FG raises N4.46trn bonds in 8 months

The Federal Government raised the sum of N4.46 trillion from the bond market in the last eight months. The result is that the interest rate on 30-year FGN bonds increased to 15.85 per cent in August 2023 from 14.3 percent in July 2023. The Debt Management Office (DMO) received N5.42 trillion total subscriptions as against N2.88 trillion offered during the period amid monetary policy tightening by the Central Bank of Nigeria (CBN) and global uncertainties. An analysis of the bond market activity during the period revealed that FGN bonds recorded 53 percent oversubscription as interest rates continued on a steady trajectory. The DMO has conducted four auctions in 2023, which were oversubscribed despite a hike in inflation rate and investors’ diversification into the stock market. While the information on the buyers of corporate bonds are publicly disclosed, other publicly available reports indicate Pension Fund Administrators (PFA), asset managers, banks, and institutional/foreign investors are among the largest buyers of FGN Bonds. The auction results released by DMO indicate strong investors’ demand for FGN bonds, as the total amount allotted exceeded the total amount offered. It also suggests investor confidence in the Nigerian economy and the ability of the government to meet its debt obligations. A breakdown showed that in the first quarter (of 2023, total subscription to FGN bonds stood at N2.61trillion while the DMO allotted N1.996 trillion out of the N1.080 trillion offered to the investing public. In the second quarter of 2023, investors were also offered N1.080 trillion FGN bonds; it witnessed N2.503 trillion subscriptions. The DMO eventually allotted N2.23trillion. However, a July 2023 auction revealed that subscriptions stood at N945.14billion as against the N360 billion offered. The DMO allotted N657.84 billion. At the just concluded FGN bond auction in August, the four instruments were 14.55 per cent April 2029 FGN bond; 14.70 per cent June 2033 FGN bond; 15.45 per cent June 2038 FGN bond; and 15.70 per cent June 2053 FGN bond. They were valued at N90 billion each, making a total offer of N360 billion. In spite of current market conditions, the auction received a total subscription of N312.56 billion and amount allotted to successful bidders for the four instruments was N230.26 billion. Investors’ appetite for the 15.70 June 2053 (30-year bond) remained strong, with a bid-to-cover ratio of 2.71 times. Allotments were made at 13.85 per cent for the 14.55 per cent April 2029 instrument and 15.00 per cent for the 14.70 per cent June 2033 instrument. Also, “15.20 per cent was for the 15.45 per cent June 2038 instrument and 15.85 per cent for the 15.70 per cent June 2053 instrument,” the DMO said. The federal government had proposed to borrow over N11 trillion to finance the proposed 2023 budget deficit. Findings by Economic Confidential revealed that FGN Bonds auctioned were re-openings with rates below the inflation rate. The debt office in 2023 maintained four tenor bond auctions between January and June and each FGN bond offer was oversubscribed. Meanwhile, finance experts have attributed the strong demand for FGN bonds to attractive yields, which offer investors high returns on their investments. They added that the oversubscription also revealed that investors have confidence in the government’s ability to meet its debt obligations. The appetite for FGN bonds indicates that PFAs, and Nigerian investors prefer investment instruments with less volatility that assures them of their capital returns albeit with low yield on investment. But, in recent years, Nigeria’s rising debt profile has been a topic of concern, as Vice President, Highcap Securities Limited, Mr. David Adnori warned that the country’s debt levels are unsustainable. DMO stated in January that Nigeria’s public debt could rise to N77 trillion if the country’s “ways and means” are securitized. “Ways and means” refer to the CBN’s lending to the federal government. The DMO said that the securitization of ways and means” is not unusual and is a common practice in many countries, but it is not a decision that can be made by the DMO alone. Adnori expressed concerns that Nigeria’s rising debt levels could become unsustainable if not managed properly. The government has argued that borrowing is necessary to finance critical infrastructure projects and stimulate economic growth. The Chief Executive Officer of the Centre for the Promotion of Private Enterprise, Dr Muda Yusuf, said the FG had notified the general public of borrowing more in 2023. According to him, “With all the volatility and foreign exchange issues, it makes sense to borrow at the domestic market rather than borrowing from the international market. It is all a reflection of our macro economy environment challenges and weak fiscal policy of the government. All this borrowing also is a reflection of the weak financial position of the government and it will continue like that.” He noted that the oversubscription to FGN bond is a lucrative investment, stressing that the low risk involved attracted investors. He added, “Anything sovereign has the lowest risk and nothing will go wrong with it except the country is collapsing completely. All over the world, sovereign bonds have the lowest risk and secondly it is an investment outlet for investors to invest their money.” On his part, the Chief operating officer of InvestData Consulting Limited, Mr. Ambrose Omordion, said, “We know that previous government borrowing was high. Excessive borrowing by the previous government at the expense of the private sector, which is the engine room of the economy, brings to question the soundness of their economic strategy. “The careless use of debt as a financing tool is fraught with calamitous dangers. Even more disheartening is when the debts are principally used to finance consumption or to unwisely finance a few secondary infrastructures (Roads and Rail). “These will neither enhance the productive momentum of Nigeria’s light industries nor make the economy self-reliant. The disorderly growth of the economy the last administration pursued can only mislead the country into an abyss if public borrowing is not curtailed to lower cost of funds so that production will be competitive.”

