SEC, Stakeholders Move To Reactivate Corporate Bond Market
By Gbenga Agbana
 23rd NOV 2006

Stakeholders in the capital market and the Securities and Exchange Commission (SEC) on Tuesday held a summit to look into ways of enhancing the growth of corporate bonds in the economy to enhance the growth of the real sector.

In his welcome address, the Director-General of SEC, Mallam Musa Al-Faki, noted that the real sector had over the years been affected by low level of long-term funds for growth which had hitherto being sourced from commercial banks at very huge costs.

On the need to enhance the development of the real sector for economic growth through the issuance of corporate bonds, Al-Faki said: "A problem that is often cited for the slow pace of development of the real sector is that of inadequate finance. Many corporate organisations source their long term funds from commercial banks."

He continued: "This in effect is a financial mismatch funding strategy where long term projects are funded with short term finance. The commercial banks are set up to provide only short term funding due to the nature of their sources of funds; whereas the kind of finance needed for sustainable development are long term.

"Bank financing, with its attendant interest rate risks, is not appropriate for long term development of the real sector. The capital market, being a long term and relatively less expensive means of raising funds, is a more appropriate option. I believe this summit will further heighten interest and awareness in the use of the capital market vis-à-vis corporate bonds in financing the development of the real sector."

On the reactivation of the corporate bond sector, he said: "It becomes imperative with the on-going reforms in the pension industry. With the licensing of pension fund administrators and custodians by the National Pension Commission (PENCOM), and the stipulation of investment outlets contained in the Pension Reform Act of 2004, there is need to increase the available investment opportunities in the capital market. As a way of encouraging investment in bonds, the CBN has redefined liquid assets as any approved market instrument with a tenor of not more than three years."

Back to Top
Post Your Feedback