Sunday, February 14, 2016

Forex now investors’ biggest headache, says Oyinloye, MD, Infrastructure Bank

By Omodele Adigun

SCARCITY of foreign exchange( forex) continues to be a source of concern to many stakeholders in the country, particularly those in infrastructure development.

According to Mr. Adekunle Oyinloye, the Managing Director of The Infrastructure Bank (TIB), this has challenged local players to look inwards for funds to bridge the nation's huge gap in infrastructure financing.

"It does not mean that foreigners would not come.But once you can devise a means that adds local content to your huge financing need, it will also solve substantially part of that fluctuation," he added. .

At a recent media interface in Lagos, Oyinloye also said that there are plans to take the bank to the stock market.

EXCERPTS:

Project financing

The exciting thing about project financing is that there is nothing too big. Like a python, that can swallow animal that is several times bigger than its head,there is nothing too big because the principle is the same world wide. We are behind in terms of infrastructure development and, as an institution uniquely owned by all stakeholders, it is important that we are there to support any ideas. I said that deliberately because, often times, what we have in this country is idea not project.

Challenges

Our challenges are many. Governments have the responsibility to provide infrastructure, but they don't have the money and, sometimes, they don't have the knowledge to put it together. That is why we exist. So it is important that those MDAs do appreciate and understand our intention because when there was a change of government, you would see that what was a friendly engagement could become something else.

We also need knowledgeable people on both sides of the project development so that conversation can be a little healthier. So we have challenge in that regard. When people worry about money, I don't worry about how much is required to do a project because once you make it bankable, money will come. So infrastructure development, as expensive as it is, if you do it very well, there is always money to finance it. Even the Chinese are here now. What do you think they are looking for? They ask about the project we have so that they can finance it.

But they will not finance it if it is not bankable. That is why our bye line is 'beyond finance'. What comes first is: do you have the brain to put it in a right way and make it attractive? Our challenge is knowledge. People must be knowledgeable. Those who own the assets, and want to partner with other people, must have the knowledge so that the contract they would sign at the end of the day would be based on equal knowledge or, at least, almost equal knowledge to ensure that they are not cheating one and other. The timing that takes a project to happen is also a challenge because you must continually go through the legal huddles. What right do they have? What obligations do they have? How do we marry the two? And what expectations are we having on a particular project? How do we align the project to that expectations? So they all take time. The regulatory environment, the court system, when we have dispute, how quickly do we get resolution in the court space without subject ing it to adjournments that frustrates people?

The unstable exchange rate is another major challenge.

Of course, each of these challenges has its own solution. I worry about exchange rate because, if people bring their Dollars to Nigeria today, imagine somebody that brought in Dollars two years ago and engage in a 10 -year project. Then, it was so easy to bring in money and take out money: we had money and no problem. Now, we don't have much Dollars again and it's just two years into a 10-year project. What do you think will happen to the owner of that Dollar? He would worry. That's why I said charity begins at home. It's possible for us to mobilize enough financial resources locally and solve our problem.

Listing TIB

By the shareholders agreement, we are Plc, but we are not yet quoted. We intend to get quoted in due course as we make progress so that we can allow other Nigerian and foreign institutions to further invest. We are baking the cake and I know in due course we will start to share it. Shareholders

When the bank was created by Decree 51 in 1992, knowing fully well that the ownership structure was very important to the survival of the institution, government decided that the bank must be registered as a public limited liability company with shareholding subscribed to by three tiers of government, labour movement and the private sector. But by that time(1992), it was only government and labour sector that subscribed to the shares, no private sector was there even though there was allowance. But in 2007, the board met and realised that government control had not helped the institution which was why it had not impacted at all. So the board decided to admit private sector deliberately in a majority stakeholding and since that time, the private sector became the controlling shareholder. At that, the Federal Government had 20 per cent, that was in 1992. All the state governments in the federation also had 20 per cent, all local governments had 40 per cent, labour had 10 per cent. T he balance of 10 per cent was reserved for private sector then. But by 2007, having realised the failure of the company to meet its mandate, the board allowed the private sector to take the controlling shares. They began with a 52 per cent controlling shares. And by the shareholding agreement signed among the then shareholders, the private sector was tasked with the responsibility of further capital injection to the extent of what is required to keep the business running.

Today, the Federal Government retains 10 per cent, all state governments have 5.2 per cent and local government has 10.6 per cent. Labour movement, represented by the Nigerian Labour Congress, still has 5.3 per cent and the private sector has the balance, which is 69 per cent. So that is the structure as at date. The bank has six shareholders, the Federal Government is one, all the states under governor's forum is two, all the local governments under the ALGON is the third, labour movement represented by the NLC is the fourth, the estate of Hakeem Sanusi, the former MD is the fifth. Then Investment Credit Holding Limited (ICHL), which is the umbrella body for all the private investors, made it sixth.

