The Nigerian stock exchange is proposing the inclusion of listings for bonds denominated in dollars, which could potentially extend to stocks as well. The primary objective is to facilitate enhanced foreign currency access for companies operating in the country, according to a Bloomberg report.
The initiative is being touted to augment other measures announced by the Central Bank of Nigeria (CBN), in the wake of its fresh fight to stop the naira from free-falling in the forex market.
Temi Popoola, the CEO of Nigerian Exchange Ltd., said the focus is on enterprises based within the nation’s special economic free trade zones, as well as those generating foreign currency, per Bloomberg.
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“Our primary objective is to enable these companies to issue bonds denominated in dollars and eventually offer equity in dollars as well,” he said in an interview. “It could potentially address the challenges posed by fluctuations in foreign currency.”
Nigeria has been battling to tame its forex crisis, which has seen the naira plunged to N950/$1 in the parallel market. The naira’s free fall is largely tied to low FX earnings from oil exports due to low oil outputs.
Following the inauguration of his administration on May 29, President Bola Tinubu has initiated some reforms, including the removal of fuel subsidies that gulped more than $10bn from the 2022 budget, and the floating of the FX market. However, the reforms have accelerated the naira’s fall, spiking inflation – which hit 24.08% in July.
This backdrop created an urgent need for the government to provide short-term solutions to the volatility of the FX market. While a solution to the crisis impeding oil output remains farfetched, the government is exploring other mechanisms through policies to boost the naira’s value.
Last week, the Nigerian National Petroleum Company Limited (NNPCL) announced that it has secured $3bn emergency crude oil repayment from Afreximbank. The loan is targeted at boosting Nigeria’s foreign reserves, which according to estimates by JPMorgan, have been depleted to $3.7bn – far below the $37bn that the CBN has been posting.
The CBN also announced other policy changes, including new rules for the Bureau De Change operators, which typically brought them back into Nigeria’s regulated FX market.
But despite these efforts, the naira has resumed its woeful performance after making a little gain trading at N840/$1 in the parallel market and N770/$1 at the Investor & Exporter window. As of Wednesday afternoon, the naira was trading around N925/$1 in the parallel market and N769.23 in the I&E window.
This new proposal by the government is seen as bait designed to draw companies and individuals, who keep funds in dollars as a hedge to naira’s volatility, into making them available.
Per Bloomberg, Popoola refrained from specifying a timeframe for the potential implementation of these proposals. However, he noted that the government’s demonstrated interest in comprehensive market reforms is apparent. He said changes to listing regulations can be achieved within a “relatively short time.”
Popoola said in addition to facilitating the listing and issuance of foreign-currency bonds, the stock exchange is collaborating with the domestic Securities and Exchange Commission to revise regulations. This aims to enable specific companies to distribute dividends in dollars.
“Given the proactive stance of the current administration, it is reasonable to anticipate that these objectives can be achieved,” he said.
He noted that both retail and institutional investors possess substantial quantities of dollars that domestic capital markets can leverage to promote increased participation in local listings.
“If the target companies cannot access dollars within our market, many of them may opt to list abroad,” he said.