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Foreigners invest N864bn in Nigerian bonds

By on November 30, 2013

About $5.4bn (N864bn) has so far been invested in the Nigerian bond market by foreign investors, the Director-General, Securities and Exchange Commission, Ms Arunma Oteh, has said.

She said the huge foreign investments in the Nigerian bond were a demonstration of the confidence investors had in the nation’s economy.

Oteh stated this at the third edition of the capital market committee retreat on Thursday in Abuja.

The retreat, with the theme, “Actualising Nigeria’s potential through a world-class capital market,” was a platform for the capital market community to interact with other stakeholders and the general public.

She said the inclusion of Nigeria’s domestic bond market in Barclays’ emerging market bond index as well as its admission into JP Morgan local currency bond index in October 2012 had put the country’s local currency bond market within the radar of foreign investors.

For instance, she said prior to the admission of the FGN bonds to any international bond index, foreign investors’ holding of Nigerian bonds was approximately $1.2bn (N192bn).

Oteh pointed out that even Nigeria’s treasury bills, which had been popular among international investors, were equally positively impacted by this development with international investors’ holding increasing from $3.9bn (N624bn) to $6.2bn (N992bn).

The director-general also added that the state government and corporate segments of the bond market were benefitting from a favourable environment, reformed issuance procedures and renewed interest from investors to tap into the bond market.

She said, “In April 2013, our domestic bond market got a huge boost following the inclusion of Nigeria’s sovereign bonds in Barclays’ Emerging Market Bond Index in addition to its admission into the JP Morgan local currency bond index in October 2012.

“This has put our local currency bond market within the radar of foreign investors, who, year-to-date, have invested an estimated $5.4bn in Nigerian bonds.”

Oteh said going forward, the commission foresaw a bond market that would serve as a critical element in closing the country’s infrastructure gap estimated at $350bn over the next 10 years by the African Development Bank.

The bond market, she added, held a lot of potential for growth that would rival or even surpass the equities market in size as it had been done in most advanced economies.

But Oteh’s disclosure about the huge foreign investments in Nigerian bonds came just as the National Economic Management Team was considering proposals on how to protect small investors in the capital market.

The Minister of State, Finance, Dr. Yerima Ngama, said the move became imperative in order to address the issue of unclaimed dividends by retail investors.

It was learnt that the amount of unclaimed dividends had risen from about N8bn a few years ago to about N60bn currently.

He said, “Most of the unclaimed dividends belong to very small investors, some of them you can never trace.  But these are funds that can be utilised to promote that group of investors.

“With that, you do not have any class discrimination but if you take the money that belongs to the very low level investors and you use it for the benefit of very wealthy investors, then you are doing class discrimination. I wish to affirm that the Economic Management Implementation Team is taking this issue very seriously.

“We have a lot of proposals and before long, we are going to come up with one that will actually boost this market and give confidence to small investors to pull their resources together in order to provide the investment that is critically needed.”

Ngama, who cautioned capital market operators and regulators against being caught in the euphoria of the celebration of “impressive growth” of the stock market, urged them to come up with strategies on how to broaden the market.

For instance, while he admitted the 38 per cent growth recorded in the stock market this year, the minister said a lot of big companies had yet to be listed on the Nigerian Stock Exchange.

He also said a lot of awareness was needed to educate the small investors on how to invest in the capital market.

The Chairman, SEC Board, Mr. Suleman Ndanusa, said the issue of unclaimed dividends was a serious challenge that needed to be addressed urgently.

He said, “One of the challenges that we still have today, which I am going to leave for the CMC, is the issue of unclaimed dividends.”