Pension fund

Right now, we have N5 trillion in pension custody and we are not able to move the money into infrastructure. It is not that they don't want to invest, but they are not seeing infrastructure projects that are bankable; and they are not seeing the right instrument that they can fit into. That's why we said we occupy a niche place in the financial system. What we do is to make sure that infrastructure projects that have been made bankable are able to get those funds that are currently sitting in there. By that business model, we don't need to have our own balance sheet. The first thing we must have is the intellectual capacity to process ideas into projects.And when those projects are made, we further make them bankable. Bankability is to be able to create exit for every investors in a project. The exit is when the project is finished, how they get paid out? Once you can establish that, there will be whole lots of investment in that project. People now know that it's like I a m buying a property that I know that a buyer will buy from me next tomorrow. I can quickly borrow money to buy it. But if I have an opportunity to buy a house and I don't know who will buy it from me and I don't how long it will be in the market, if I borrow money, the interest on that money and the capital may be greater than the cost of selling tomorrow.

Sourcing fund

The Infrastructure Bank has developed equity and quasi-equity (mezzanine financing) investment products for projects that require risk capital as a form of catalytic funding. With the bank taking the lead in such project, these proprietary investments are critical to providing comfort to and securing the participation of other DFIs as well as commercial banks involved in long-term capital provision for infrastructure project. We are also involved in fund management. The bank offers direct and third party agency, fund management services to both domestic and external sovereignties and institutions seeking to fund infrastructure developments, including the Federal Government of Nigeria and its Ministries, Departments and Agencies (MDAs), even the sub sovereign or states and local government, pension fund and finance institutions as well as bilateral and multilateral fund providers.

Capacity building

The bank collaborates with multilateral agencies, development partners and DFIs to promote, organise and deliver technical assistance, institutional strengthening initiatives and capacity building programmes, as part of efforts to bridge knowledge gap towards maximizing the development impacts of the bank's financial intervention.

Projects

The proposed greenfield road from Abuja to Ibadan is a private sector initiative, an initiative from the bank. If you observe currently now, on the average, it takes about 12 hours to drive from Lagos to Abuja, which, by all standards, is about 600+km because there is no direct route. If you know the history of road development in Nigeria, the road infrastructure in Nigeria is divided into A1 road. It takes off from Lagos to Ibadan, from Ibadan to Ilorin, Ilorin to Jebba down to Kaduna, Kaduna to Kano, Kano to Katsina, also with it is a trans-Saharan route that goes to Algiers. The A2 takes off from Port Harcourt down to Enugu and attempt to go to Jos. Abuja is a later creation, it was not on that road map. And that is why we do not have direct linkage between Lagos and Abuja. And remember, when Abuja was created, you could only access Abuja then either from Minna- even the Kaduna- Abuja Road was not in existence- or when you are going to Lokoja. In those days there was a road to Keffi. So you could only get close to Abuja but no road to Abuja itself. But since Abuja became the political capital and Lagos the economical capital, traffic between Lagos and Abuja, perhaps, by any measure, is the heaviest in the country today. If you measure it by the frequency of flights or when you visit a motor park and see the number of vehicles either going to Abuja or coming from Abuja to Lagos.

So we felt it is incumbent on us as an infrastructure bank that we could ease the burden of the commuters between the two and see how we create a direct channel between Abuja and Lagos. And there is a process that was set out by government through ICRC on how private sector engages because road is exclusive preserve of the government whether the state, federal or local government. The road that cuts across states is an exclusive responsibility of the Federal Government, but ICRC and its law have also defined how private sector engaged in that. So we have sent an unsolicited bid to the Federal Ministry of Works, seeking a no objection to develop the road. And I can tell you we have that no objection as we speak and we have been directed to proceed on further development. Usually, that development is a long one to do. What they call an area mapping from location A to location B. Then you go on the ground to do the survey and find the best alignment. So we are currently working with our development partners on that, on the best optimal alignment. Basically it's going to be a road that will cut through River Niger. It is completely going to be greenfield, not on any existing road. And we may be able to create a road that will take you to Abuja from Lagos in about five hours. We are still at that developmental stage as we speak now. Soon, we will be committing resources to that and the engineers are working. They would be designing once we agree on the roadmap and we would be able to approach ICRC for continuation of the processes.

Forex now investors’ biggest headache, says Oyinloye, MD, Infrastructure Bank Rating: 4.5 Posted by: Unknown

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