FG Raised N5.54tn Via Bonds in 11 Months, N6.54tn Subscription

Kayode Tokede

As investors seek assets classes to maximise their profit and enhance the value of their funds following galloping inflation, subscription to FGN bonds reached N6.54 trillion in 11 months of 2023.

Aside loans from multilateral institutions, the federal government has mostly relied on the bond market to bridge 2023 budget deficit.

According to the Debt Management Office (DMO) FGN Bond auction results, the total amount raised so far in 11 months of 2023 stood at N5.54 trillion, representing an increase of 97.7 per cent from N2.8 trillion in 11 months of 2022. 

The DMO on a monthly basis conducted four auctions, with investors’ oversubscription in long term-to-maturity FGN Bond.

THISDAY gathered that since January 2023, DMO has continually re-open some FGN Bonds and steadily hike its interest rate to attract investors.

For instance, DMO 30-year’s 15.70% FGN JUN 2053 November bond auction had a marginal rate of 18 per cent from 16.6 per cent during the October 2023 FGN bond auction.

The debt management in 11 months of 2023 offered to raise N3.96 trillion from investors as against N2.25 trillion in 11 months of 2022.

The DMO in its latest FGN Bond auction result for November 2023 disclosed that the four auctions saw a total of 311 bids worth N445.297 billion total subscription from the N360 billion total offered amount to investors.

The total amount allotted was N434.497 billion, with 301 successful bids allotted at marginal rates of 16.0000 %, 17.000%, 17.5000% and 18.000% as the Inflation rate in Nigeria currently at 26.72per cent as of September 2023, according to National Bureau of Statistics (NBS).

According to DMO, the 14.55% FGN APR 2029 (Re-opening, 10-Year Bond) with N90billion offered amount recorded N34.77billion subscription with a total amount allotted at N31.470billion, while 14.70% FGN JUN 2033 (Re-opening, 10-Year Bond) with N90 billion offered amount recorded N33.193billion as DMO allotted N33.193billion.

The other remaining offers showed that 15.45% FGN JUN 2038 (Re-opening, 15-Year Bond) witnessed N47.065billion subscription out of N90billion offered to investors as DMO allotted N47.065billion and 15.70% FGN JUN 2053 (Re-opening, 30-Year Bond) that was allotted N322.769billion during the November FGN bond auction out of which   N90billion was the amount offered to investing public.

Experts have attributed the strong demand for FGN bond to attractive yield, which offer investors’ high returns on their investments, stressing that the oversubscription also revealed that investors have confidence in the federal government ability to meet its debt obligations.

The appetite for FGN bonds indicates that Pension Fund Administrators (PFAs), and Nigerian investors prefer investment instruments with less volatility that assures them of their capital returns albeit with low yield on investment.

But some analysts attributed the under subscription to some issuances to fear of interest rate risk, “as investors are full well informed that economy is still very much challenged and that inflationary pressure remains unabated.”

“So, investors expect higher yield for this particular issuance, while government does not wish to borrow at higher interest rate,” said CEO, Wyoming Capital and Partners, Mr. Tajudeen Olayinka.

Meanwhile, 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 unsustainable.

The DMO in a report disclosed that the debt includes the N22.71 trillion Ways and Means Advances of the Central Bank of Nigeria to the Federal Government.

The DMO stated, “Nigeria’s total public debt stock as at June 30, 2023, was N87.38trillion or $113.42billion. It comprises the total domestic and external debts of the Federal Government of Nigeria, the thirty-six states, and the Federal Capital Territory. The major addition to the Public Debt Stock was the inclusion of the N22.712trillion securitized FGN’s Ways and Means Advances.”

According to Adnori, “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.

On his part, the Chief Executive Officer of the Centre for the Promotion of Private Enterprise, Dr Muda Yusuf said the federal government 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.”