Nigeria was the largest of the African economies in 2022, but declining oil production has seen it slip down the rankings. It has turned – successfully – to capital-raising in a bid to reignite the economy and reclaim its crown.
Total revenue for investment banking in 2024 is projected to hit $142.16bn, fuelled by a sharp increase in private equity activities, growing capital demands, and the adoption of sustainable finance practices. The market is expected to grow to $194.05bn by 2028 with further developments in Al-powered solutions, digital assets, and the deepening of ESG initiatives. The future of investment banking will be shaped by advancements in tech and adherence to sustainability.
The past year has marked a pivotal period for the investment banking sector in Nigeria, one of Africa’s largest economies. An increasing need for capital is spurring capital-raising activities, mergers and acquisitions, and sustainable finance across key industries like financial services, telecoms, real estate. consumer goods and energy sectors.
Coronation Merchant Bank (Coronation MB) is an adviser to corporates and governments and is positioned to harness these opportunities. The four trends that will shape the future of investment banking in Nigeria are: commercial paper (CP), infrastructure investment, mergers and acquisitions (M&A) and Islamic finance.
Commercial paper
In a rising interest rate environment, with a need for alternative sources of funding from expensive bank loans, commercial papers have emerged as a vital source of working capital finance for investment-grade corporates. In 2022, Nigerian companies raised N1.5trn ($910m) via CP issuances (N252bn – $153m- in 2022). This growth in issuances underscores the importance of CPs to corporates at a time of prohibitive bank loans.
Corporate issues span various sectors from manufacturing, financial services, health, agriculture, and the retail sectors of the Nigerian economy, reflecting the wide acceptance of this mode of working capital financing. Some major transactions in 2023 were MTN Communications’ N374bn ($227m) raise across multiple issuances. Other CP issuances like Dangote Cement, Flour Mills of Nigeria and Nigerian Breweries had issuances of N150.97bn ($92m), N221.28bn ($134m) and N116.49bn ($71m) respectively.
Of the several commercial papers raised during the year, Coronation Merchant Bank raised an aggregate amount of N343.43bn ($209m) for Dangote Sugar, Dangote Cement, and 27 other issues with a view to increasing our activities in the space going forward.
The CP market is not without its attendant challenges, ranging from inflationary pressures to the various monetary policy measures put in place to curb this. However, our long-term outlook for the CPs remains optimistic as corporates continue to search for working capital funding and the flexibility of CP programmes.
“We expect more corporates to continue to leverage M&A to achieve strategic growth.”
Infrastructure investment
Owing to the Nigerian infrastructure deficit, which necessitates investments of about N30trn ($18.2bn) over the next 30 years, fund managers have registered infrastructure funds of N1.5trn ($910m). with N230bn ($140m) raised over six years. These funds have been deployed to the health, transport, telecoms, and energy sectors.
Coronation MB, the lead issuing house on the series one offer of the Coronation Infrastructure Fund, raised N8.79bn ($5.3m). This issuance represents the largest amount raised and the highest subscription percentage in the market for a maiden infrastructure fund, surpassing the previous rates of 33.375 percent and 24.70 percent made by similar infrastructure funds.
Within the next year, five fund managers seek to establish new funds, a testament to the increasing recognition of infrastructure funds as an investment class by institutional investors (pension funds, for example), some of which possess the largest pool of funds domestically.
Mergers and acquisitions
Following CBN’s directive to raise minimum capital requirements for deposit money banks effective April 2026, various banks have sought out means to recapitalize. The recently announced merger between Unity Bank and Providus Bank is a case in point, with more M&As to be announced by other deposit money banks in their bid to remain operational and competitive. Other M&As in financial services include Access Holdings’ acquisition of ARM, Sigma and First Guarantee Pensions, resulting in the second-largest pension manager by assets under management.
(Coronation MB acted as a financial adviser on all Access Bank mergers and acquisition transactions), CardinalStone’s acquisition of Radix Pension and GTCO’s acquisition of Investment One Pension Management.
In stockbroking, there was Zedcrest’s acquisition of RMB’s stockbroking arm. There was EverQuest Acquisition’s share sale and purchase agreement for a 100 percent equity stake in FBNQuest Merchant Bank.
Other sectors like energy, entertainment and fintech also witnessed M&A activities. These were the acquisition of Shell’s onshore oil and gas assets by some Nigerian businesses, Universal Music Group’s acquisition of a majority stake in Mavins Global, and Carbon’s acquisition of Vella Finance. We expect more corporates to continue to leverage M&A to achieve strategic growth, and Coronation MB is poised to advise on these transactions.
“The investment banking sector will be crucial in efficiently directing capital to support the country’s long-term success.”
Islamic finance
The non-interest finance market grew by $0.76bn from $2.30bn in 2021 to $3.8bn in 2023, moving from 0.075 percent to 0.9 percent of the global finance market within the same period. This represents a viable opportunity for growth due to Nigerians large Muslim population and its currently unbanked demographic in the North-West and North-East.
There is increasing acceptance of non-interest finance with the introduction of N100bn ($61m) sovereign sukuk issued by FGN in 2017, and six subsequent issuances totaling N1.092trn ($664m) to fund infrastructure developments – 4,000km of roads and bridges – and the recent sukuk issuance in October 2023 for N652bn ($397m).
With support from regulators, CBN, SEC and FMDQ, there is ample room for growth for Islamic finance in Nigeria. Recently, Trustbanc, under the wakalah structure, established its first NICP programme under FMDQ’s revised framework, allowing companies to issue shariah-compliant short-term instruments. Coronation MB played a critical role as the first arranger of this NICP programme under the updated framework.
Nigeria’s investment banking sector is evolving to meet the unique financing needs of both corporates and the government. Key trends underscore the sector’s role in fostering sustainable corporate and economic growth. Commercial papers and Islamic finance instruments, such as sukuk, are vital for short- and long-term financing. Corporates can drive growth through organic expansion or M&As.
The Federal Government’s increased use of sukuk for infrastructure funding, alongside private sector involvement, bodes well for Nigeria’s economic future. Moving forward, the investment banking sector will be crucial in efficiently directing capital to support the country’s long-term success.
