Rating agencies should focus on protecting investors

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Tuesday, October 19, 2021 / 08:00 / DataPro / Header image credit: DataPro

The Securities & Exchange Commission (SEC) has urged Credit Rating Agencies (CRAs) operating in Nigeria to focus on protecting investors in all their transactions, services, and activities within the capital market.

This was in the goodwill message delivered on behalf of Mallam Lamido Yuguda, the Director General of the Commission, by its Head of Oversight Department, Mr. Adamu Sambo during the inaugural edition of DataPro’s annual webinar on the imperatives of credit rating for issuers and investors held on Thursday, October 14, 2021.

The webinar, attended by participants from different parts of the world, was moderated by DataPro, a rating agency focused on technology and Association of Broadcasting Houses of Nigeria (AIHN).

The program, which was organized to educate the investing public about the activities of credit rating agencies within the capital market and also embrace the value proposition of rating reports by bridging the information asymmetry that exists between operators Capital Markets (CMO) and the investing public, had various players from the Nigerian economy in attendance.

In his welcome address, Managing Director and Chief Executive Officer of DataPro, Mr. Abimbola Adeseyoju called for greater socialization of the crucial role played by credit rating agencies in the efficient allocation of capital and resources to the within the economy.

According to Adeseyoju, DataPro will now chart a new course in the credit rating industry in Nigeria and focus on the way forward as well as how investors and issuers can adapt to the new normal and stimulate economic growth and development through the various securities, products and services available in the Nigerian debt market.

In the keynote address, delivered on behalf of Mr. Bola Onadele Koko, Chairman and CEO of FMDQ Group by Mrs. Tumi Sekoni, Managing Director of FMDQ Securities Exchange Limited, titled “Galvanizing the Capacity of the Nigerian Debt Capital Market “, he opined that the COVID-19 pandemic has had a negative impact on the new wave of globalization with a massive decline in global trade, foreign direct investment (FDI) and net travel, resulting in a pull of 3% on global GDP in 2020.

However, the recession was short-lived with an economic rebound in the fourth quarter of 2020 which was, however, lower than pre-pandemic projections. Central banks around the world are reported to have cut interest rates 207 times in 2020. Faced with low interest rates, national governments saw a 36% increase in sovereign debt issuance in 2020. Corporate bonds also rose 66% in 2020 compared to 2019.

Furthermore, it was noted that the debt capital market has the capacity to transform Nigeria from building infrastructure, driving agriculture, inspiring industrialization to creating business opportunities. jobs, all of which are integrated into the FMDQ’s mission to empower markets to ensure economic prosperity.

Furthermore, Market debt, product and investment diversification, enabling environment and operational efficiency were stated as the factors that will act as a tailwind for the development of the Nigerian capital market.

On the untapped potential of the Nigerian debt market to provide long-term capital funding, it was established that the FMDQ Stock Exchange is committed to galvanizing the capacity of the Nigerian debt market, beyond being an organizer of the debt market by ensuring transparency, liquidity and diversity.’

The FMDQ boss ended the keynote address by encouraging all stakeholders to be motivated by the progress being made in the debt capital market value chain and to jointly seek ways to improve liquidity and diversity of the Nigerian capital market.

Other messages of goodwill were delivered by Ms. Tinuade Awe, CEO of NGX Regulation; Mr. Philip Oduoza, Chairman of Nova Merchant Bank Limited and Mr. Akin Akeredolu-Ale, Managing Director of Lagos Commodities & Futures Exchange (LCFE), all of whom highlighted the crucial role credit rating agencies play in the market and welcomed the initiative of DataPro and AIHN to organize the Webinar.

The round table, on the theme “Accelerating the Nigerian Debt Market: What’s Next?”, was chaired by Mr. Ike Chioke, Chairman of the Association of Broadcasting Houses of Nigeria (AIHN) and Managing Director of Afrinvest. The other panelists were: Ms. Funke Okoya, Executive Director of Nova Merchant Bank Limited; Mr. Oladele Adeoye, Executive Director and Head of Rating, DataPro Limited and Mr. Jacques Piekarski, Chief Financial Officer and Executive Director, BUA Cement, who represented Alhaji Kabir Rabiu, Executive Director of BUA Group.

Mr. Piekarski, in his contribution, noted that the BUA bond, the largest ever issued on the market and oversubscribed by 300%, which was rated by DataPro, brought the Group into the debt market . He also said the result was an eye-opener on market potentials and possibilities as well as an indicator of other areas of improvement within the Group.

Panelists also addressed areas such as challenges faced in the capital market and recommended areas for improvement. In addition, discussions on the chances of SMEs to be rated to attract capital were expressed. The role of supervisory and regulatory agencies in the ease of doing business in the capital market was also mentioned with suggestions for improvement. The critical success factors needed by issuers and how rating reports can open doors for companies and businesses and act as a catalyst for investment in the states of Nigeria have been fully analyzed and dissected.

While talking about the possibility for SMEs to obtain an investment rating, Mr. Oladele Adeoye, Rating Manager of DataPro, mentioned that although size is important, other parameters such as income diversity , revenue profiles, cash flow and corporate governance are major considerations that entities need to focus on.

According to him, both qualitative and quantitative information are taken into account in a rating assessment. He went further saying that companies and entities should not only seek out rating reports when transactions are involved, but consider them as a business strategy to help better understand their fundamentals.

Ms. Funke Okoya on her part mentioned that the low interest rate and capital market diversification are favorable conditions for issuers and investors to explore in the market. In terms of capital market regulation and supervision, she said the position of the new leadership at the SEC and globally is to embrace the “regulation as a service” philosophy. She noted that the philosophy, going forward, will help improve the culture of compliance in the marketplace and bring market realities more in line with rules and regulations.

For Mr. Jacques Piekarski, a platform such as the one created by DataPro and the AIHN must be maintained in order to allow all stakeholders to be informed and to familiarize themselves with trends, patterns and emerging issues. He commented on the challenges issuers face when dealing with regulators and advocated for a specific turnaround time for applications and the availability of information and documentation.

Speaking further, Mr. Pierkarski said that the debt market can accelerate the productivity of the system by controlling the interest rate, streamlining the process of issuing debt and relaxing the requirement for access to funds. . He concluded by citing some of the critical success factors that could benefit issuers such as financial performance, operational efficiency, good governance and risk management.

Closing the webinar, DataPro unveiled two product offerings, namely a renamed and new-look Valuation Report and a Valuation Guide Dashboard for Investors.

According to Dr. Wence Nwoga, a member of the DataPro rating committee who made the unveiling, the company is taking full advantage of new technologies such as artificial intelligence (AI), machine learning and big data to enhance its core values ​​of speed, innovation. , Reliability, Transparency and Strict Governance.

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