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WHY WE ARE MOUNTING CAMPAIGNS TO WOO BOND INVESTORS – DR ABRAHAM NWANKWO, DG, DEBT MANAGEMENT OFFICE

By NBF News
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Nwankwo
As many investors who got their fingers burnt trading in equities are still licking their wounds, the Debt Management Office (DMO) is out drumming support for the bond market. Explaining the rationale for this, its Director General, Dr Abraham Nwankwo, stated that the success of any issue in the market depends on a well diversified investor base, saying it is only through this and active trading that the secondary segment of the market that can be awash with liquidity.

His words: 'One of the fulcrums of the DMO's debt market development strategy is the enlargement of the investor base for bonds. This is because we believe that a large and well diversified investor base will support the success of bond issues at the primary market, while providing liquidity through active trading in the secondary market.

It is for this reason that DMO and other stakeholders have embarked on bond enlightenment campaigns through workshops, seminars and adverts to increase investors' awareness of bonds. Many of us here would be familiar with the DMO's flagship advert in the newspapers titled, Good Investor, Good Citizen.

'One of the key components of the DMO's current bond enlightenment campaign is to reach the retail investors who are either unaware of the investment opportunities available in FGN bonds, or are unable to invest due to the small size of their investible funds.' In this piece, he sheds more light on DMO's activities to turn bonds into hot cake.

Domestic bond market
Prior to 2003 when the Debt Management Office (DMO) first issued FGN bonds, the bond market was comatose. Today, the DMO is particularly delighted with the transformation that has been witnessed in the bond market both in the primary market, where there is more variety in the issuer type, sovereign, state government and corporate, and the secondary market where FGN bonds are actively traded on an Over-the-Counter basis and are available for trading on the floor of the Nigerian Stock Exchange, as well.

This transformation has happened not by chance but through deliberate policies that were adopted, and actions that were taken to support the emergence of a robust domestic bond market. In this regard, it is useful to recognise the critical role played, under the leadership of the Minister of Finance, by stakeholders such as the Securities and Exchange Commission, Central Bank of Nigeria, the Nigerian Stock Exchange, National Pension Commission, Federal Inland Revenue Service, National Insurance Commission and the DMO. Market operators have also been actively involved in the process and they include the Financial Markets Dealers Association, Primary Dealers Market Makers Association, Association of Issuing Houses of Nigeria, the Chartered Institute of Stockbrokers and the Association of Corporate Trustees.

Speaking for the DMO, I would like to state that the DMO considers its role to be multi-dimensional: firstly, as an issuer of the Federal Government of Nigeria debt securities; secondly, as a provider of appropriate environment and infrastructure that will support the development of all segments of the domestic bond market. The ultimate objective is for Nigeria to have a bond market to support economic growth and development, thereby contributing to the attainment of the goals of FSS(Financial Sector Surveillance) 2020 and Vision 20: 2020.

Campaigns
One of the fulcrums of the DMO's debt market development strategy is the enlargement of the investor base for bonds. This is because we believe that a large and well diversified investor base will support the success of bond issues at the primary market, while providing liquidity through active trading in the secondary market. A well diversified investor base will minimize, if not eliminate, concentration risk and promote transparency and efficiency in the determination of bond prices.

It is for these reasons that the DMO and other stakeholders have embarked on bond enlightenment campaigns through workshops, seminars and adverts to increase investors' awareness of bonds. Many of us here would be familiar with the DMO's flagship advert in the newspapers titled: 'Good Investor, God Citizen'. One of the key components of the DMO's current bond enlightenment campaign is to reach the retail investors who are either unaware of the investment opportunities available in FGN bonds or are unable to invest due to the small size of their investible funds. It is within this context that a bond fund such as the restructured NIDF (Nigeria International Debt Fund) becomes a veritable instrument for mobilizing surplus funds from retail investors to the government bond market.

Bond fund
It is pertinent for me to highlight three important attributes of a bond fund. Firstly, it offers retail investors the benefit of having professionals to manage their fund, and secondly, it offers them the advantage of investing in a diversified portfolio of bonds. These two, are benefits which retail investors on their own, because of the small size of their investible funds, are unable to achieve.

Finally, and equally important, is that the retail investor can invest in bonds through the NIDF and divest whenever he needs to, thus providing liquidity for retail investors. This last benefit addresses one of the current gaps in the FGN bond market, which is that, small investors are unable to dispose of their bond holding with ease.

The Nigerian capital market is resurging with style, strength and substance and it shows that Nigerians as individuals, groups and organisations; as private or public sector players, are focused on the march to the goal of a great country with a great economy.