By NKIRUKA NNOROM
M r. Oladele Sotubo is the Chief Executive Officer, Stanbic IBTC Stockbrokers Limited. In this interview, he spoke on the state of Nigeria bonds market, saying that there is need to increase awareness among retail investors to deepen their understanding of bonds market. He also spoke on the appointment of the company as government stockbroker last year. EXCERPTS:
We have heard figures regarding the size of the market for bonds. From an operator’s point of view, how large is Nigeria’s bond market?
Nigeria’s bond market has a yearly turnover of about N10 trillion and this is growing as we expect to see more issuance from federal and state governments. The corporate bond space is gradually coming alive and we have also seen the emergence of Supra National bond with the listing of IFC bond.
Is the appetite for investing in bonds among Nigerians strong enough to warrant a high level of optimism regarding the primary and secondary bond market?
There is no doubt about the appetite in bonds among corporate Nigeria, but the move is to create the awareness and get the retail investors to develop the appetite for this asset class. The approach is to make them see the benefits in this asset class as compared to other classes they are already used to. The major advantage of fixed income is the fact that it possesses the combined nature and benefits of equities and fixed deposit.
Most investors do not currently understand the fact that there is room for capital appreciation as in equities, while returns, in terms of coupon payment, is guaranteed as in fixed deposit. Above all, performing our role as government stockbroker, retail investors are sure of an exit window in case they decide to exit from the investment before maturity date.
Nigeria’s bond market has for years been overshadowed by the equities market. Do you see this changing, this year perhaps?
The idea is not to get it to overshadow equities, but to provide an alternative asset class for investors. The best practice is for an investor to have a diversified portfolio, which means that the portfolio must contain instrument from several asset classes. Once an average retail investor imbibes this investment culture, then investment in bonds will start taking it rightful position.
Stanbic IBTC Stockbrokers was late last year appointed Stockbroker to Federal Government of Nigeria bonds. What does this really mean?
The appointment places the obligation on Stanbic IBTC Stockbrokers to provide the market with two way quotes (bid and offer prices) on all FGN bonds listed and to be listed on the floor of the Nigerian Stock Exchange. It positioned the company as the seller and buyer of last resort in all listed bond. This means that there will always be a buyer and seller of FGN bonds on the floor of the Nigerian Stock Exchange daily.
What led to the emergence of Stanbic IBTC stockbrokers considering that other organisations also bided alongside your company? How will you rate the process?
The process followed by the Debt Management Office was as prescribed for such appointment by the Federal Government. DMO published an RFP for all interested brokerage firms to apply and all interested firms were requested to submit both financial and technical bids. The opening of bids was transparent as we had in attendance all the firms that applied, representative of the NSE, Association of Stockbroking Houses of Nigeria, ASHON, CBN and CLO. After this rigorous and transparent process, Stanbic IBTC Stockbrokers Limited was appointed the government stockbroker.
Considering how large the FGN bond portfolio is, do you think one organisation, in this case, Stanbic IBTC Stockbrokers, is capable of handling such huge portfolio?
This question has been asked and answered several times by the DMO. The idea is to gradually restore retail bond trading on the Exchange and appoint a liquidity provider. The process is subject to review and DMO will take the decision if more liquidity provider is required.
The appointment is expected to lead to a more robust bonds market, opening up the market to retail investors. Do you see this happening?
Until our appointment, bonds were hardly traded on the floor of the Nigerian Stock Exchange. The last time bond transaction was recorded was as far back as the call over days. With our appointment, trading in bond has resumed on the floor of the Exchange and as part of our role as the government stockbroker, we have embarked on awareness creation to mobilise interest in this segment of the market. The first of the series was with stockbrokers whom we see as a sure link to retail investors. We intend to take this forward by having sessions with retail investors directly in the course of the year.
I think Nigerians will require greater clarity regarding your role in the bond market. How will the appointment impact on the average retail investor?
By our appointment, we provide an average retail investor the opportunity to buy FGN bonds with as small as N100, 000.00. This was not possible before now as the minimum tranche a Primary Market Maker will deal is N100 million. Also, retail investors had to hold bonds till maturity as there was no exit window prior to maturity. Stanbic IBTC Stockbrokers Limited provides daily bid ands offer prices putting ourselves out as buyer and seller at any time. Investors are no longer forced to hold to maturity. Stanbic IBTC Stockbrokers Limited has been conducting market wide investor education programme which is expected to continue.