Pwc /ng Nigerian Capital Market Update
www.pwc.com/ngNigerian CapitalMarket UpdateSeptember 2020
ContentsOverviewEquities marketDebt marketCommercial papersNigerian capital market: summaryof major events year-to-dateWhat lies aheadAbout us
Nigerian Capital Market Update – September 2020OverviewEquities marketDebt marketIn H1 2020, the twin combination of the outbreak of the novelcoronavirus (COVID-19) and volatility in commodity prices impactedthe Nigerian economy as well as other emerging economies.According to the Nigerian Bureau of Statistics (NBS), Nigeria’s grossdomestic product (GDP) contracted by -6.1% year-on-year in Q2 2020and by -8.22% when compared to the GDP growth rate of 2.12%recorded in Q2 2019.adjustments by the Central Bank of Nigeria from N307/ 1 in March2020 to N380/ 1 in August 2020, indicating a naira devaluation by23.8%. Similarly, headline inflation rate has been on the rise, from11.22% in June 2019 to 12.13% in January 2020 and 12.56% as atJune 2020.Macro-economic indices and forecasts portray rather low level ofinvestors’ confidence in the domestic investment climate as foreigndirect investment (FDI) and foreign portfolio investments (FPI) plunged33.41% and 91.14% respectively, year-on-year in Q2 2020.The sectoral growth recorded in the agriculture (1.58%), finance andinsurance (18.49%), and information and telecommunications sectors(15.09%) in Q2 2020 could not level out the decline recorded in othersectors due to the nationwide lockdown. Expectedly, the transportation& storage and accommodation & food services sectors suffered theworst contraction of -49.2% and -40.19%, respectively.Stock market returns, measured by Nigerian Stock Exchange AllShare Index (NSE ASI), dipped by 8.8% as at H1 2020 year-to-datefrom 26,842.07 in December 2019 to close at 24,479.22 in June 2020.Crude oil price volatility has continued to put pressure on foreignexchange stability which has necessitated several exchange rateCommercial papersForeign portfolio investment, 2014 - June 2020 13.4Nigerian capital market: summaryof major events year-to-date ’billionsWhat lies ahead 11.4 8.5 4.7 3.6 3.2 2.4 1.0 0.8 0.6About us20142015 3.8 2.4 0.9 0.4 0.6 0.5 1.0201620172018EquityBonds 1.9 1.02019 0.7 0.2H2 2020Money market instrumentsSource: National Bureau of Statistics, NigeriaNigerian capital market update - September 2020PwCSeptember 20203
Nigerian Capital Market Update – September 2020OverviewAs witnessed in the global markets, the Nigerian equities market isgradually recovering from the impact of COVID-19, albeit more slowly.Macroeconomic instability continues to fuel investor and issuer apathyin the equities market as no IPO has been recorded through out theyear.Meanwhile, the market witnessed a some significant primary marketactivities within the year.Equities marketDebt marketCommercial papersThe largest rights issue to date on the Nigerian Stock Exchange (NSE)was recorded within the year by International Breweries Plc, raisingN164.4 billion in March 2020. Proceeds from the rights offer wereused to part-refinance the company’s existing debt in the bid tooptimize the capital structure. The market also saw the listing of BUACement Plc, a product of the merger agreement between OBUCement and Cement Company of Northern Nigeria (CCNN) whichwas concluded in January 2020. BUA Cement Plc attracted avaluation of N1.18 trillion, making it the third largest company on theNSE as at listing date.As part of initiatives aimed at attracting fast growth companies andstartups to the capital market, the NSE launched the Growth Boardearlier in the year. The Growth Board aims to address theshortcomings of the Alternative Securities Market (ASeM) by offeringmore flexible listing options, relaxed eligibility requirement, and lessregulatory burden in terms of post-listing obligations. For instance,companies with market capitalization of as low as N50 million with aminimum of 25 shareholders could be eligible to list its shares on theGrowth Board.In the similar vein, the NSE recently released a draft regulatoryframework for the listing of special purpose acquisition companies(SPACs) in Nigeria. This will further expand the funding optionsavailable to start-ups and fast growth companies through the capitalmarket, and create an avenue for listing through a reverse merger. Itwill also provide a regulated and ‘shareholder-friendly’ structure forretail investors to invest in start-ups thereby having a reduced riskperception.NSE ASI vs global indices, 2014 - June 2020Nigerian capital market: summaryof major events year-to-date90.00%70.00%What lies ahead42.3%50.00%30.00%About us10.00%-10.00%-30.00%-6.2%-16.1%2014-17.4%2015S&P 500Nigerian capital market update - September 2020PwC2016FTSE 100Hang Seng-17.8%20182017NSE ASIFTSE SANairobi ASI-14.6%2019-8.8%H1 2020EGX 30September 20204
