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Capital Market

NGX, NG Clearing Hold Engagement Session With PFAs on Derivatives



Nigerian Exchange Limited Derivatives - Investors King

Nigerian Exchange (NGX) Limited continues to drive understanding of derivatives ahead of the launch of Exchange Traded Derivatives in the Nigerian capital market. On Thursday, 8 July 2021, NGX in collaboration with NG Clearing hosted a virtual engagement with Pension Fund Administrators (PFAs).

Speaking at the event, the Divisional Head, Trading Business, NGX, Mr. Jude Chiemeka stated, “In line with our committment to deepen the Nigerian capital market, NGX will introduce derivatives as a new asset class to the benefit of stakeholders, including PFAs. We are confident that derivatives will provide a greater pool of liquidity and the participation of PFAs in NGX derivatives market will not only allow PFAs to protect their positions but also benefit from various opportunities. That said, being the first line of contact for investors in the capital market, NGX is focused on educating market participants through workshops, webinar and conferences which will continue pre and post-product launch.

Mr. Chiemeka also highlighted three main elements which are critical to the success of any derivatives market and expounded on the efforts of NGX in ensuring these are in place. The areas are: market efficiency and integrity, financial safety and integrity, and customer protection (fair treatment of customers). He further stated, “Ahead of the launch of derivatives, The Exchange trading system, X-GEN, has been configured to trade derivatives products and there are rules governing order priority. Also, The Exchange has a robust market surveillance system – SMART – to monitor the market on a regular basis for any potentially manipulative behaviour of market participants.”

It would be recalled that NGX received approval for seven derivatives contracts from the Securities and Exchange Commission (SEC) on 28 June 2021. The approved contracts are: Access Bank Plc Stock Futures, Dangote Cement Plc Stock Futures, Guaranty Trust Bank Plc Stock Futures, MTN Nigeria Communications Plc Stock Futures, Zenith Bank Plc Stock Futures, NGX 30 Index Futures, and NGX Pension Index Futures.

Is the CEO/Founder of Investors King Limited. A proven foreign exchange research analyst and a published author on Yahoo Finance, Nasdaq,, Investorplace, and many more. He has over two decades of experience in global financial markets.

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Capital Market

Nigeria’s Debt Capital Markets: Robust Corporate Debt Issuance Will be Sustained Over 2023 and Beyond



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Corporate Debt Capital Issuance Recovered Over 2022

Following the sharp decline in corporate debt capital issuance over 2021 of 38%, a record NGN1.5 Trillion (USD 3.2 Billion) of debt was issued in Nigeria in 2022, representing a 133% increase year-on-year. Using FMDQ data, there is currently approximately NGN 2.1 Trillion (USD 4.6 Billion) of publicly issued nonfederal local currency debt capital outstanding; the majority being corporate bonds at 71% of total (NGN 1.5 Trillion, USD 3.3 Billion).

As of year-end 2022, GCR rated approximately 80% of outstanding publicly issued non-federal local currency debt in Nigeria. Debt capital issuance, specifically CP issuance, in Nigeria decreased significantly over 2021. As shown in figure 2, below, Nigerian corporates issued just NGN379 Billion (USD 824 Million) of CP over 2021 compared to a record NGN762 Billion (USD 1.66 Billion) of CP in 2020. The reduction in CP issuance reflected rising yields, and thus rising cost of funding, over 2021 from a very low base.

Treasury bill yields continued to rise in 2022; increasing from 2.48% (91 day), 3.3% (182 Day) and 5.4% (364 Day) in January 2022 to a peak of 6.5% (91 day), 8.05% (182 Day) and 14.5% (364 Day) in October 2022. However, unlike 2021, the rising interest rate environment in 2022 did not curtail debt capital issuance.

2022 saw a deepening of challenges for Nigerian corporates on account of weak economic growth, a high headline inflation rate, spiralling fuel costs and supply-chain disruptions. As a result of this challenging environment, Nigerian corporates increasingly sought short-term funds through CP issuances in order to meet their working capital requirements i.e., to fund their day-to-day operations.

Working capital funding is common for businesses facing near-to-medium term uncertainty and/or businesses with inconsistent cash flow. 2022 saw 140 CP transactions totalling NGN762 Billion (USD 1.66 Billion) versus 61 transactions totalling NGN379 Billion (USD 824 Million) in 2021.

Bond issuance also grew significantly over 2022 at 189%. Nigerian corporates are choosing to issue local currency debt capital over borrowing in foreign currency. The challenging foreign exchange environment in Nigeria manifests itself in foreign currency shortages within the financial system and weakened relationships between Nigerian banks and foreign correspondent banks which ultimately led to unfavourable terms for Nigerian corporates looking to borrow in foreign currency.

