Mixed reactions surround NGX’s planned dollar-denominated listings


CEO of Nigerian Exchange Limited Temi PopoolaMixed reactions have trailed the proposal by the Nigerian Exchange Limited to allow dollar-denominated listings on the local bourse in a bid to improve the country’s current forex challenges.

The Chief Executive Officer of NGX, Temi Popoola, had on Tuesday, said that selected companies would be allowed to offer the dollar-denominated assets.

He said, “Our primary objective is to enable these companies to issue bonds denominated in dollars and eventually offer equity in dollars as well. It could potentially address the challenges posed by fluctuations in foreign currency.”

In a fresh statement issued by the NGX on Wednesday, Popoola, reiterated that the proposal, which did not have a timeline yet, presented an opportunity for companies with diverse business models, some of which not only generated revenue in dollars but also reported profits in dollars

“This presents an investment opportunity especially if these firms could distribute their dividends to local investors in dollars,” he said.

The NGX CEO explained that disbursing dividends in dollars could potentially address the challenges posed by fluctuations in forex currently bedevilling the economy.

He added that NGX was working with SEC and other market stakeholders to create a revised listing regulation for companies within the free trade zones that had their topline revenue to bottom-line in dollars.

Explaining further about companies within the free trade zone, Popoola said, “If they (some companies) were to conduct an initial public offering in naira, it may not align with their capital structure. So, if they cannot access dollars within our market, many of them may opt to list abroad. It is worth noting that a substantial amount of dollar liquidity is available to both retail and institutional investors in Nigeria. It is imperative that our domestic capital market taps into this reservoir of funds.”

Popoola noted that the Exchange’s primary objective was to enable these companies issue bonds denominated in dollars and eventually offer dollar equity.

“This can help attract listings and achieve the objectives of the administration under President Bola Tinubu,” he said.

Reacting to the proposal, a former President, Chattered Institute of Bankers of Nigeria, Okechukwu Unegbu, expressed enthusiasm at the positive impact it would have on the economy.

He said, “You know there is no forex in Nigeria now. We have less than $5m in our foreign reserves. What the NGX is planning is to help the companies to source for their own dollars. I think it is a good plan. My only concern is whether it will work because Nigeria is not so stable. We need a stable economy for such a thing to take place.

“Most of the investors who come into Nigeria are now avoiding the country; we are no more getting the foreign direct investment we used to have. This proposal will target Nigerians who are outside the country. If we are able to get that, maybe, we will be in a position to get sufficient dollars into the country. Otherwise, it will be very difficult.”

Unegbu added that if the plan was launched, it would lead to increased and strong inflow of dollars into the country, which would strengthen the naira, and make the repayment of bonds not a problem.

He said, “I believe this proposal will work out. There are so many Nigerians who have dollars abroad or who have converted their naira to dollars to keep it in a reserve that is so-called strong.  I believe this set of people will be interested in buying into these dollar-denominated bonds because they will also earn their coupon rates in dollars.

“When this happens, there will be enough dollar to repay.  Both in the short and long term, I do not see any problem with it. However, they will need to do a lot of work in terms of enlightenment on how it operates. If they do that successfully, the problems with the dollar will start receding.”

For financial analyst, Olaide Baanu, listing dollar-denominated bonds on the NGX would be a good step toward a stable exchange rate.

He said, “Looking at other emerging market countries with stable exchange rates, they have dollar-denominated instruments on their respective stock exchanges.

“Although, NGX is yet to provide adequate information on how that will be done, we expect the move will provide investment and settlement in dollar funds in both naira and dollar – instead of converting naira to dollar before investing in Eurobonds when it is not listed in Nigeria.  With this, the demand pressure on the dollar will reduce and strengthen or stabilize the naira free fall.”

The Chief Responsibility Officer of Peculiar Innovative Consulting, Segun Aremu, stated that the proposal would attract many benefits to Nigerian economy.

He said, “One of the benefits of having dollar-denominated assets shows that we are becoming more globalised in our markets. Secondly, it helps to deepen our market and extend the breadth of our market as well. I also see this increasing liquidity in the foreign exchange space.”

Aremu added that the proposal would also be able to take care of the appetite of Nigerians who had been wanting to trade in foreign assets from Nigeria.

He said, “In recent times, there has been an appetite among Nigerians to trade foreign stocks and bonds. I have even such clients. It is a good development when we can now do such on the Nigerian Exchange. The benefits are quite enormous.  Listing on the NGX also helps to increase the market cap.”

However, former Statistician General of the Federation, Dr Yemi Kale was not keen on the move.

Reacting via his X handle (formerly Twitter), Kale said, “If firms raise dollar debt, they also have to repay in dollars. So, a firm issues dollar bonds to make FX transactions e.g imported inputs. It produces and sells its products in naira, then has to convert profit back to dollars to pay investors at maturity. See the risk?

Kale, who is the partner, chief economist with KPMG NG, added, “Majority of Nigerians also don’t earn dollars but convert to dollars to hedge against purchasing power depreciation. So once the existing supply goes into bonds, where will the extra come from without further pressure on FX rate? That takes us to attract foreign capital to those bonds since domestic is limited. What rate will you have to make the dollar bonds to attract them? Has to be much higher than what obtains in their country which is about 4-6 per cent presently to account for the huge risk involved.”

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