Nigerian Capital Market Update – September 2020OverviewEquities marketDebt marketActivities in the domestic bond market increased significantly year-onyear as corporates continue to take advantage of the relatively low yieldsin the market to refinance existing debts and fund business expansion,amongst others.Also, there is renewed activity in the issuance of sub national bonds bystate governments to fund key infrastructure projects as they redeemtheir ongoing bond obligations. In H1 2020, the Lagos State and OndoState governments issued N100 billion and N14.8 billion, respectively topart-finance social projects in the states.A total of N152.7 billion was raised in seven corporate bond issuances inH1 2020 compared to N54 billion raised in three issuances in thecorresponding 2019 period. Out of the corporate bond issuances in H12020 was the landmark issuance by Dangote Cement in its N300 billionbond programme, raising N100 billion in the first series. The offer, whichwas oversubscribed by 55%, is the largest corporate bond issued in theNigerian capital market to date.Meanwhile, the domestic debt market is about to witness its thirdsupranational bond issuance with the registration of a N300 billiondomestic bond programme by the Africa Export-Import Bank(Afreximbank). This is coming after the IFC’s N12 billion domestic bondissuance in 2013 and the AfDB’s N12.95 billion issuance in 2014.According to filings with the Nigerian SEC filings, Afreximbank isexpected to use the bond proceeds to fund its domestic operations inNigeria.Commercial papersCorporate Bond Activity (2014 – H1 2020)Nigerian capital market: summaryof major events year-to-date18020What lies 5152.7201420152016201720182019H1 2020530About us-2076Corporate bond value (N'bn)1055# of transactions160Corporate bond volumeSource: NSE and FMDQNigerian capital market update - September 2020PwCSeptember 20205
Nigerian Capital Market Update – September 2020Commercial Paper Activity (2014 – H1 2020)Equities market600Debt market6045N’Billion400Nigerian capital market: summaryof major events year-to-date353003750402530200100Commercial paper issuance by sector, June2020 YTD7060500Commercial papersIn terms of industry spread, the financial services sector accountedfor 32% of the proceeds raised as at H1 2020, followed by theconsumer goods sector representing 26% of total proceeds. DangoteCement and MTN Nigeria accounted for 36% of total proceeds, witheach raising N100 billion from the commercial paper 2019H1 2020# of transactionsOverviewActivities in the commercial papers market maintained its upwardtrajectory as more blue chip companies continue to access shortterm funding from a diversified investor base through the capitalmarket and on favourable terms. As at June 2020, N539.8 billion hasbeen raised from 45 issuances by 16 corporates compared to N296.8billion raised in 33 issuances in H1 2019.1000What lies aheadCommercial paper value (N'bn)About usNigerian capital market update - September 2020PwCCommercial paper volumeSource: FMDQSeptember 20206
Nigerian Capital Market Update – September 2020NSE DemutualisationOverviewEquities marketDebt marketCommercial papersNigerian capital market: summaryof major events year-to-dateWhat lies aheadFollowing the SEC’s “NoObjection” on the planneddemutualization of theNSE, members of theExchange approved ascheme of arrangementthat will see the NSEmetamorphosed into anon-operating holdingcompany with threesubsidiaries charged withthe trading operations,self-regulatory function,and investment businessof the Exchange.The NSE will be the thirddemutualized exchange inAfrica, with JohannesburgStock Exchange andNairobi Stock Exchangedemutualized in 2006 and2014 respectively.Launch of NSE Growth boardThe NSE launched theGrowth Board in January2020 aimed at replacingthe Alternative SecuritiesMarket (ASeM). TheGrowth Board is set toprovide the much neededflexibility to SMEs andfast growth companiesthat are looking to raiselong term capital throughthe market as well asfacilitate liquidity for theirshares.SEC Crowd funding rulesIn a bid to create astructure and frameworkfor crowdfundingactivities in Nigeria, theSEC released proposedrules for the regulation ofcrowdfunding activities.This is expected to driveinvestor confidence andprovide a structuredplatform for start-ups toaccess funding.With the rightimplementation strategy,crowdfunding has thepotential to complementpublic market listings asmost successful startupswill consider going publicat some point in their lifecycle.CAMA 2020: legalframework for derivativesThe signing into law theCompanies and AlliedMatters Act 2020provided the necessarylegal backing for thedevelopment of thederivatives market inNigeria with theintroduction of the nettingconcept as it relates toqualified financialcontracts.This new CAMAprovision, which is in linewith international bestpractice, ensuresNigeria’s participation inthe global derivativesmarket valued at over 600 trillion and it isexpected to drive liquidityin the Nigerian capitalmarket as well as provideinvestors with effectiverisk management tools.About usNigerian capital market update - September 2020PwCSeptember 20207
