Seyi Oke: Raising funds from the stock market will be difficult in 2022

Business talk

Seyi Oke, Managing Director / Chief Executive Officer, Capital Trust Investment and Asset Management Limited, spoke with Festus Akanbi about the prevailing investment climate in Nigeria and concerns that engaging in political activity, including campaigning, could make the stock market unattractive Companies looking to raise funds in 2022

The state of the Nigerian economy

With the devaluation of the naira and the slowdown in the economy, it was pretty tough. There is less money to invest and there is less pressure from government spending. The private sector was also cautious. We have been looking for some risk factors. The choice is coming and this has affected our ability to attract foreign currency investment because let’s say you made a dollar investment in January and now, even if you could do it profitably in naira, you want to go back to the point in time, too To which you want to return the dollar, you will find that you are working at a loss. So it was also a challenge. In the healthcare sector where we play, for example, we have a lot of customers who have denominated money from banks and investors in dollars and who have to give up the returns in dollars. You can understand how challenging that was.

Part of our offering is to provide our customers with the alternative of abandoning their dollar exposure and replacing it with naira exposure, which eliminates the foreign currency risk from their business effectively rendering within the last year. We are optimistic that the government will have to spend a little more, elections are imminent, the pressure to invest is increasing, the government wants to completely deregulate the oil sector and plans to abolish subsidies for oil imports. That will affect the purchasing power of Nigerians as well, and the only thing that can be any relief is to increase the government’s economic activity, and we expect that to happen particularly in the election year.

Portfolio investment decline

You can’t get rid of concerns that have always been associated with currency risk. The biggest challenge for me is the consequential effect on this demand. Because of the uncertainties, foreign investors are taking their money, and then you will find a lot of local investors too, so they are taking naira and converting to dollars, which puts further pressure on the naira against the dollar. Yes, there is this pressure, yes, it has particularly affected the capital market in terms of FDI in the form of private equity investments and investments in the stock market and I think the greatest pressure comes from the consequential effects on Nigerian investors, the now panic or fear about this sudden flight of capital.

Portfolio management from State of Capital Trust

We believe private equity is an opportunity that is emerging and growing in Nigeria. The market is saturated with many conventional asset classes such as stocks, corporate and government bonds. But where the market goes are alternative security investments. To be able to develop alternative investments whose returns are inflation-protected because they have returns much higher than even higher than inflation is the way of the market.

We recognized this in 2015 and started working towards it. The Infrastructure Fund licensed by the Securities and Exchange Commission in 2015, we spent the next year and a half working with our partners on this fund and we started raising funds in 2016/2017. In over three years we have been able to use capital effectively in the infrastructure sector. And again, it’s the infrastructure that generates revenue. So you will find that the value of these assets has risen and risen sharply.

Investors who invest their money in this type of portfolio will be delighted with the returns. Similarly, in the health sector, we have the N100billin Nigeria Health Development Fund, which is also a private equity fund, and the strategy in both cases is to seek local capital. who already have a high level of involvement in government bonds and

the regular capital and stock market options in the form of shares in premium companies and offer them alternatives to invest their money in the healthcare sector. We have a lot of pension assets, PFAs that have subscribed to the infrastructure fund. We also have a lot of PFAs that have health funds subscribed to and the idea is to put this large pool in the room. In both cases we have been able to generate returns that are above inflation, so we give good returns to our investors.

Equity increase in 2022

In my opinion, in this environment in 2022 it will be difficult to enter the market or to come to the market to raise money given the risk involved in preparing for the 2023 elections.

Investors tend to be very conservative as the election approaches, so I wouldn’t advise my client to invest in money inequality. Investors will prefer to identify with short to medium term returns that they can reap during this particular tenure of this administration due to the natural uncertainties that accompany the election. I expect 2022 will be a year when there will be lots of bonds, pre-financing and syndication as a stopgap rather than putting stocks in the market to raise funds.

Property

Has the real estate potential been exhausted? The answer is no. The housing deficit is a clear indication of this effect. I think it’s not about whether the opportunities have been fully exploited, but rather about offers on the market. We have so many of us developing real estate and we target the upper middle class and beyond. We have many houses in Ikoyi and Lekki, but how many people can afford them. The gap is in affordability and part of what we are trying to do as a company is to focus on that sector. If we do that, we’ll make money and make a difference. For example, we will not build houses in Ikoyi or Lekki for our infrastructure fund. We only have one transaction on this axis, all the others we do in real estate are about affordable housing for civil servants and the target was the hard working men and women in immigration and this project is already going on in Abuja and other parts of Nigeria . Our focus is on affordable housing. There are opportunities here and we believe that we can earn money there and also be effective.

Capital Trust successes in 16 years.

We started as a retail investment manager with a focus on creating opportunities for small funds that are pooled and invested in assets. That was our strategy when we started in 2006 and then grew into a full-time, large-account investment banking business where we could serve our clients from retail to large-scale investors. Over the years we have expanded our capacities.

Specifically, we were able to set up an infrastructure fund during this period. That was the first private equity fund in Nigeria that is pure equity. We are also the first promoter and fund manager of the first naira-denominated dedicated health fund. Interestingly, this fund was set up before Covid, and we anticipated and modeled the healthcare opportunity even before Covid hit.

Company profile

Capital Trust is a licensed capital market operator and that means that we operate on the capital market. We are licensed by the Securities and Exchange Commission to act primarily as fund managers and also as investment advisers to companies. This means that, as a corporate organization, we are licensed to manage structured funds and provide financial advisory and investment services. The company was founded in 2006 and we received our license in the same year. We are now 16 years old and over the years we now have three structured funds – the N100billion The Nigeria Healthcare Development Fund; we are co-fund managers of the Nigeria N20.5billion Africa Infrastructure Trust Fund, and we are also the promoters and managers of the Capital Halal Fixed Income Fund. The Nigeria Healthcare Development Fund, a private equity fund, focuses on investing in the healthcare sector. The Africa Infrastructure Fund focuses on investing in infrastructure and the Halal Fund focuses on Sharia-compliant investment opportunities.

Scorecard 2021

Capital Trust as an organization has a DNA for innovation. We have always been very creative from the start and we have been innovative in our product delivery regardless of what the market offers. That’s not to say we don’t face the challenges of other financial institutions, but we can find a way to create products that will keep our customers engaged.

That helped us stay afloat over the past year. We did very well and this year was or turned out to be a better year than last year. Last year it was an improved performance.

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