16 August 2017

Nigeria: DMO Raises N5.2 Billion From FGN Savings Bond in 5 Months

Lagos — The Debt Management Office (DMO) has in the past five months raised N5.15 billion through federal government's savings bond which it launched in March this year.

This is even as it has set out to raise N135 billion through the FGN Bonds this month.

In an offer circular issued yesterday, the DMO said the bond auction which will hold on August 23, 2017 will be reopening of the 14.50 per cent FGN July 2021, 16.2884 per cent March 2027 and 16.24399 per cent April 2037 bonds.

It said it plans to raise N35 billion from the five year bond and N50 billion each from the 10 and 20 year bonds.

Despite the rising yields on the FGN Savings Bond interest in the debt targeted at small scale retail, investors have been waning since its debut in March this year.

From over N2 billion raised at its debut auction in March, the amount raised from the bond sales has declined to N400 million as at last month.

While the August auction result is yet to be published by the Debt Management Office (DMO), previous results show a declining subscription level.

So far, the DMO has been able to raise N5.15 billion between March 2017 and July 2017 and the highest amount allotted so far was N2.07 billion in March 2017 while the lowest amount was N400.57 million in July 2017.

The total number of investors in the FGN Savings Bond also dropped from 2,575 in March 2017 to 779 in July 2017.

The coupon rate on the 2-year Bond which was 13.01 per cent in March 2017 rose to 13.39 per cent in July 2017, while the coupon rate on the three-year Bond which was 13.79 per cent in April, the first time a three-year bond was issued, stood at 14.39 per cent in July 2017.

The coupon rates for the August 2017 offer are 13.535 per cent and 14.535 per cent for the 2-year Bond and 3-year Bond respectively.

This means that the August Bond issues carried higher coupon rates than the July issues and represent the highest coupon rates since inception.

The persistent increase in the coupon rates has not attracted enough subscription to the Bond despite the steady decrease in inflation rate in the country since January 2017.

Traders say the waning interest in FGN bond is due to liquidity crunch in the banking industry as well as the picking up of activities at the stock market.

The bull had returned to the stock market as the Central Bank of Nigeria increased outflow of foreign exchange and also opened up an Investors and Exporters window, which uses a market-determined price, allowing foreign investors to move funds in and out of the country easily.

Also, the CBN had consistently sold foreign exchange to meet dollar demand and stabilize the currency, even as it has been selling Treasury Bills and OMO to mop up liquidity at the market.

The liquidity at the money market has been tight as overnight rates stood at 63 per cent at the close of business last week.

The DMO in March this year had introduced the monthly FGN Savings Bond as part of its efforts to promote the savings culture in Nigeria and improve financial inclusion, particularly among retail investors.

The Bond also provides additional funding for the government and helps to broaden the country's funding base. It offers guaranteed return in the form of a fixed quarterly interest payment. The minimum investment is N5,000 while the maximum investment is N50 million.

Traders in the bond market told LEADERSHIP that there was need to reignite interest in the bond by getting the low and middle class income earners involved in the bond which is tradable on the floor of the Nigerian Stock Exchange.

The rally at the equity market in Nigeria since the introduction of the Bond in March 2017, according to traders, has been one of the factors inhibiting interest in the bond as the NSE All Share Index appreciated by 51.47 per cent between March 1, 2017 and August 9, 2017.

Analysts noted that many retail investors had diverted funds to the equity market to take advantage of capital appreciation, adding that the low awareness of the benefits and characteristics of the Bond, the low liquidity of the Bond at the secondary market and the high yield on the Nigerian Treasury Bill (NTB) have also affected its popularity.

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