S EPTEMBER 2017 Outlook for the Nigerian Debt Capital Markets B OLAJI B ALOGUN C HIEF E XECUTIVE O FFICER C HAPEL H ILL D ENHAM PRIVATE & CONFIDENTIAL
N IGERIA IS PROJECTED TO BE THE 3 RD MOST POPULOUS COUNTRY ON EARTH … 2050 This requires Nigeria to address its: • Infrastructure Deficit • Housing Deficit • Education and Literacy & • Employment and Job Creation Population All these areas have market solutions forecast to reach 400 A Vision for the Debt Capital Markets Million must translate to Economic Development Potential To Be 3rd most a Top 7 Global populous for Nigeria Economy By Country GDP 2
C APITAL MARKETS CAN BE N IGERIA ’ S ‘S TRATEGIC W EAPON ’ … 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 Improve Increase Promote Reduce Governance Transparency Accountability Corruption The markets reward those who use them effectively and those who recognise the power of the markets, end up as winners 3
L AGOS STATE ’ S DEBT CAPITAL MARKETS EXPERIENCE … A SUCCESS STORY NGN billion N 407 450 billion 100% of proceeds 400 solely for CAPEX, not 350 salaries 100% in Naira 300 250 7+ year 70-75% on average 200 physical tenor infrastructure 150 and 20-25% on social 100 infrastructure 50 - 2009 2010 2011 2012 2013 2014 2015 2016 2017 Year 4
C APITAL MARKETS ARE IMPERATIVE FOR FINANCING DEVELOPMENT … Nigeria Banks Loan Tenor Source of Debt Financing 40.0% 35.9% 35.0% US 81% 19% 30.0% 23.6% 25.0% Average tenor 20.0% 16.6% 15.0% Nigeria 30% 70% 10.1% 8.1% 10.0% 5.7% 5.0% 0% 20% 40% 60% 80% 100% 0.0% DCM Banks < 3months 3-6 months 6-12 months > 1 year >2 years >5 years ▪ 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 5
W E NEED TO DREAM BIG … I HAVE A DREAM THAT ONE DAY N IGERIA WILL ▪ 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 3
I NFRASTRUCTURE … AN ENABLER OF ECONOMIC GROWTH 7 7
S OCIAL INFRASTRUCTURE … CREATES JOBS AND ALLEVIATES POVERTY 8 8
I NFRASTRUCTURE … AN ENABLER OF ECONOMIC GROWTH Annual Infrastructure Average Spending Requirement Over the next decade, (NGN Trillion) +NGN 5.1Trillion for 1% increase in Nigeria needs NGN 86 roads (new, infrastructure stock 86.5 trillion to meet its maintenance, & rehab) results in 1% increase infrastructure in GDP investment needs 54.0 33.2 20.1 +NGN 4.4Trillion for 12.0 railways 6.6 Traditional sources of Given the fiscal 2014-18 2019-23 2024-28 2029-33 2034-38 2039-43 infrastructure financing constraints of the FGN, (Banks) are being private investment will squeezed, due to + NGN 7.3Trillion for play a growing role in global macro power Benchmarking Nigeria’s Infrastructure Stock to delivering conditions and tighter BRICS and other EM Countries (as % of GDP) infrastructure financial regulations 87.0 80.0 76.0 70.0 + NGN 9.1Trillion for 58.0 water ways, ports The markets – via 47.0 Bonds, Infrastructure 35.0 Funds, and Guarantees – represents a sustainable funding + NGN 3Trillion for source for airport/aerodromes infrastructure Nigeria Brazil India China S. Africa Indonesia Poland Source: National Integrated Infrastructure Master Plan 9
R EAL ESTATE … CREATES JOBS AND PROMOTES ECONOMIC GROWTH Residential Retail Commercial Industrial Warehousing 10
R EAL ESTATE AND HOUSING … ESSENTIAL FOR ALLEVIATING POVERTY ▪ Nigeria’s housing deficit is estimated to be 16 million homes N160 Potential for Trillion in up to N200 Housing Trillion in Finance mortgages ▪ 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 11 11
I SLAMIC FINANCE GLOBALLY IS A $3 TRILLION MARKET • 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 Prohibition of Riba Prohibition of Speculation Prohibition of Financing Illicit Sectors Profit and Loss Sharing Principle Asset Backing Principle 12
S USTAINABLE 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 13
U SING N IGERIA ’ S DEBT CAPITAL MARKETS … A WIN FOR ALL PARTIES All of Nigeria’s challenges, which represent significant opportunities 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 14
C APITAL MARKETS AS A ‘S TRATEGIC W EAPON ’: THE TIME IS NOW !!! Issuers Intermediaries MUST MUST • Be forward thinking on • Create more regulation i.e. Basel III products for PFAs • Use the capital markets to restructure debt and raise capital Buyside Benefits MUST • Forces Financial • See the compelling Transparency • case for high Develops NGN Bond returns market • • Invest in Nigeria’s Develops Nigeria and future secures the Future 15
I STOPPED DREAMING AND TOOK A BOLD STEP … ▪ 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 b y 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 of investors to invest in infrastructure 3
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