TUESDAY, 29 JUNE 2010 01:25      

 

Further reforms, including to pensions and insurance, are needed to enliven Nigeria’s corporate debt market, central bank Governor Sanusi Lamido Sanusi said on Monday.Only two Nigerian companies have issued bonds, one of which has now expired, meaning there is no established benchmark yield curve for Nigerian corporate debt. Several banks have announced plans to issue debt in the coming months, focussing attention on further reforms as authorities seek to develop the market.

 

“At the moment a good corporate will be able to price its bonds at 200-300 basis points above the risk-free,” Sanusi told Reuters Insider Television in an interview on the sidelines of the Bank for International Settlements annual meeting.

 

“Risk-free” in Nigeria is generally used to refer to government debt. “The next challenge for us obviously is not so much the demand side but the supply side, to ensure that the subscription is not coming from bank liabilities but is coming from actual institutional investors,” he said. “So there’s got to be progress on the insurance reforms, progress on the pension reforms, progress on the other capital market reforms to attract institutional investors, so that it’s actual real, long-term money that is going into the subscription, and not savings and current accounts.”

 

Nigeria’s government has already agreed to waivers to reduce the taxes on interest income on bonds, which had required corporates to issue with very high yields and therefore limited bonds’ attractiveness.“I think at the moment most of the corporates are waiting for other macroeconomic reforms,” he said, explaining that it did not make sense to raise money for a power project until the right regulatory framework was in place.

 

Sanusi also said he hoped a new asset management company (AMCON) would help mop up a large portion of non-performing loans in the banking system and make sure banks who had received state aid got back on their feet. Parliament approved legislation last week to create AMCON, a “bad bank” which will buy up non-performing loans in return for government bonds.

 

“Bad loans are an issue, which is why we have got a number of distressed banks in Nigeria. But the asset management company, which is coming into place in the next few weeks, is likely to (take) care of a substantial part of the bad loan problem and the banks will turn a new leaf,” he said.

 

(Source:BusinessDay)