We do not expect the unfavourable terms of foreign currency borrowing to change in the near-term. Growth in bond issuance was predominantly down to big ticket transactions to fund large capital expenditure projects, or acquisitions, such as:

• Dangote Industries Limited’s (AA+(NG), Stable) NGN300 Billion (USD 652 Million) bond to fund the construction of the Dangote refinery,
• Dangote Cement Plc’s (AA+(NG), Stable) NGN116 Billion (USD 252 Million) bond to fund expansion projects within the Nigerian market,
• MTN Nigeria Communications Plc’s (AAA(NG), Stable) NGN115 Billion (USD 250 Million) bond to fund the expansion of its 5G network,
• Geregu Power Plc’s (A(NG), Stable) NGN40.1 Billion (USD 87 Million) bond to fund the acquisition of a power plant,
• Presco Plc’s (A-(NG), Stable) NGN34.5 Billion (USD 75 Million) bond to fund the acquisition of a palm oil business and
• LFZC Funding SPV Plc’s (Lagos Free Zone Company) (AAA(NG), Stable) NGN25 Billion (USD 54 Million) Guaranteed Bond to fund the construction of various assets within the free zone.

The aforementioned Presco transaction is the first local bond from an entity operating in Nigeria’s palm oil industry.

Recent Crash in Money Market Yields Will Drive Corporate Debt Issuance in the Near-term

As shown in figure 5, over 2022, the CBN increased its Monetary Policy Rate (MPR) by 5 percentage points in order to curb rampant inflation. The CBN’s hawkish stance ultimately led to rising yields in money markets with 364 day rates rising from a 2022 low of 4.35% in February to a peak of 14.5% in October.

However, in recent months we have witnessed a dislocation in money market and MPR rates. Despite a 150 basis point increase in MPR this year, money market yields fell significantly; approaching levels close to fourth quarter 2020.

The dislocation is on account of the significant influx of liquidity into the financial system in recent months. Nigeria witnessed the highest Federation Account Allocation Committee (FAAC) pay-out of 2022 in December of NGN990 Billion (USD 2.2 Billion). Secondly, the CBN’s currency redesign meant that a significant quantum of cash has been redeposited at banks since its commencement, in fact, on 29 January 2023, the CBN reported that NGN1.9 Trillion (USD 4.1 Billion) of cash was redeposited in the prior two months.

We expect the aforementioned factors to moderate over the medium term and for money market yields, and thus corporate yields, to normalise as FAAC placements are expended and naira notes redistributed. Notwithstanding, according to FMDQ Securities Exchange, the average valuation yields for listed bonds as of 28 February 2023 was 12.5% versus the average prime lending rate of banks of 13.67%, as of February 2023 (the prime lending rate at some Nigerian banks was as high as 28.5%). GCR believes Nigerian corporates will continue to look to debt capital markets as a cheaper source of funding to bank borrowing.

Robust Corporate Debt Issuance to be Sustained Over 2023 and Beyond

Over the next 12 to 18 months, we expect robust debt issuance to be sustained as the political direction of new leadership becomes more certain; allowing Nigerian corporates to make better informed funding decisions. In the nearer term, issuance will be supported by the aforementioned fall in yields. At present, we are witnessing a strong pipeline of new transactions over the next 12 months; partly in new asset classes such asset back securities.

Additionally, the advent of Basel III regulations will mean that Nigerian banks will have an increased need to issue Additional Tier 1 and Tier 2 debt capital. Furthermore, Basel III’s liquidity coverage requirements mean that banks will have a greater need for High Quality Liquid Assets (HQLA) in the form of corporate bonds.

Overall, Basel III will be supportive of deepening Nigeria’s capital markets.

Lastly, issuing debt instruments continues to be an increasingly viable funding source for Nigerian entities. Companies will continue to diversify their funding base through the issuance of CP and/or bonds for the foreseeable future.

Nigeria’s Institutional Investors will Continue to Invest Heavily in Local Currency Corporate Debt

Domestic institutional investors, such as pension funds administrators and asset/fund managers remain willing and able subscribers of Nigeria’s corporate debt capital. Corporate debt instruments continue to offer institutional investors reasonable return premiums above sovereign benchmarks.

