SEC Collaborates with DMO



The Securities and Exchange Commission (SEC) and the Debt Management Office (DMO) have agreed to work in synergy for the growth and development of Nigeria’s financial system, particularly, the domestic bond market. This follows a courtesy call on the Director General of SEC, Mr. Mounir Gwarzo, by Dr. Abraham Nwankwo, Director General of the DMO at the SEC Tower in Abuja recently. At the meeting, Mr. Gwarzo applauded the DMO’s role in the ongoing restructuring of loans owed by state governments while emphasizing the need for closer collaboration between SEC and DMO to catalyze the development of the bond market, including the non-interest segment.


With the prevailing macroeconomic environment characterized by significant revenue squeeze facing both the Federal and state governments, the meeting could not have been timelier. It would be recalled that the new administration had placed emphasis on maintaining the solvency of state governments in spite of their level of indebtedness and revenue profiles. Having earlier approved a rescue package to help about 18 states meet up with salary obligations, the Federal government had directed a restructuring of loans owed by various state governments.


This loan restructuring effort is currently being coordinated by the DMO with support from the SEC. The courtesy visit therefore provided an opportunity for the two institutions to agree on a framework that allows for closer collaboration between the two government agencies to effectively deliver on President Muhammadu Buhari’s directive. So far, the DMO has been able to convert about N575 billion in state government loans into longer tenured debt instruments. Mr. Mounir Gwarzo pledged further support from the SEC to ensure states enjoy a cost effective restructuring as well as reduced debt-servicing burden.


While outlining a number of initiatives which require closer collaboration with the DMO to achieve, the SEC Director General applauded the role DMO plays in sustaining the Irrevocable Standing Payment Order (ISPO) framework which has been critical for investor confidence in the domestic bond market. He urged the DMO to focus on conducting more robust debt sustainability analyses for the states in line with its mandate enshrined within the DMO Establishment Act 2003.


Mr. Gwarzo highlighted the contrasting fortunes of the different bond market segments noting that during the dormancy period of FGN-bonds, the corporate bond market was relatively vibrant. The fortunes seem to have now reversed with sustained issuance of FGN-bonds coinciding with low activity in the corporate bond segment. Both institutions agreed to work together to avoid this crowding-out effect by ensuring that states and companies also enjoy affordable access to long term capital.


With increasing interest from multilateral institutions in the domestic bond market, both SEC and DMO emphasized the need for synergy to efficiently coordinate such applications. The World Bank’s private sector arm, International Finance Corporation (IFC), and the African Development Bank (AfDB), have both issued naira-denominated bonds within the past 2 years. Both multilateral development finance institutions have also expressed interest in registering medium term note programmes that ensure periodic issuances to deepen the bond market.


The SEC boss entreated support from the DMO in the implementation of the 10-year capital market master plan which the SEC is currently implementing. In particular, he highlighted aspects of the master plan in which the DMO can play a critical role. Part of the master plan involves strategically developing and deepening the non-interest capital market in Nigeria. Mr. Gwarzo therefore urged the DMO to consider issuing a sovereign Sukuk on behalf of the Federal government.


According to him, this will not only provide a benchmark for other issuers of Sukuk like state governments but will also be in line with global trends. Indeed, annual issuances have grown from $15 billion in 2008 to almost $120 billion in 2014. This is growth is not only coming from the usual issuers like Malaysia, Saudi Arabia, the United Arab Emirates (UAE), Turkey and Indonesia. 2014 marked debut sovereign Sukuk issuances by countries such as the UK, Hong Kong and Luxemburg, including peer African countries like Senegal, South Africa. Mr. Gwarzo expressed optimism in Nigeria’s potential to become a global leader in this specialized market and urged the DMO to contribute to actualizing that aspiration by issuing sovereign Sukuk for Nigeria.


Other important issues discussed at the meeting include the appreciable development of the secondary bond market, especially since the launch of the FMDQ platform. Mr. Gwarzo was pleased to note FMDQ’s progress while assuring Dr. Nwankwo that SEC will ensure the DMO is carried along on developments related to FMDQ.


At the end of the meeting, the two institutions agreed to strengthen the interagency team already in place and ensure that issues concerning the development of the bond market are jointly addressed.