Victoria Island, Lagos
Author: Taiwo Olatunji, Group Head, Investment Banking, Coronation Merchant Bank
Total investment banking revenues in 2024 are expected to reach $142.16 billion, fueled by a surge in private equity activities, growing demand for capital and the adoption of sustainable finance practices. The market is expected to reach $194.05 billion by 2028 with new developments in AI-based solutions, digital assets and deepening ESG initiatives. The future of investment banking will be shaped by technological advancements and respect for sustainability.
The past year marked a pivotal period for the investment banking sector in Nigeria, one of Africa’s largest economies. The growing need for capital is driving capital raising activities, mergers and acquisitions as well as sustainable finance in key sectors such as financial services, telecommunications, real estate, consumer goods and energy sectors .
Coronation Merchant Bank (Coronation MB) is an advisor to businesses and governments and is able to exploit 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 financing from expensive bank loans, commercial paper has become a vital source of working capital financing for investment grade companies. In 2022, Nigerian companies raised N1.5 trillion ($910 million) through CP issuances (N252 billion – $153 million – in 2022). This growth in issuance highlights the importance of CP for businesses in an era of prohibitive bank lending.
Corporate issuance covers various sectors of manufacturing, financial services, healthcare, agriculture and retail of the Nigerian economy, reflecting the wide acceptance of this mode of working capital financing. Some major deals in 2023 were the raising of £374 billion ($227 million) from MTN Communications across several issues. Other CP issues like Dangote Cement, Flour Mills of Nigeria and Nigerian Breweries issued ₦150.97 billion ($92 million), ₦221.28 billion ($134 million) and ₦116.49 billion respectively of ₦ ($71 million).
We expect more companies to continue to leverage mergers and acquisitions to achieve strategic growth.
Among the many commercial papers raised during the year, Coronation Merchant Bank raised a total of 343.43 billion yen ($209 million) for Dangote Sugar, Dangote Cement and 27 other issues to increase our activities in the field in the future.
The CP market is not without its challenges, ranging from inflationary pressures to the various monetary policy measures put in place to curb them. However, our long-term outlook for CP remains optimistic as companies continue to seek working capital and flexibility from CP programs.
Infrastructure investment
Due to Nigeria’s infrastructure deficit, which requires investments of approximately N30 trillion ($18.2 billion) over the next 30 years, fund managers have recorded infrastructure funds of 1, 5 trillion naira ($910 million), including 230 billion naira ($140 million) raised over six years. . These funds were deployed in the health, transport, telecoms and energy sectors.
Coronation MB, the lead issuer of the Coronation Infrastructure Fund’s Series 1 offering, has raised £8.79 billion ($5.3 million). This issuance represents the largest amount raised and the highest subscription percentage in the market for a debut infrastructure fund, surpassing previous rates of 33.375 percent and 24.70 percent achieved by similar infrastructure funds .
Over the next year, five fund managers will seek to establish new funds, reflecting the growing recognition of infrastructure funds as an investment class by institutional investors (e.g. pension funds) , some of which have the largest pool of funds nationally.
Mergers and acquisitions
Following the CBN’s directive to raise minimum capital requirements for money-money banks effective April 2026, various banks have been looking at ways to recapitalize themselves. The recently announced merger between Unity Bank and Providus Bank is a good example of this, with other mergers and acquisitions to be announced by other deposit banks in their bid to remain operational and competitive. Other mergers and acquisitions in financial services include Access Holdings’ acquisition of ARM, Sigma and First Garantie Pensions, making it the second largest pensions manager in terms of assets under management (Coronation MB has acted as financial advisor for all mergers and acquisitions of Access Bank), CardinalStone’s acquisition of Radix Pension and GTCO’s acquisition of Investment One Pension Management.
In the brokerage space, there was Zedcrest’s acquisition of the brokerage arm of RMB. There has been an agreement to sell and purchase shares of EverQuest Acquisition for a 100% stake in FBNQuest Merchant Bank.
Other sectors like energy, entertainment, and fintech have also witnessed M&A activity. These include the acquisition of Shell’s onshore oil and gas assets by some Nigerian companies, Universal Music Group’s acquisition of a majority stake in Mavins Global, and Carbon’s acquisition of Vella Finance. We anticipate that more companies will continue to leverage mergers and acquisitions to achieve strategic growth, and Coronation MB is prepared to advise on these transactions.
Islamic finance
The interest-free financing market grew by $0.76 billion from $2.30 billion in 2021 to $3.8 billion in 2023, from 0.075% to 0.9% of the global financial market in during the same period. This represents a viable growth opportunity due to Nigerians’ large Muslim population and their currently unbanked population in the North West and North East.
The investment banking sector will be crucial to effectively directing capital to support the country’s long-term success.
Interest-free financing is gaining acceptance with the introduction of 100 billion naira ($61 million) sovereign sukuk issued by the FGN in 2017, and six subsequent issuances totaling 1,092 billion naira ($664 million ) to finance infrastructure development – 4,000 km of roads and bridges. – and the recent sukuk issuance in October 2023 for £652 billion ($397 million).
With the support of the regulators, CBN, SEC and FMDQ, there is ample room for growth for Islamic finance in Nigeria. Recently, Trustbanc, under the wakalah structure, created its first NICP program under the revised FMDQ framework, allowing companies to issue short-term Shariah-compliant instruments. Coronation MB played a vital role as the first organizer of this NICP program under the updated framework.
Nigeria’s investment banking sector is evolving to meet the unique financing needs of businesses and government. Key trends highlight the sector’s role in promoting sustainable business and economic growth. Commercial papers and Islamic financial instruments, such as sukuk, are essential for short- and long-term financing. Companies can drive growth through organic expansion or mergers and acquisitions. The Federal Government’s increased reliance on sukuk for infrastructure financing, alongside private sector participation, bodes well for Nigeria’s economic future.
Going forward, the investment banking sector will play a crucial role in effectively directing capital to support the country’s long-term success.