DMO auctions FGN bonds worth N360bn

The Debt Management Office (DMO), acting on behalf of the Federal Government of Nigeria (FGN), has recently conducted an auction for the subscription of four FGN bonds valued at a total of N360 billion for the month of August 2023. As outlined in the offer circular released by the DMO on Thursday, the first bond on offer is an April 2029 FGN bond, with a value of N90 billion and an interest rate of 14.55 percent per annum. This particular bond constitutes a 10-year re-opening of the existing issue. Similarly, the second bond available for subscription is a June 2033 FGN bond, also valued at N90 billion, and carrying an interest rate of 14.70 percent per annum, serving as a 10-year reopening. Furthermore, the DMO has presented a June 2038 FGN bond, valued at N90 billion, with an interest rate of 15.45 percent per annum. This bond represents a 15-year reopening of a previous issuance. The last offering is the June 2053 FGN bond, also valued at N90 billion, and featuring an interest rate of 15.70 percent per annum. This bond represents a 30-year reopening of the original issuance. “They qualify as securities in which trustees can invest under the Trustee Investment Act “They qualify as government securities within the meaning of the Company Income Tax Act and Personal Income Tax Act for tax exemption for pension funds amongst other investors. “They are listed on the Nigerian Exchange Limited and FMDQ OTC Securities Exchange. “All FGN bonds qualify as liquid assets for liquidity ratio calculation for banks,” the DMO said.  All of the mentioned FGN bonds are available for subscription at a unit cost of N1,000, with a minimum subscription requirement of N50 million and subsequent subscriptions in multiples of N1,000. For bonds that are re-openings of previously issued bonds with fixed coupons, bidders are expected to pay a price corresponding to the yield-to-maturity bid that successfully clears the auction volume, along with any accrued interest on the instrument. Interest on these bonds is paid semi-annually, and the principal repayment is set as a bullet payment due on the maturity date. It’s noteworthy that FGN bonds enjoy the full backing of the Federal Government’s faith and credit, with their security secured by the general assets of Nigeria. These FGN bonds have multiple benefits, including qualification as securities in which trustees can invest under the Trustee Investment Act. They also fall under the category of government securities in accordance with the Company Income Tax Act and Personal Income Tax Act, qualifying for tax exemptions for pension funds and other investors. Additionally, these bonds are listed on both the Nigerian Exchange Limited and the FMDQ OTC Securities Exchange. Furthermore, all FGN bonds are considered liquid assets for the calculation of liquidity ratios for banks. The DMO’s auction of these FGN bonds reflects the government’s continued efforts to manage its debt and financial obligations while providing investment opportunities for both institutional and retail investors.

DMO lists N130bn Sukuk to boost capital market

The Debt Management Office (DMO) of the Presidency has announced the listing of N130 billion sovereign Sukuk on the Nigerian Exchange and FMDQ starting on August 8, 2023.This was disclosed in a statement from the Debt Management Office (DMO). The Federal Government has been able to fix 75 roads since the FGN Sukuk initiative started. Some of the roads include Ibadan-Ilorin Road, Kaduna Eastern Bypass, and Loko Oweto Bridge over the River Benue among others.  The listing follows the successful oversubscription of the N100 billion opened in November 2022. This current listing is geared towards accommodating the needs of investors towards the facility.  According to the statement, “The sovereign Sukuk was opened for subscription in November 2022, with an initial of N100 billion however, it garnered immense interest from investors with a remarkable subscription level of N165.25 billion which represents over 165% of the amount offered. To accommodate the need of diverse investors who subscribed to the Sukuk, N130 billion was allocated.  Sukuk bonds are investment certificates representing ownership of the holder in an asset. Since 2017 when the Federal government began issuing sovereign Sukuk, the DMO has raised about N742.55 billion whose proceeds have been used for road construction and other infrastructure projects across the country.  The last DMO issued Sukuk in 2017 had an interest return of 16.47% with a tenor of 7 years. It was used in the construction of roads across the six geopolitical zones of Nigeria.  According to the DMO release, “the listing of the N130 billion sovereign Sukuk on the NGX and FMDQ securities exchange will expand the range of financial offerings available to investors in the capital markets.  “The opportunity to buy and sell the sovereign Sukuk will provide liquidity to investors and promote price discovery,” it noted.