Outlook for the Nigerian Debt Capital Markets B OLAJI B ALOGUN C HIEF - - PowerPoint PPT Presentation

Outlook for the Nigerian Debt Capital Markets

SEPTEMBER 2017 PRIVATE & CONFIDENTIAL

BOLAJI BALOGUN CHIEF EXECUTIVE OFFICER CHAPEL HILL DENHAM

Population forecast to reach 400 Million 3rd most populous Country

This requires Nigeria to address its:

• Infrastructure Deficit
• Housing Deficit
• Education and Literacy &
• Employment and Job Creation

All these areas have market solutions A Vision for the Debt Capital Markets must translate to Economic Development for Nigeria

Potential To Be a Top 7 Global Economy By GDP

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NIGERIA IS PROJECTED TO BE THE 3RD MOST POPULOUS COUNTRY ON EARTH …

2050

Nigeria has several opportunities to use the markets to achieve a its key objectives and lift our economy Capital Markets in the right hands can be the ‘Strategic Weapon’ for sustainable growth Capital Markets can finance Nigeria’s Infrastructure, Housing, Create Jobs and Alleviate Poverty The markets reward those who use them effectively and those who recognise the power of the markets, end up as winners

Improve Governance Increase Transparency Promote Accountability Reduce Corruption

CAPITAL MARKETS CAN BE NIGERIA’S ‘STRATEGIC WEAPON’ …

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• 50

100 150 200 250 300 350 400 450 2009 2010 2011 2012 2013 2014 2015 2016 2017 NGN billion

Year

7+ year average tenor

N 407 billion

LAGOS STATE’S DEBT CAPITAL MARKETS EXPERIENCE … A SUCCESS STORY

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100% of proceeds solely for CAPEX, not salaries 70-75% on physical infrastructure and 20-25%

• n social

infrastructure 100% in Naira

CAPITAL MARKETS ARE IMPERATIVE FOR FINANCING DEVELOPMENT …

▪ In the US, 81% of debt is sourced in the capital markets, with the bank market largely available for working capital ▪ Nigeria is the reverse of this, with bank loan tenors having an average tenor of just over 2 years ▪ The debt raised in capital markets in Nigeria is 90% FGN and largely fuels recurrent expenditure

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30% 81% 70% 19% 0% 20% 40% 60% 80% 100%

Nigeria US

Source of Debt Financing

DCM Banks 35.9% 5.7% 10.1% 23.6% 16.6% 8.1% 0.0% 5.0% 10.0% 15.0% 20.0% 25.0% 30.0% 35.0% 40.0%

< 3months 3-6 months 6-12 months > 1 year >2 years >5 years

Nigeria Banks Loan Tenor

Average tenor

WE NEED TO DREAM BIG … I HAVE A DREAM THAT ONE DAY NIGERIA WILL

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▪ I have a dream that one day this great nation Nigeria will rise up and live out the true meaning of its creed: ‘Africa’s largest economy’ ▪ I have a dream, that one day, across Nigeria, our children will be able to take the train to visit their friends, from Lagos to Abuja in no more than four hours ▪ I have a dram that one day, even the North-East region of Nigeria, a region sweltering with the heat of terror, will be transformed into an oasis of freedom with constant electricity and new affordable housing ▪ I have a dream that our children will one day live in a nation where every child has access to the internet for learning from Ijebu-Ode to Ogoja and Enugu, Katsina-Ala and Gombe and knowledge is the wealth of our nation ▪ I have a dream that one day in Nigeria, where some are trying to break our unity with words of hate, we will find that the things that bind us together are so much more than what divide us, as we open up each region with the rail and young Igbo, Hausa, Yoruba youths are able to join hands, as sisters and brothers. ▪ I am inspired by Martin Luther King’s famous speech in Washington DC, from August 28, 1963. ▪ While it took some 45 years to put a black man, Barack Obama into the White House, my dream is that within 45 months, from September 28, 2017, we will be well on our way to transforming Nigeria’s debt capital markets and as a result, its infrastructure

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INFRASTRUCTURE … AN ENABLER OF ECONOMIC GROWTH

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SOCIAL INFRASTRUCTURE … CREATES JOBS AND ALLEVIATES POVERTY

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INFRASTRUCTURE … AN ENABLER OF ECONOMIC GROWTH

Over the next decade, Nigeria needs NGN 86 trillion to meet its infrastructure investment needs 1% increase in infrastructure stock results in 1% increase in GDP Given the fiscal constraints of the FGN, private investment will play a growing role in delivering infrastructure Traditional sources of infrastructure financing (Banks) are being squeezed, due to global macro conditions and tighter financial regulations The markets – via Bonds, Infrastructure Funds, and Guarantees – represents a sustainable funding source for infrastructure

• S. Africa

Benchmarking Nigeria’s Infrastructure Stock to BRICS and other EM Countries (as % of GDP)

