FG urged to grow debt capital market
By Amaka Abayomi
The International Finance Coporation (IFC) has urged the Federal Government to capitalise on the favourable macro economic environ-ment to grow its debt capital market (DCM) that would generate economic growth and reduce poverty.
Speaking on “The Capital Market and the Corporate Borrower: The Experiences of Selected Countries’ at an interactive session organised by the Debt Management Office, an official of the IFC, Mr. Mark Solomon said robust debt capital market (DCM) would lead to diversification of financial intermediation to complement banks, especially in times of external shocks.
“Robust DCM diversifies funding intermediation to complement banking and reduce risks of external shocks. It also help optimize capital structure of corporates and can raise long-term naira financing for infrastructure and housing.
“Better macroeconomic management would lead to lower inflation, lower interest rates and more stable exchange rates. Development in government bond markets would lead to tenor extension and flatter yield curves.
“Benefits of well functional local currency and bond market include financial sector diversification, expanded housing and infrastructure finance and better risk management for borrower.
“It would also lower interest rates, reduce foreign currency risks, reduce refinancing risks, improve yields for institutional investors, mproved ability to deal with financial crises.”
While classifying the bond market into govern-ment and non government bonds, Solomon said “The term ‘non-government’ is used to encompass bonds and asset-backed securities issued by entities other than the federal government, including corporations, states and municipalities, project finance companiess created for specific infrastructure projects and supranationals.
“Non goverment bonds are key for infrastructure, but unfortunately, majority of infrastructure financing in Sub Saharan Africa are through bank loans. However, in 2006, 20 per cent of outstanding corporate bonds in South Africa were issued by infrastructure providers.”
He listed the charac-teristics needed for vibrant bond market to include an enabling environment
such as macro economic environment, legal and regulatory (issuance process and market rules) and tax regimes.
Others are market place includes trading, clearing, settlement, depository, pre-trade and post-trade transparency and bond market structure. Capacity includes bankable projects and sponsors, informed intermediaries and informed investors.
