DMO: FG Raised N1.84trn Via Bond to Bridge 2022 Budget Deficit in H1

Kayode Tokede

The federal government in first half (H1) of 2022 raised a total of N1.84 trillion through the FGN bond market to finance the N6.26trillion 2022 budget deficit, the Debt Management Office (DMO) FGN Bond auction results has revealed.

The FGN bonds are debt securities of the Federal Government of Nigeria (FGN) issued by DMO on behalf of the federal government and it has the obligation to pay the bondholder the principal and agreed interest as and when due.

The N1.84 trillion raised by the DMO from local investors represents an increase of 29.8 per cent compared to N1.42 trillion FGN bond raised in H1 2021.

The DMO FGN bond auction result revealed that February 2022 has one of the highest amount raised by government, while January has the lowest amount raised.  

The February auction result for the 12.50% FGN JAN 2026 (Re-opening, 10-Year Bond) & 13.00% FGN JAN 2042 (Re-opening, 20-Year Bond) recorded allotted amount worth N415.42 billion (inclusive Non-Competitive Allotment), while auction result for January’s 12.50% FGN JAN 2026 (Re-opening 10-Year Bond) & 13.00% FGN JAN 2042 (New Issue 20-Year Bond) recorded N170.64billion allotted amount by the debt management office.

However, the FGN Bond auction result issued by DMO revealed that the total amount offered between January and June 2022 increased to N1.2 trillion as against N900 billion offered between January and June 2021.

The DMO data revealed that the FGN bonds recorded oversubscription  in H1 2022 despite mixed interest rates.

The DMO in H1 2022 offered N1.2trillion FGN for subscription and it was oversubscribe by N3.02 trillion, which is 39.8 per cent  or N1.82 trillion oversubscription rate.

The monthly breakdown of FGN Bond revealed that DMO on behalf of the Federal government offered for subscription N225 billion worth of FGN bonds by auction in June 2022.

The bonds were listed in three tranches: N75 billion – 13.53% FGN Mar 2025 (10-yr Re-opening); N75 billion – 12.50% FGN Apr 2032 (10-yr Re-opening) and N75 billion – 13.00% FGN Jan 2042 (20-yr Re-opening).

For May, the debt office had issued a similar bond worth N225 billion for subscription by auction in May 2022. The bonds were also issued in three tranches with 13.53%, 12.5%, and 13% for the 10-year reopening bond, 10-year reopening bond, and 20-year reopening bond respectively.

Meanwhile in April, the DMO offered three new FGN bonds valued at N225 billion for subscription through auctions.

They are a N75 billion FGN bond at 13.5 per cent interest rate, due in March 2025 (10-year re-opening) and a N75 billion FGN bond, due in April 2032 (10-year new issue).

The bond issuance was auctioned in three tranches with a 13.53% FGN Mar 2025 bond programme seeking to raise N75 billion, which gathered a total subscription book of N108.43 billion across 87 bids, with a marginal rate of 10.00%.

In the same vein, the second bond programme, the 12.5% FGN Apr 2042 bond raised a total subscription of N78.22 billion across 227 bids, representing an N3.22 billion oversubscription on the offered amount of N75 billion with a marginal rate of 12.50%.

The DMO in April re-opened 13.00% FGN Jan 2042 (20-year bond) bond programme with an offer of about N75 billion, which gathered a total subscription book of N222.76billion across 113 bids and finally allotted N79.68billion to investors.

The 13.00 per cent comes with a marginal rate of 12.90%.

For March, FGN bond issuance recorded an oversubscription of N448.42 billion over the intended N150 billion offered by the DMO.

The bond issuance was auctioned in two tranches with a 12.5% FGN Jan 2026 bond programme seeking to raise N75 billion, which gathered a total subscription book of N231.02 billion across 97 bids, with a marginal rate of 10.1500%.

In the same vein, the second bond programme, the 13% FGN Jan 2042 bond raised a total subscription of N367.40 billion across 141 bids, representing an N157.32 billion oversubscription on the offered amount of N75 billion with a marginal rate of 12.700%.

However, in February, the FGN bond issuance by the DMO recorded an oversubscription of N407.72 billion over the intended N150 billion

The bond issuance was auctioned in two tranches with 12.5% FGN Jan 2026 bond programme seeking to raise N75 billion, which gathered a total subscription book of N325.40 billion across 230 bids with a marginal rate of 10.95per cent

The second bond programme, the 13% FGN Jan 2042 bond raised a total subscription of N232.32 billion across 151 bids, representing a N157.32 billion oversubscription on the offered amount of N75 billion with a marginal rate of 13per cent.

In addition, FG bond issuance for the month of January 2022 by the DMO recorded an oversubscription of N175. billion to stand at N170.64 billion despite only seeking to raise N150 billion its 20-year bond issuance.

DMO issued two tranches of bonds in its first issuance for the year, reopening its 12.50% FGN Jan 2026 bond and issuing a new 13.00% FGN Jan 2042, which is set to mature by 2042.

The breakdown of the report by DMO revealed that the first tranche was oversubscribed by N36.19 billion with subscriptions of N111.19 billion, surpassing the offered amount of N75 billion, while the second tranche was oversubscribed by N139.05 billion over the N75 billion offered amount.

The federal government had highlighted that the 2022 budget has debt deficit of N6.26trillion, forcing the federal government to issue new borrowings of N5.012 trillion (of which domestic – N2.506 trillion and foreign – N2.506 trillion); drawdowns on Project-tied Multilateral/Bilateral loans – N1.156 trillion; and Privatisation Proceeds of N90.73 billion.

With the added new debts to the debt stock, it is expected that the country’s total debt stock going to hits N45.86trillion by December 2022.

Speaking with THISDAY on FGN bonds oversubscription, the Head Financial Institutions’ Ratings Agusto & Co, Mr. Ayokunle Olubunmi had noted that FGN bonds interest rate is higher relative to treasury bills.

He explained that, “the FGN bonds have no default risk, meaning that it is certain your interest and principal will be paid as and when due. The interest income earned from the securities are tax exempt compared to treasury bill that expired in January 2022.”

Analyst at PAC Holdings, Mr. Wole Adeyeye said, “Mind you, most investors do away with the stock market and invest in bond because they have the assurance that the market is the safest of all investments in domestic debt market since it is backed by the Federal Government, and as such it is classified as a risk-free debt instrument.”

He added that, “the deficit in the budget has given room for the government to borrow. Government needs money to finance key projects this year.

“The money spent on debt servicing is eating deep into the government’s revenue, which makes borrowing an unsustainable form of financing.”

Speaking on the development, an economist and 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 2022.

“Since we have a deficit of N6.3trillion and you also have an additional subsidiary budget of N4trillion, naturally it has soar up the deficit and it is easier to raise money locally than raising it at the international market.  Domestic borrowing is a low- hanging fruit.

“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 macroeconomy 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.”