Primary market bond transactions in recent years have been mostly oversubscribed. According to the National Pension Commission (Pencom), as of December-end 2022, Nigeria’s pension funds had NGN15 Trillion (USD 33 Billion) of Assets Under Management (AUM), this is an increase of 12% from December-end 2021’s total of NGN13.4 Trillion (USD 29 Billion).

In particular, corporate bonds under management grew from NGN920 Billion (USD 2 Billion) to NGN1.4 Trillion (USD 3 Billion), an increase of 52%. According to the Securities and Exchange Commission (SEC), as of March 2023, the net asset value (NAV) of Nigerian mutual funds had risen to NGN1.574 trillion (USD 3.4 Billion), representing an increase of 11% from March 2022 levels.

GCR estimates Nigeria’s total pension and mutual fund assets under management as a percentage of Nigerian GDP to be less than 10% versus 67% for OECD countries as of year-end 2021. Given the small size of both pension and mutual fund AUM as a percentage of GDP, there is significant capacity for AUM growth. GCR expects institutional investors to meet the funding needs of local debt issuers for the foreseeable future.

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Capital Market

MTN Nigeria Borrows N125 Billion from Debt Market Via Commercial Paper



MTN Nigeria - Investors King

Africa’s leading telecommunications giant, MTN Nigeria has successfully borrowed N125 billion from Nigerians via sales of commercial paper, a document has shown.

In the document obtained by Investors King on Tuesday, the commercial paper was issued under MTN Nigeria’s N150 billion Commercial paper issuance Programme. The company had set out to raise N100 billion but recorded an oversubscription of 25%, to raise a total of N125 billion.

Commercial paper is a debt instrument issued by corporations to raise money to finance short-term liabilities

The commercial papers were issued with a maturity of 188 days and a yield of 11.00%, as well as commercial papers with a maturity of 267 days and a yield of 12.50%.

This issuance of commercial papers is in line with MTN Nigeria’s strategy to broaden its funding sources. According to the document, funds generated from this issuance will be used to support the company’s short-term working capital and funding needs.

“MTN Nigeria Communications PLC (MTN Nigeria) hereby notifies Nigerian Exchange Limited and the investing public of the successful completion of its Series 4 & 5 Commercial Paper issuance under its Nl50 billion Commercial Paper Issuance Programme (the CP Issuance).

“MTN Nigeria sought to raise N100 billion, and the transaction was 125% subscribed, with a total of A125 billion raised.

“MTN Nigeria issued 188-day commercial papers at a yield of 11.00% and 267-day commercial papers at a yield of 12.50%. The CP Issuance was completed on 1 March 2023.

“The CP Issuance is part of MTN Nigeria‘s strategy to diversity its funding options. The proceeds will be utilised for its short-term working capital and funding requirements,” the document reads.

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Capital Market

DLM Capital Group Redeems its ₦1.24bn Series 1, ₦1.01bn Series 2 and ₦1.27bn Series 3 Commercial Paper Issues

Prominent financial institution, DLM Capital Group, has announced the maturity and successful redemption of its ₦1.24bn Series 1, ₦1.01bn Series 2 and ₦1.27bn Series 3 Commercial Paper Issues under its ₦20 Billion Commercial Paper Issuance Programme.



DLM Capital Group

Prominent financial institution, DLM Capital Group, has announced the maturity and successful redemption of its ₦1.24bn Series 1, ₦1.01bn Series 2 and ₦1.27bn Series 3 Commercial Paper Issues under its ₦20 Billion Commercial Paper Issuance Programme.

The ₦1.24bn Series 1, ₦1.01bn Series 2 and ₦1.27bn Series 3 Commercial Papers which were all issued via and quoted on the FMDQ Securities Exchange; matured on the 31st May 2022, 29th August, 2022, and 12th August 2022 respectively. In line with best practice, the FMDQ has been informed of these redemptions.

With a successful outing, the three Series garnered investments from a variety of investors ranging from Pension Fund Administrators, Asset Managers, Insurance companies and Banks.

Commenting on the successful redemption, the GCEO of DLM Capital Group, Mr. Sonnie B. Ayere, said, “We are pleased to have fully repaid all the investors in the Series 1, Series 2 and Series 3 CP issuances. We thank all our investors for their participation and reiterate our commitment to being a counterparty that can be relied on for the long term; we have been around for 13 years, and we will continue to contribute our quota to Nigeria’s development”.

He further added that “these redemptions reflect DLM’s capacity to meet its financial obligations as at when due and we intend to remain an active issuer in the commercial paper market.”

The Group comprises of the following businesses: retail banking via our digital channel SoFRI, consumer & business lending, asset management, investment banking, trustees, securities trading and foreign exchange.

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