NSIA Partners London Firm to Unlock Funding for Infrastructure

• Wigwe predicts rise in NPLs

Obinna Chima with agency report

The Nigeria Sovereign Wealth Fund (NSWF) is setting up a company in partnership with London-based local currency guarantee firm, GuarantCo to enable pension funds to invest in Nigerian infrastructure bonds.

Also friday, the Chief Executive Officer of Access Bank Plc, Herbert Wigwe predicted that the level of troubled loans in Nigeria would continue to climb before an economic recovery in the second half of the year brings relief to the country’s lenders.

The Chief Executive Officer, Nigeria Sovereign Investment Authority (NSIA), Uche Orji, who unveiled the partnership with GuarantCo yesterday, said the new business would be launched in a few weeks’ time and aims to overcome some of the challenges facing the financing of infrastructure projects in Nigeria.

“The company will provide enhancements for infrastructure bonds, and we believe this will make an effective platform for Nigerian pension funds to invest in them,” Reuters quoted Orji as saying.

GuarantCo facilitates infrastructure development in low income countries by providing credit guarantees denominated in local currency to financial institutions and bond investors.

It is funded by Britain, Switzerland, Sweden, the Netherlands and Australia, and specialises in frontier market infrastructure.

Poor infrastructure and access to capital is a major bottleneck to growth in Nigeria, and the government has identified infrastructure investment as a major priority.

Unlocking fresh sources of capital will help, with Nigeria’s pension fund assets at $26.4 billion at December 2015, according to data from Nigeria’s National Pension Commission.

Orji said currently, when municipalities want to issue bonds to fund infrastructure projects, most pension funds won’t buy them because the credit rating of the issuer isn’t strong enough.

The new venture will provide a form of monoline insurance, giving a guarantee and allowing pension funds and insurance companies to invest. “The NSIA cannot give guarantees by itself, so we have created a company that can do this,” he explained.

The tie-up is the latest in a series of partnerships for the NSIA. In August, it announced agreements with Old Mutual Investment Group and UFF Agri-Fund to establish two funds to invest in real estate and agriculture respectively.

Orji said they could make their first investments in the first quarter of 2017.

The Agri-Fund aims to improve Nigeria’s food security and is seeking investments in farms, storage and irrigation infrastructure for everything from arable crops to dairy farming and fish farming.

“That is more advanced in terms of being able to make an investment, and the first quarter is likely to be very busy,” Orji said.

The real estate fund is targeting commercial property such as offices, hospitality, logistics and industrial parks.

The NSIA also signed a strategic partnership agreement with its Moroccan peer, Ithmar Capital, to co-operate on bilateral investments.

These include a Trans-African gas pipeline which it is envisaged will support the creation of industrial hubs.

Orji said this was an ambitious project but it would be cheaper and more effective than trying to build LNG facilities across Africa to export Nigeria’s gas.

With a recovery in the oil price in late 2016, and a better macro environment, Orji expects further injections into the NSIA in 2017 following 2016’s $250 million additional funding.

“There’s been a strong commitment shown by the administration in continuing to support the fund, and even in 2016, as difficult as it was with the oil price, there was still an injection,” he said.

Meanwhile, Access Bank Plc is predicting that the level of troubled loans in Nigeria will continue to climb before an economic recovery in the second half of the year brings relief to the country’s lenders.

“Across the entire industry, you’ll see an uptick in non-performing loan ratios,” the bank’s Chief Executive Officer, Herbert Wigwe, told Blooemberg in an interview.

Nigeria’s fourth-largest bank by assets expects that its non-performing loans (NPLs) will climb to “slightly below” three per cent of total loans by the end of this year, Wigwe said, compared with 2.1 per cent for the nine months through September.

Loans in the sector in danger of not being repaid surged to an average 13.4 per cent by the end of September, above the five per cent threshold set by regulators.

Access Bank is targeting companies that source their raw materials locally for loans to reduce the risk of unpaid debt, the CEO said. First Bank of Nigeria Plc., the nation’s biggest lender by assets, stands out among the largest banks with an NPL ratio of 22.8 per cent at the end of September. Zenith Bank Plc, United Bank for Africa Plc and Guaranty Trust Bank Plc have NPL ratios ranging from 2.2 per cent to 4.1 per cent.

Capital levels have also decreased. The sector’s capital adequacy ratio fell to 14.7 per cent in June from 16.1 per cent in December 2015.

For big banks, which the regulator classifies as having more than 1 trillion naira ($3.2 billion) of assets, that ratio fell to 15.65 per cent, still above the requirement of 15 per cent.

Conditions in Nigeria’s economy should start improving in the second half if monetary and fiscal measures take hold, Wigwe said.

The Central Bank of Nigeria left its benchmark interest rate unchanged at a record 14 per cent in November as it seeks to contain inflation that rose to the highest level in more than a decade, while President Muhammadu Buhari plans to boost spending this year by 20 per cent to revive growth.

Access Bank has managed to get into an “extremely liquid” position by raising N35 billion in the last quarter of 2016 by tapping a 100 billion-naira commercial bond programme, he said.

“We will continue to raise, until we can get to that programme limit; some of it may mature, which we will repay, then raise again. The whole idea is that we must always have that liquidity buffer,” Wigwe said.