Some capital market experts, represented by the Chairman of the Association of Securities Dealing Houses of Nigeria, have rejected plans by the Federal Government of Nigeria to manage unclaimed dividends – which is projected to hit N200bn by the end of this year, according to a report by Punch.

The Chairman, Association of Securities Dealing Houses of Nigeria, Onyenwechukwu Ezeagu, explained that capital market regulators and operators had leveraged technology to put in place many initiatives to address the issue of unclaimed dividends. Some of these initiatives include de-materialization of shares, which entails upload of quoted companies share in the Central Securities Clearing System for ease of reconciliation, adoption of e-dividend and e-mandate, consolidation of multiple accounts, identity management engagements, and introduction of electronic Initial Public Offering.

(READ MORE: Nigeria needs $5billion for National Broadband Plan – Chairman, BISC)

What they are saying

Commenting on the recent development, Mr. Ezeagu said, “Generally, the incentives for savers and capital providers in the capital market is the expectation of dividends and capital appreciation.

“It is, therefore, our considered view that the proposed legislation, if passed, will be a great disincentive to savings, long-term capital mobilization, and serious disruption of the Nigerian economy, since it will take away the only expectation of investors in the market.”

Corroborating him, the President, Chartered Institute of Stockbrokers, Mr. Olatunde Amolegbe, said the Securities and Exchange Commission would always ensure the transfer of unclaimed dividends to the capital reserves of the company for restricted utilization, such as capital expansion and issuance of bonus shares to the company’s shareholders.

What you should know

Nairametrics had earlier reported that some law makers (Reps) raised alarm over N200 billion unclaimed dividends in 2020. In lieu of this perceived need, a proposal for the creation of an unclaimed dividend and utilized bank balance trust fund was emphasized in the 2020 Finance Bill — wherein, dividends declared and unclaimed would be warehoused and owed as a perpetual debt to shareholders.

Chapel Hill Denham Advisory Limited and Chapel Hill Denham Management Limited announced the opening of Chapel Hill Denham Nigeria Infrastructure Debt Fund Series 7 Offer of up to N20.24 billion under the CHD NIDF’s N200 billion Issuance Programme.

READ: NSIA to invest $5 million in Chapel Hill Infrastructure Fund

What you should know

The proceeds from the offer will be applied towards infrastructure loans approved by the fund manager’s investment committee.

• It also disclosed that African Development Bank (AfDB), following its announcement in October 2018 to invest in the NIDF, will be committing the Naira equivalent of USD$10 million to the series 7 offer.
• AfDB’s commitment to the NIDF was on the back of a detailed due diligence and review process undertaken by a multi-disciplinary team of AfDB experts.

READ: Top 10 Stockbroking firms trade shares worth N138.1 billion in January 

In the current volatile yield environment, the NIDF still remains a compelling investment outlet, both from a total return and cash yield perspective.

With net assets in excess of N58.6 billion, the Fund continues to deliver consistent and predictable returns, along with principal preservation to investors.

What this means

The cash yield generated by the CHD NIDF has consistently been above the 10-yr FGN. Since its inception in June 2017, the fund has delivered a total return of 82.3% (assuming the cash distributions were reinvested). Total returns for the trailing twelve months (up to September 2020) was 12.4%.

READ: Nigerian mutual funds made an estimated N1.9 billion gain in 2018

Highlights of the Chapel Hill Denham Nigeria Infrastructure Debt Fund include:

• Entity: Chapel Hill Denham Nigeria Infrastructure Debt Fund
• Fund Manager: Chapel Hill Denham Management Limited
• Structure: Close-ended Unit Trust, regulated by the Nigerian Securities & Exchange Commission. Compliant with PENCOM Investment Guidelines and SEC Rules on Infrastructure Funds.
• Program: ₦200 Billion under which the Units will be issued from time to time
• Series: 7 Offer
• Size: Up to ₦20.24 billion
• Offer: Price ₦109. 58 per unit
• Offer: Units 184,740,440 units
• Minimum Subscription: 100,000 units
• Offer: Open Date November 16, 2020
• Offer: Close Date December 9, 2020
• Listing: FMDQ-OTC

The Nigerian Interbank Treasury Bills True Yield went negative on Tuesday with a 90-day treasury bill trading for -0.0109%. The 6 months, 3 months, and 9 months treasury bills true yield traded at -0.0369%, 0.0689%, and -0.0920% respectively. This suggests investors are now willing to pay the government to keep their money for them.

Nairametrics confirmed this from a reliable investment house that trades in fixed income and equity securities. The information is also available via premium subscription with the FMDQ

According to the FMDQ, The Nigerian Inter-Bank Treasury Bills True Yield (NITTY) is a reference rate for tenured money market instruments. It is calculated from the discount rates of treasury Bills and represents the prevailing yield at which treasury bills trade among Nigerian Dealing Member (Banks)(“DMBs”).

Interest rates on treasury bills sold on the primary market sold for as low as 0.5% for a 9 months tenor as investors scampered or yields in the low yield market. Despite the low yields, investors still oversubscribed treasury bills suggesting that fund managers are willing to keep their money with the government at yields next to zero. Thus, it is not surprising to see yields fall below zero and into negative territory.

Why this matters

Interest rates on fixed income securities such as treasury bills have fallen significantly throughout the year as the central bank abandoned a multi-year monetary policy that had focussed on cutting down the inflation rate and defending the naira.

However, since it kicked out local investors from purchasing the previously lucrative OMO bills, interest rates have nosedived drastically leaving investors will limited investment choices.

The low-interest-rate environment has also driven investors into the stock market where yields were previously as high as 17% for dividend-paying stocks with solid fundamentals. Nigerians stocks are now up 30% YTD and one of the best performing stock market in the country.

Meanwhile, while interest rates on risk-free securities like treasury bills  remain depressed and now in negative territory, Nigeria’s inflation rate continues to gallop

One more thing…

Negative interest rates are not new around the world. Since the 2008 financial crisis that ushered in an unprecedented injection of cash into the global economy by central banks, interest rates have remained depressed.