Background to the Study Foreign portfolio investment FPI is an aspect of international capital flows comprising of transfer of financial assets: It occurs when investors purchase non-controlling interests in foreign companies or buy foreign corporate or government bonds, short-term securities or notes.
This is a proposal to remedy market illiquidity and provide solution recommendations. The economic environment in Nigeria is sophisticated and suitable to create a sustainable vibrant bond market that can be vital in economic development.
The success of the bond market depends on the collaboration between the market operators and financial institutions including the Central Bank of Nigeria CBN. However, the bonds issued then had been illiquid and redeemable only to the Central Bank of Nigeria CBN upon maturity. Inthe Federal government returned to the debt market to mobilize funds for long-term capital projects.
In the process, the government effectively championed the creation of an Over-the-Counter OTC bond market by issuing short-term maturity notes. Recently, a few municipal governments such as Lagos, Ogun, Rivers, Imo issued There is no indication that these bonds will be marketable in OTC market, either.
Corporate Bonds and Debentures In the private sector, corporate bonds and debentures are not often or have not been considered as an option by many companies in funding expansion and innovation.
Recently, First Bank, Plc has received approval from the SEC to issue or has already issued about five hundred billion naira N billion worth of bonds dominated in naira currency.
Other companies such as GT Bank, Plc, and Access Bank, Plc have issued foreign currency dominated bonds and convertible bonds respectively. This initiative was hailed as a significant development in providing liquidity in the bond market.
Further enhancement of this PDMM system would have created opportunities for municipal bond underwritings and eventually, corporate bond underwritings for listing on the NSE. However, lack of repos to help primary market dealers to manage their liquidity and finance inventories became a major set back in trading bonds in the secondary market.
Without repos, an over night or short-term borrowing, to provide liquidity in the market, an active bond market is improbable. However, there is a misunderstanding of the product and the market by many investors including big institutional portfolio managers, pension fund managers, endowment administrators, public accountant generals, corporate chief financial officers, and private wealth bankers.
The repo market is the life line of the Treasury securities trading. Repos play a central role in providing liquidity for the vibrant trading and financing of Treasury securities.
Repos provide the liquidity for traders to take risk in trading assets from low yielding investments to high yielding opportunities.
Lack of repos in the bond market has forced bond investors at the PDMM level to hold bonds in their portfolios, at times, longer than anticipated at the time of purchase in the primary market.
Many PDMMs have reported holding FGN bonds in their portfolios for substantially longer periods than planned due to lack of marketability for certain bond series. Others have expressed frustration in holding bond inventories that ordinarily would have been traded for other opportunities in the capital market.
The monetary policy rates in the past three years have frozen liquidity in the bond market and created a huge gap in the federal debt management program that even the strongest capitalized banks have been struggling to maintain reserve requirements and liquidity ratios with creative bookkeeping and questionable lending practices as the recent bank audits have demonstrated.
The banks had liquidity for legitimate business investments that would have recorded the greatest economic expansion of all times in Nigeria, but they chose to extend huge loans to favored customers and clients for pre-IPO share purchases.
Since the share purchases were not in companies involved in the real sector of the economy, the loans did not have much impact on the overall economy, except to generate more wealth for the people that were already wealthy.Secondary Debt Market: Trading in FGN Bond is done on a daily basis in the Secondary debt market by licensed broker-dealers (banks and stockbrokers) on the floor of The Nigeria Securities Exchange (NSE) and on FMDQ OTC Securities Exchange.
The PDMMs are obligated to provide a .
“The Nigeria Green Bond Market Development Program is a big step towards unlocking the full potential for domestic issuance while developing a pipeline of green opportunities and engaging with local and international investors.
Bond market development in Nigeria has surpassed other debt instruments like bank credit and equities market both in absolute terms and as a percentage of GDP (Debt Management Office, ).
Financial development have been receiving research attention from both people in academics and policy. Nigeria’s capital markets lack the liquidity needed for a sustainable bond market that can fund growth and development in the public and private sectors.
This is a proposal to remedy market illiquidity and provide solution recommendations. Foreign Portfolio Investment and Nigerian Bond Market Foreign Portfolio Investment and Nigerian Bond Market Development.
private sector institutions. The concept here is that (portfolio capital) FPI can provide the needed resource to the government and corporation in Nigeria through the bond market for infrastructural and industrial.
The study concluded that factors attracting foreign investors into the bond market in Nigeria are critical and if well managed by policy makers could enhance the attraction of FPI needed for financing infrastructural projects through the Nigerian bond market.