Bonds as instruments to deepen the Nigerian capital market
Reporter
A nation’s capital market is a crucial aspect of its economy. The reason is not farfetched since the capital market provides a mechanism or an avenue for raising long-term capital for development by both governments and corporate institutions.
The common security in this regard is bond. Bonds are debt securities that are issued by companies and government to lenders to seek long-term financing. It is basically an ‘IOU’ issued by one party to another, mostly by government.
The bondholders, or investors, are the lenders, while the issuer is the borrower. The borrower promises to make periodic interest payments called coupons on the bond, as well as to repay the original loan (the principal) to the bondholder on a stipulated date (the maturity date).
Though the money market is also important in the growth of any economy, it only provides short-term funds, which if invested long-term projects will result in mismatch. e promoters of the project will be under pressure to repay the funds borrowed short-term and invested long-term.
Major investments in an economy are usually financed through funds raised from capital market. Public quoted companies source funds from the capital market also to expand their operations. Hence the capital market is an essential aspect of any economy that wants to develop.
In the domestic economy, the Nigerian capital market to a large extent has performing this role creditably but government still need to provide succor for this segment of economy because of its usefulness. The strength of domestic capital market was demonstrated during the consolidation exercise in the banking industry as the banks then set a new record in raising funds from the market. That singular exercise created a huge awareness of the potential and merits of raising funds in domestic economy.
Also, as part of the proof that Nigerian capital market needs government attention are N100 billion Sukuk bond issue for road infrastructure and Nigeria Sovereign Bond among others.
Several countries of the world including South Africa had issued sukuk bonds in the past, and Nigeria’s plan to issue the sukuk bond started about six years ago, long before the current administration came into power. Raising local bonds to develop dilapidated infrastructures in the country will place local investors in a good position and will force foreign investors into the country due to the tracked record of government instead of going abroad to raise needed bonds.
No doubt, the Nigerian Stock Exchange like FMDQ OTC is well- positioned as a premiere listing destination for African corporates, governments and international issuers looking to access the capital market of the largest economy in Africa.
The NSE provides issuers with access to a unique investor pool that combines regional and international wealth.
The two exchanges provide global platform to raise capital for project financing and business expansion. ey take a collaborative and customer focused approach to assist issuers with listing.
Today, there are two secondary markets in Nigeria for equities and fixed income trading which makes it easier and effective for investors to trade their shares at any time.
The Nigerian Stock Exchange and FMDQ OTC have seen the potentials in this sector that is why they are improving on their trading platform to accommodate more securities. Issuance of bond locally no doubt will bring both local and foreign investors into the market and will step up government e orts to raise the funds needed for infrastructure growth and development, among other projects.
In conclusion, as the capital market is essential to any economy, it is, therefore, necessary that steps should be taken in order to strengthen it especially in a develop- ing economy like Nigeria.
The government needs to raise bonds locally to revamp some of the moribund national assets such as Ajaokuta Steel Rolling Mill, Kaduna Textile Mill, Port Harcourt, Warri, and Kaduna refineries etc as a strategy for deepening the domestic capital market.