Building strong domestic capital markets and diversifying funding sources

Building strong domestic capital markets and diversifying funding sources

Modupe Kadri, Chief Financial Officer, MTN Nigeria Plc (Interview with Business Day)

Earlier this week, I was privileged to lead MTN Nigeria’s first draw down on our debut N100 billion Commercial Paper (CP) programme, with the successful completion of the full N100 billion tranche of funding for the business at a cost of 4.9% for the Series 1 (180 day tenure) N20 billion paper, and 5.95% for the Series II (270 day tenure) N80 billion paper. MTN Nigeria Communications Plc is the first telecoms company to tap the CP market and our original intention was to draw down N50 billion of our N100 billion programme, but with close to N200 billion of interest, we have been able to complete the programme in one go. The company expects to become the reference benchmark price for the sector, hopefully enabling other entrants, who will be priced in accordance with their credit risk, strength of cashflows and management expertise.

I think its important to mention this because, despite the turmoil and disruption of COVID-19, Nigeria’s two largest listed corporates by market capitalisation (Dangote Cement Plc and MTN Nigerian communications Plc ) are still able to tap the debt and capital markets and optimise their cost of funding. This is a clear sign of the growing strength of the debt and capital markets and our level of confidence in them. Corporates are able to access funding at optimal costs, so they can improve their operating margins while enhancing shareholder returns.

This improvement in returns is also important for the Nigerian investment case because it is not just the debt markets that have been growing over the last year; equity markets have also deepened. MTN’s listing on the NSE in 2019 was followed by BUA cement’s listing in early 2020 which collectively added trillions of Naira to market capitalisation. Our listing expanded our shareholder base to include thousands of Nigerians who can now participate in our success, and secure more value from the efficiency gains that stronger and more resilient debt markets bring. The more Nigeria’s large corporates access funding through the capital markets, the more efficient they will be and the higher the level of confidence that investors will have in the markets going forwards.

Confidence is essential in this context because today, it is confidence in the broader macro-economic story of Nigeria that drives liquidity and price discovery in our capital markets. We remain over-reliant on the participation of foreign portfolio investors, whose actions contributed to the volatility and poor performance of the Nigeria Stock Exchange following the devaluation of the Naira late in March and the COVID-19 pandemic as opposed to the fundamentals of the companies in which they are investing. These are not long term Foreign Direct Investors (FDI’s) like those who founded MTN, rather they are shorter-term and much less committed to the future development of the market. That is why expanding domestic participation in the capital markets is in the broader national interest, as well as in the interest of the corporate participants in the markets and the ordinary Nigerian looking for an opportunity to share in the success of companies like ours.

Capital markets and their relative efficiency play a fundamental role in the development of a nation and the ability of companies at all levels to access finance. If the markets expand at the corporate level, and domestic retail participation grows, it will lead to the market expansion to cater for a much wider set of companies, improving liquidity and lowering the cost of capital for all and so making it easier to do business. If you ask any entrepreneur across Nigeria today what their most significant obstacle to growth is, I am confident that they will tell you that it is the access to, and the cost of capital.

The asset management industry, which is only as strong as the capital markets within which it operates, is constantly seeking ways to address this; but there are two pre-requisites. First, a deeper and more sophisticated capital market, able to leverage digital distribution to enhance access and so achieve high levels of domestic participation while lowering cost of administration and secondly, the trust and confidence of the mass market in the products and services that are on offer.

At MTN, we are committed to helping to resolve these challenges at three levels. The first is that we will continue to open up participation in our stock to a broader set of Nigerian shareholders. Our journey on the NSE has only just begun, and while we are pleased with the level of liquidity in our stock, and the number of Nigerians participating, we have much greater ambitions. We have already committed to a public offer, once market conditions are conducive, and we intend to give as many Nigerians as possible the opportunity to participate in our success. Contrary to many of the suggestions I have seen recently, this is far from a stepping stone to the exit for our parent, the MTN Group. It is a demonstration of long term market commitment and the deepening of the relationship between MTN and Nigeria; the decision of a company that recognises that the symbiotic nature of the relationship between us means that this is best for us both. It will also, we hope, act as a catalyst for much greater participation in the capital markets by ordinary Nigerians.

Second, we will continue to support the development of domestic debt markets, either through increasing the shelf value of our CP programme or using broader debt instruments in the market going forward. This is important as it allows various fund managers to balance their portfolios by subscribing to viable debt instruments in addition to holding shares on the equity side. We will also work to encourage broader participation, as the more efficient and inclusive the market is, the more Nigerian companies will be able to utilise it.

Finally, we see mobile technology as an enabler of financial inclusion. From what we have seen play out in other markets such as Kenya and Ghana, where individuals and businesses have access to useful and affordable financial products and services that meet their needs through mobile money platforms, such mobile money platforms enable transactions, payments, savings, credit and insurance. Thus, mobile financial services can have a vital role to play in expanding access to participation in the debt and equity markets to the widest audience possible also. It provides a critical distribution platform and will be one of the key building blocks for mass participation in more sophisticated products and services over time.

People look at what we have achieved in mobile telephony and digital technology, and they think we have arrived. We are only at the beginning of the journey. Its potential to expand access to financial services, to enable the expansion of capital markets and as a result, improve the lives of Nigerians is immense. We invite you to join us on this journey to a better inclusive, digital and technology-enabled Nigerian economy.

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