In this interview with NGOZI UCHE, managing director/chief executive officer, Vision Trust and Investment Limited, Emma Ohanwusi calls for sensitisation of the investing public on the benefits of bonds.
Low awareness of bond market
Investors have not fully appreciated the bond market, though we the operators are aware of it but it has not been fully developed. At a time like this when prices of stocks are coming down, it would have been better for people to put their money in the bonds market where you have a steady system of income as opposed to what we have in the stock market. However, the operators still need to do more marketing to the investors so that they can take advantage of the market. But right now not so much is happening because everybody is talking about stock. It is a general trend in the country to see everybody rushes towards one direction.
For us we advise our clients on what to do but the press has the responsibility to bring the knowledge to the larger society. Right now the value system is flawed because majority of the people are more interested in where to put their money today and make returns tomorrow. It is like people do not so much have confidence in the future that is why they are investing for short term. “You tell somebody put your money here till next year and he says ‘no, are you sure I’ll be here next year?
The banks are not helping matters because we noticed that they were all deploying all the funds they have into short term loans. Even when they want to bring a company to the market, the key question they always ask is ‘when do I exit?’ Even when I provide you with the funds to go to the market when do I exit because the funds I have are short term funds. Overnight, one week that is what they are deploying. So I think we should begin to readdress that issue that the capital market is a long term market. It is not a place you make money in three to six months and exit. Anybody that is looking for short term returns should go to the money market.
Why companies do not float bonds
We are sill talking of the same thing; that is, people lack the awareness when we talk about stocks and bonds. In bonds you are sure of fixed returns at particular intervals but in stocks you can make money even on a daily basis if the company is doing well and the shares appreciate. You can also loose all including your capital if there is a crisis like what we had. Even when you advise them on what stocks to buy based on fundamentals, they ignore your advise and they would insist on the one they want to buy. There is this unfounded argument some of them also make; they believe it is easier to make more money on a penny stocks than on a high-priced stock. For instance, they tell you that if a stock is 30 Kobo it is easier for it to become N2.00 than for a Nestle at N320 to become N400. People are in a hurry to make money
Advantages of bond over equities for companies
It is all about leverages. You cannot do business with only your money. It is always good to do some borrowing and make it up and the money gets back to you anyway. If you think you can go it all alone, you are going to stretch yourself so hard. When you float bonds, you will have a better spread as to how you would repay your creditors and that’s a lot of advantage. Even though the pressure is also there but as much as what you have on the other side. In bonds we look at the cover; how many times will your earnings be able to cover the interest you are going to pay and its easy to get at that. We call it interest cover. For shares you will have to talk about quite a number of things like earnings per share (EPS), capital appreciation, do I exit and a lot of other things. So, it is actually better for companies to have a mix of equities and bonds but because people have not been fully made aware of things like this, they always run to shares because of the speed with which it easily be discounted. Â
Trading/conversion in bonds
It is a little more cumbersome even though the system operates in such away that it can easily be traded but you need to have the confidence in the system that bonds are liquid. On the pricing, people do not yet understand that a corporate bond of N100 could actually be bought for N98
Interest on bonds
It depends not just on the issuer but on the prevailing market rate. That is, the rate at which the bonds are sourced from banks and the market. Â
There are no fixed rates for bonds rather, you price yourself because one industry is different from the other and the business of one company is different from another. Also, one state is different from another when you talk of state government bonds. For instance a state government bond by a state like Rivers or Delta that has revenue from oil cannot compare with government bond from a state government that is landlocked and the government has no mineral resources from which it can derive revenue to pay. So, these are the things we put into consideration when are pricing the bond.