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Finance Minister Edun: Debt Servicing Keeps Me Awake At Night, Aims To Reduce Cost To 50%

The Federal Government plans to begin the issuance of domestic foreign currency-denominated bonds from this quarter, Minister of Finance and Coordinating Minister of the Economy, Mr. Wale Edun, said yesterday.

A Reuters report quoted the minister as speaking at a parley with business leaders in Lagos.

The government move is expected to herald domestic issuance of similar bonds by companies and sub-nationals, a plan already given provisional approval by the country’s apex capital regulator.

The sovereign domestic foreign currency issuance aligns with government’s move to attract more forex inflows to stabilise the naira. Dollar shortages have had significant adverse impact on the naira.

Edun told his audience that the government would seek to sell forex bonds to Nigerians at home and abroad who, “because of lack of faith in the currency, have decided to try to hold and save in dollars.”

“All the funds in the diaspora, we are targeting them. There are all these funds that you have brought into your (local foreign currency) accounts, we are targeting them,” said Edun.

The minister said President Bola Ahmed Tinubu in October 2023 signed executive orders to allow domestic issuance of instruments in foreign currency and also allow all cash outside the banking system to be brought into the banks.

He said that the government had not issued the bonds earlier because it sought to first build confidence in its fiscal policy and gain the trust of citizens who are sceptical of government policies.

Nigeria spends around 78 per cent of its revenue on debt servicing and the government has vowed to cut this to around 50 per cent.

“When they say what keeps you awake at night, I will say paying the debt service (cost),” said Edun.

Nigeria’s apex capital market regulator, Securities and Exchange Commission (SEC) had given a provisional “no-objection” to the proposal to allow companies and governments to undertake dollar-denominated listings on the Nigerian stock market.

The proposal, being pushed by the Nigerian Exchange (NGX), involves creation of a new listing platform for high-valued issuers to raise capital through dollar-denominated debts and equities issuances.

The proposal is considered as one of the quick-interventions to bolster the country’s foreign exchange (forex) position by exploring alternative sources and redirecting remittances and informal sources to a formal market.

Securities and Exchange Commission (SEC) Director-General Lamido Yuguda said the apex regulator has “no problem” with the proposal for dollar-denominated listings by qualified issuers.

According to him, the basic premise of regulation is full disclosure and demonstrated ability of an issuer to meet the required obligations imposed by the issuance.

He said SEC would treat such dollar-denominated listings by companies or governments on the same basis of the ability to meet the required obligations as contained in the issuance documents, and in line with extant rules at the capital market.

Lamido said investors’ protection is deeply ingrained in all regulatory consideration by the Commission as it continues to explore ways to further deepen the capital market.

The listing of dollar-denominated bonds and shares at the Nigerian stock market is targeted at easing access to forex for select companies, especially high-valued companies that require substantial forex for their operations.

Under the proposed two-phased plan, the NGX plans to start with quotation of dollar-denominated debt issues such as bonds and then move to listing of dollar-based ordinary shares and other quasi-equities.

The provisional approval by SEC is a major boost for the NGX forex proposal.

NGX Chief Executive Officer (CEO) Temi Popoola said the Exchange would work with the SEC to create the required regulatory framework for the dollar-based listing.

Changes to listing regulations can be achieved within a “relatively short time”, Popoola said.

He explained that the Exchange was banking on the market-oriented stance and reforms of the Tinubu administration to push the dollar-listing proposal through.

Popoola said the Exchange would be targeting companies operating from the special economic free trade zones and those earning foreign currency

The primary objective, he noted, is to enable these companies to issue bonds denominated in dollars and eventually offer equity in dollars.

“It could potentially address the challenges posed by fluctuations in foreign currency,” Popoola said in an interview with Bloomberg.

Bloomberg reported that companies Nigeria consistently cite getting access to the dollars they need for raw materials as their biggest challenge.

The NGX also plans to work with SEC to initiate a framework that allows companies with home listing to pay dividends in dollars. Few companies with dual listings already pay dividends in dollars.

The NGX, which did not give a timeline for the launching of the plan, said government’s willingness to consider market reforms increases the prospect of success.

“Given the proactive stance of the current administration, it is reasonable to anticipate that these objectives can be achieved,” Popoola told Bloomberg.

He pointed out that both retail and institutional investors have “substantial” amounts of dollars that domestic capital markets can tap to encourage more local listings.

“If the target companies cannot access dollars within our market, many of them may opt to list abroad,” he said.