securities & Exchange Commission and indeed, other key regulators and stakeholders, we at FMDQ, are confident that the potential of our domestic markets, acting as a catalyst to propel economic growth, shall be realised. To build and sustain a well-functioning market, it is hoped that all hands remain on deck even as FMDQ continues to re-affirm its commitment to promote a world-class financial market operating in alignment with international best practices.”

Operators’ opinion

However, The Managing Director, HighCap Securities Limited, Mr. David Adonri, said that other factors that can reshape the capital market this year are the unfolding uncertainties about the global macro economy and escalating domestic terrorism which could adversely affect foreign investment flow to the economy. “In periods of strife and uncertainties, equities suffer greatly. If the prediction of slowdown in the global economy occurs and the Nigerian government does not adopt a conservative approach in expenditure or reduce borrowing, fixed income securities may continue their dominance over equity this year,” he added. A senior broker who craved anonymity speaking in the same vein said the low patronage being witnessed in the bond market especially on corporate bond is mainly as a result of poor awareness. He noted that the awareness given to bond relative to equities was low. Bond issue should be widely publicised like equities during public offers. Even after the issue, bonds should be listed on the Nigerian Stock Exchange for trading rather than placing the trading in the hands of some few investment houses that carry out the transaction over the counter only. “Another reason for the low patronage is that people are usually not aware of the issue and cannot participate in the subscription. After the completion of the subscription, bonds are not quoted on the NGX and FMDQ for trading like equities such that retail investors can have access to them,” he noted. The broker added that the Securities and Exchange Commission, the NGX and FMDQ had a great role to play in sensitising the public on the benefits of bonds. ”SEC, NGX and FMDQ have a lot of roles to play in this direction in ensuring that bonds are treated like equities and are given adequate publicity for wider participation. “The NGX and FMDQ has the right platform for trading bonds but it has not been used. Until this is done and government is educated to appreciate this, bonds to small investors will remain a nightmare,” he noted. To the Managing Director, Crane Securities Limited, Mr. Mike Eze, “the exchanges currently have the facilities to trade in bonds, as this will create a sustainable secondary market that will enhance transferability and liquidity in fixed income market investment. “Also, corporate bonds should be encouraged because shareholders, who are satisfied with the performance of a particular company via good returns on equity investment, will be motivated to invest in the corporate bond issued by such company.”

Last line

With consistent investment in fixed income securities, investors can create and grow wealth while providing the needed capital to the issuers to finance developments in the domestic economy.

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