Bonds: States not generating enough revenue should stay within 60% threshold – Capital Assets boss

Following the economic down-turn in the country in 2016 that resulted in zero activity in the primary equities market, recent data from the debt office shows that the bond market was not spared in the lull as only few companies were able to access the market to raise fund both in the domestic and international space. Mr. Ariyo Olushekun, Vice-chairman/CEO, Capital Assets Limited, spoke to Financial Vanguard on the issues involved. Excerpts:
By Nkiruka Nnorom
ONLY seven companies and one state government (Lagos State) was able to access the domestic bond market last year to raise money and only Access Bank accessed the International Capital Market during the same period. What does it tell about the state of capital market?
It is not necessarily a negative sign for the market. First of all, for bonds, many of the States are having issues with paying salaries and because of that, it will not make sense for them to be coming to the market now. Their chances of success is limited. As things improve, they can come. Lagos State was able to come because the State is in a class of its own, meaning that it is resilient and it has very good record of servicing its bond obligation. So because of that, it can come and its chances of success is really good.
Ariyo Olushekun, Vice Chairman/CEO, Capital Assets Limited
What of the corporates, it was only seven that were able to access the domestic bond market. Does it not have anything to do with regular issuing of FGN bonds and the yield on FGN bonds?
No, I don’t think so. Even last year was better than previous year. The state of the market was not really good; the market was down. Not many companies could raise money and because of the exchange rate also which was not really stable until recently, it became difficult for foreign investors to come in, even for some local investors. This is because every investor will have an option. ‘Do I keep my money in foreign currency, do I keep my money in other assets or do I bring it to the market. If I bring it to the market and even if I make significant gain like 50 per cent for instance, if the exchange rate goes above 50 per cent, of what essence is it?’ So, that was why the market did not move as expected. Now stability is setting in and there is improvement, I expect to see more issues in the bonds space any time from now. As a result of the stability in the exchange rate, more funds are coming in and even the market that was going down is becoming stable. We actually recorded some significant gain and it is like the market has come back to life.