Nigerian Capital Market Update – September 2020OverviewEquities marketDebt marketCommercial papersNigerian capital market: summaryof major events year-to-dateWhat lies aheadAbout usNigerian capital market update - September 2020PwCAs the global markets recover from the initial shockof COVID-19, which created an extreme marketvolatility in Q1 2020, there has been renewed issuerand investor confidence with a surge in IPO activityin developed markets, especially in the US andChina. We expect to see issuers in the tech andhealthcare space take advantage of the currentmarket sentiments as more companies within thesesectors continue to prepare for an IPO.Despite the recoveries noted, there are stilluncertainties around the speed of global economicrecovery. The US presidential elections inNovember 2020 and the Brexit transition inDecember 2020 are all factors which may impactglobal market performance.On the domestic front, we expect a quiet primarymarket activity in the short term given the currentmacroeconomic concerns and blurry economicoutlook. However, it is expected that the keymarket-led initiatives introduced within the year willencourage more companies, especially start-ups toexplore the opportunity of accessing the capitalmarket for long term funding.It is expected that corporates will continue to takeadvantage of the low interest rates and the hugemarket demand for relatively higher yields in thebond market. However, given that marketconditions are highly unpredictable, time to marketis very important for corporates wishing to capitalizeon this window of opportunity.September 20208
Nigerian Capital Market Update – September 2020Other Africa Capital Markets publicationsA better path to capitalFrom IPO financing to executing a debt offering toongoing regulatory reporting, our capital markets teamcan help you identify new ways to access capital or focusinvestment where it matters most. Our independentprofessionals equip you with the objective, unbiasedguidance that you need so that you can make decisionsfor growing your business. We help you in areasincluding:OverviewEquities market Debt marketCommercial papersNigerian capital market: summaryof major events year-to-dateH2 2020 outlook (Looking forward)PwC’s Capital Markets Watch is an annual report that focuses on equity and debtcapital markets transactions in Africa.The report provides a detailed and insightful analysis of major trends across Africa’scapital markets, including information on initial public offerings (IPOs), further offerings(FOs) and debt issuances on African exchanges, and of African companies globally. Capital structure, capital raising, and capitalalternativesFinancial structuringComplex accounting and reporting issuesIPOs, 144a debt offerings, divestitures, and carve outsOur capital market professionals sit at all corners ofthe globe – so no matter where you need to accesscapital, we can help to make it happen. Whether it’saccessing existing, new or alternative funding sources,our global network works together so you can get tomarket faster.For a deeper discussion about our capital markets offerings in Africa, please contact one of our practice leaders:West AfricaOmobolanle Adekoyaomobolanle.adekoya@pwc.com 234 271 1700 Ext 39024Southern AfricaEast AfricaNorth AfricaNicholas Ganznicholas.ganz@pwc.com 27 11 797 5568Anthony Murageanthony.murage@pwc.com 254 20 285 5347Muhammad Hassanmuhammad.hassan@pwc.com 971 4 304 3421About usNigerian capital market update - September 2020PwCGlobal IPO CentreFrancophone Africa & MaghrebRoss Hunterross.hunter@pwc.com 44 20 7804 4326Douty Fadigadouty.fadiga@pwc.com 225 20 31 54 38September 20209
AcknowledgementsWe would like to thank Adebayo Araoye,Chidubem Ejezie, Nosakhare Agbonlahor,and Oluwaseun Odusanya for their importantcontributions to this publication.Thank youDisclaimerThis publication has been prepared for general guidance on matters of interest only, and does notconstitute professional advice. You should not act upon the information contained in this publicationwithout obtaining specific professional advice. No representation or warranty (express or implied) is givenas to the accuracy or completeness of the information contained in this publication, and, to the extentpermitted by law, PricewaterhouseCoopers Limited, its members, employees and agents do not accept orassume any liability, responsibility or duty of care for any consequences of you or anyone else acting, orrefraining to act, in reliance on the information contained in this publication or for any decision based on it. 2020 PricewaterhouseCoopers Nigeria. All rights reserved. In this document, "PwC" refers to the Nigeria member firm, and may sometimes refer to the PwC network. Each member firm is a separatelegal entity. Please see www.pwc.com/structure for further details.
Stock market returns, measured by Nigerian Stock Exchange All Share Index (NSE ASI), dipped by 8.8% as at H1 2020 year-to-date from 26,842.07 in December 2019 to close at 24,479.22 in June 2020. Nigerian Capital Market Update –September 2020 Nigerian capital market update - Septe
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