Managing Director, MD, Investment Banking at United Capital Plc, Babatunde Obaniyi in this interview speaks on fund raising from Nigerian capital market to finance infrastructure deficits , mergers and acquisitions to meet capital requirements of corporate entities, apathy for equities, need for diversification to fixed income, instruments, power sector challenges, among other issues. Excerpts:
By Peter Egwuatu
WHAT are the critical issues that will further improve the state of infrastructure in Nigeria?
To improve infrastructure Nigeria need to choose between being a capitalist or socialist economy. At the moment, what is obtainable is a situation where government is trying to figure out all the solution with minimal private sector participation. Some of the issues are traceable to legislation, as in the case of the power sector, others are the lack of political will. The point is, government cannot do everything, and even if they try it is unsustainable. We need to fix healthcare, education, power supply, road, rail, port, and so on. If we want to close the gap we must allow for private sector participation. For the private sector to participate they must be incentivized.
Government needs to reduce regulation on power to allow for cost reflective tariff; transmission of power need to be decentralized to allow for captive solution within different industrial areas; autonomy should be granted to universities to generate their revenue and set their standards to stop the incessant strike actions. A public private partnership, PPP arrangement should be put in place for selected road projects. We have to implement policies that will appeal to the profit oriented motive thinking of the private sector for a greater good. Ultimately, we need far reaching reforms across the sector to improve infrastructure and close the gap of the medium to long term.
Given the infrastructural gaps in Nigeria, what role can the capital market play in providing the long-term finance needed to finance projects across the country?
The Nigerian government like other developing countries continue to face significant challenges in implementing programmes to build basic infrastructure. Capital markets firms have been making efforts towards supporting transactions aimed at providing power, transportation, and energy infrastructure amongst others but impact has been limited due to evolving regulatory framework, uncertain economic policies amongst others. We believe that the establishment of an active infrastructure funds as being pursued by some capital market operators, including United Capital Plc would be immensely beneficial in closing the infrastructure gaps in the country.
The power sector is another critical area that can transform the country faster; what do you think that government can do to boost the sector and does United Capital have the financing capability to meeting the needs of the sector?
The power sector is a corner stone in any economy; it reduces the cost of doing business for all industry players. There is a need for the government to help improve the liquidity situation in the power value chain to enable Distribution Companies, DISCOs service existing debt obligations and by extension fund capital expenditure to provide improved and stable supply of electricity. By dealing with the issues of collections, Nigerian Bulk Electricity Trading, NBET Plc will then be able to pay up on their account payable to the Generating Companies, GENCOs.
Though, a lot have been done in increasing the transmission capacity from 5,000 MW – 8,100 MW, a lot more need to be done to bridge the gap of GENCOs installed capacity and TCN’s capacity. To do that, a reliable and transparent process must be unearthed to invest more into this section of the value chain.
United Capital was Financial Adviser on the acquisition of three of the six generation companies and a distribution company privatized during the 2013 power sector privatization by the Nigerian Government. Just recently, United Capital advised on the successful bid of the Transcorp Consortiums acquisition of Afam Power Plc and Afam Three Fast Power Limited. Our Project Finance team are experienced and skilled in providing innovative solutions in structuring and financing of Power transactions.
The capital base of the insurance industry has just been increased by NAICOM, do you ascribe mergers and acquisitions for the sector in order to meet the capital requirement and do your company provide such service?
We envisage a number of service offerings for the insurance sector largely around private placement, possibly Rights Issue depending on the interest of existing shareholders and more prominently Merger and Acquisition, M and A especially given the number of players in the sector vis-a-vis the huge increment in capital requirements by the regulator. We believe that the consolidation of the insurance sector would mirror that witnessed in the Banking Sector several years ago.
Currently over 90 percent of Insurance companies are below the new capital requirement across the life, non-life and general insurance categories. United Capital Plc denoted by its prominent and experienced Mergers and Acquisition and capital market desk are more than willing to work with insurance companies in exploring multiple options as a suitable means to ramp up on their capitalisation in line with NAICOM’s directive.
Investors’ appetite for equity instrument is on the downturn given the low return on investment in recent time, what other investible instruments could you recommend to investors to boost their income stream?
It is true that equity instruments are on the downturn; however we have seen the fixed income space witness an increase in investments particularly from foreign investors. we believe that given the relatively stable and competitive interest rates investors would be attracted to fixed income instruments such as: Money Market Instruments (Treasury bills, Commercial papers); Corporate and Sovereign Bonds ; Eurobonds.
SMEs are regarded as a critical sector to the development of any economy, what role can United Capital play in providing funds to the sector?
Small and Medium Enterprises are engines of growth and the major employers of labour, and to reduce the current unemployment rate in the country it is immensely important to provide them with necessary conditions to grow. United Capital Plc through its structured trade and SME desk is committed to providing SMEs with working capital solutions, capital raising and financial advisory services.
May we know the role being played by United Capital in moving the capital market forward?
United Capital is keen on transforming and deepening the Nigerian capital markets and has done so largely through its innovative solutions which include the first green infrastructure bond issuance, first bond issuance in the downstream segment of the Nigerian Oil and Gas Sector, advisers to the federal government of Nigeria on its most recent US$300 million diaspora bond and financial adviser to the first bond restructuring in Nigeria and participated in over 75 percent of the total bond restructuring by sub-sovereigns till date.
What are the services provided by United Capital Plc in the Nigerian capital market?
United Capital Plc is a full-service financial power house with services offerings cutting across Investment banking, Asset Management, Securities and Trusteeship. Our Investment Banking division provides bespoke financial advisory and Capital raising solutions from the primary markets to both corporate and government entities, while our Asset Management team provide innovative structured solutions in the secondary markets for specific needs through our expertise in Portfolio/Fund Management, Mutual Funds and Investment Advisory services, ultimately helping all our clients to achieve their financial goals. Meanwhile, our Securities division is one of the few selected Supplemental Market Makers (SMM) and designated adviser by the Nigerian Stock Exchange (NSE), creating value by offering execution services underpinned by reliable Information Technology, IT processes and seasoned personnel overseeing these processes.
Can you mention some of the big-ticket transactions that United Capital has executed in the last five years?
Our investment banking division is revered for its track record of executing complex transactions. Over the past 5year we have been opportune to close out on the following transactions: The North South Power N8.5 billion ; 15 Year Guaranteed Fixed Rate Senior Green Infrastructure Series 1 Bonds in 2019; Stanbic IBTC N30 billion bonds in 2018; N20.11 billion Flour Mills Bond in 2018; N32.89 billion Sterling Bank Bond in 2018; N15 billion Bauchi State Bond Restructuring in 2018; 6.N3 billion & N5 billion Kogi State Series 1 Bond Restructuring in 2018; 7. N18.57 billion FSDH Commercial Paper Series 5 & 6 in 2018; N15.07 billion FSDH Commercial Paper Series 7 and 8 in 2018.