+NGN 4.4Trillion for railways + NGN 7.3Trillion for power + NGN 3Trillion for airport/aerodromes +NGN 5.1Trillion for roads (new, maintenance, & rehab) + NGN 9.1Trillion for water ways, ports

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6.6 12.0 20.1 33.2 54.0 86.5 2014-18 2019-23 2024-28 2029-33 2034-38 2039-43

Annual Infrastructure Average Spending Requirement (NGN Trillion)

REAL ESTATE … CREATES JOBS AND PROMOTES ECONOMIC GROWTH

Commercial Industrial Retail Residential Warehousing

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REAL ESTATE AND HOUSING … ESSENTIAL FOR ALLEVIATING POVERTY

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▪ Nigeria’s housing deficit is estimated to be 16 million homes ▪ Beyond housing, big deficits in retail, commercial, industrial, student housing, healthcare and education ▪ To fill the financing gap, long term capital can be raised in the markets via ▪ REITs and Real Estate Funds ▪ Mortgage Financing ▪ Securitization ▪ Bonds ▪ Housing Financing N160 Trillion in Housing Finance

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Potential for up to N200 Trillion in mortgages

ISLAMIC FINANCE GLOBALLY IS A $3 TRILLION MARKET

Prohibition of Riba Prohibition of Speculation Prohibition of Financing Illicit Sectors Profit and Loss Sharing Principle Asset Backing Principle

• Significant alignment between 12 of the UN’s 17 Sustainable Development Goals and Islamic Financing
• The first FGN Sukuk, last week some 4 years after Osun State’s debut Sukuk, indicates what is possible

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SUSTAINABLE FINANCE IS AVAILABLE FOR LOW CARBON INFRASTRUCTURE

Sustainable Finance is accretive to all 17 SDGs

• Sustainable Funds
• Green Bonds
• Impact Investing
• Microfinance
• Active Ownership
• Credits for Sustainable

Projects

• Development of the capital

markets in a more sustainable way

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All of Nigeria’s challenges, which represent significant

• pportunities have Debt Capital Markets solutions

Bonds & Debt Funds, Islamic and Sustainable Finance We can finance and invest in developing Physical and Social Infrastructure, Housing and Real Estate. Infrastructure enables diversification industrialization. Infrastructure will ignite Nigeria’s agriculture and mining, transforming them into big export earners Infrastructure attracts investments and it is these investments that create jobs Infrastructure lifts living standards – education, health This activity will in turn deepen Debt Capital Markets and improve governance and increase transparency Ultimately, all of Nigeria and its key stakeholders WIN

USING NIGERIA’S DEBT CAPITAL MARKETS … A WIN FOR ALL PARTIES

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CAPITAL MARKETS AS A ‘STRATEGIC WEAPON’: THE TIME IS NOW !!!

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Benefits

• Forces Financial

Transparency

• Develops NGN Bond

market

• Develops Nigeria and

secures the Future

Issuers MUST

• Be forward thinking on

regulation i.e. Basel III

• Use the capital markets

to restructure debt and raise capital

Buyside MUST

• See the compelling

case for high returns

• Invest in Nigeria’s

future

Intermediaries

MUST

• Create more

products for PFAs

I STOPPED DREAMING AND TOOK A BOLD STEP …

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▪ Chapel Hill Denham NIDF is Nigeria and Sub-Saharan Africa’s first listed domestic currency infrastructure debt fund ▪ NIDF is registered with the SEC as an Infrastructure Fund, meets all PENCOM requirements and is domiciled in Nigeria ▪ Infrastructure needs to be financed largely in local currency and the US$ tail risk for Nigeria to price everything in US$ is huge and the current impact in power on infrastructure owners, banks, Government and the people, is plain to see ▪ The Fund Manager is rated “A” by Agusto & Co and the 5-member Investment Committee has 120 years’ experience in infrastructure financing and investing, including an independent member who is ex IFC Head of Infrastructure ▪ The Fund’s operations are overseen by an Advisory Board, comprising of theTrustees and PFA nominees ▪ In the initial capital raising, which closed in June 2017, CHD NIDF successfully mobilised capital from 9 pension funds representing nearly half of the total pension assets in Nigeria and the Fund’s initial portfolio is fully invested ▪ The Fund will distribute at least 90% of its net income as dividends, on a quarterly basis. Interim dividend paid in July and first quarterly dividend in October ▪ Our deal pipeline is across all infra asset classes and has deliberately avoided riskiest ones today, Discos & Gencos ▪ We plan to issue again and grow the fund, which is the only source of 10-15 year NGN for infrastructure in Nigeria ▪ This is the start of a vehicle that will become large and liquid and by listing on FMDQ in July 2017, we have created liquidity in an asset class that is inherently illiquid, strengthened the debt capital markets and enabled a wide range

• f investors to invest in infrastructure

THANK YOU

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