With 85% Share, FG Crowd-out Corporates, LASG of 7.74tn New Bond Issuance

Kayode Tokede

As the federal government intensified effort to finance its huge budget deficit, the government in the past 11 months dominated bond issuance on the Nigerian Exchange Limited (NGX).

A total of N7.74 trillion new listings was recorded on the NGX during the period and the federal government was responsible for over 85 per cent, surpassing corporates and the Lagos State Government.

FGN Bonds issued by the Debt Management Office (DMO) on behalf of the federal government are listed on the floor of the NGX.

THISDAY findings from the data obtained from the NGX showed that the FGN Bonds dominated listings this year with FGN Roads Sukuk.

According to THISDAY investigations, the federal government listed 64 FGN Bonds worth about N6.98 trillion in market value as against corporates and the Lagos State government with N486.22billion and N274.14billion, respectively. 

During the period, FGN bonds consistently witnessed increased participation by Pension Funds Administrators (PFAs) as double-digit inflation rate eroded investment in money and capital market instruments.

Finance analysts attributed the strong demand for FGN bonds to attractive yields, which offer investors high returns on their investments, stressing that the oversubscription also revealed that investors have confidence in the federal 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.

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 profile is becoming unsustainable.

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.”

The DMO recently revealed that Nigeria’s public debt profile has increased to N87.91 trillion at the end of the third quarter of 2023.

Meanwhile, the Lagos State government in 2023 listed N115 billion Series 1, 10-year 15.25% fixed rate bond due 2033 under N1 trillion Bond Programme and Lagos State Infrastructure Sukuk SPV Plc’s N19.815 billion 14.675% Series II Fixed Return Forward Ijarah Sukuk.

The state governor, Mr. Babajide Sanwo Olu at the agreement signing ceremony of the N115billion 2033 Bond Issuance and a seven-year N19.815 billion Sukuk Issuance said the state would invest more in education, health, and roads with the proceeds from its 10 and seven years Bond and Sukuk issuance.

Sanwo-Olu’s administration had earmarked a N500 billion Bond issuance to develop the state, out of which N100 billion and N137 billion was issued in 2020 and 2021.

The State Government in October listed its Lagos State Infrastructure Sukuk SPV Plc, a special purpose vehicle of the LASG, worth about N19.82 billion 14.675 per cent Series II Fixed Return Forward Ijarah Sukuk on the NGX.

The net proceeds of the Sukuk issuance would be used to finance the construction and rehabilitation of the Awoyaya section of the Eti-Osa-Lekki-Epe Expressway.

In addition, the state listed N137.33billion Series IV, 10-Year 13.00% Fixed Rate Bonds due 2031 under the N500billion Debt Issuance Program.

Under new listing, VFD Group listed by introduction 190.027 million ordinary shares valued at N46.534 billion; and Sterling Financial Holdings listed 28.790 billion ordinary shares in pursuant to the scheme of arrangement between Sterling Bank Plc and holders of the fully paid ordinary shares of 50 kobo each.

On supplementary listing are Guinea Insurance, MTN Nigeria Communications, Fidelity Bank, FTN Cocoa Processors and Neimeth International Pharmaceuticals listed shares worth N901.4 million, N12.821 million, N13.972 billion, N850 million and N3.680 billion, respectively.

In November 2023, MeCure Industries Plc listed by introduction 4,000,000,000 ordinary shares of 50 Kobo each at N2.96 per share that worth about N11.84billion.

In the same month, McNichols Consolidated Plc listed N1999.03million after the completion of rights issue as Consolidated Hallmark Holdings Plc listed N11.82billion in the pursuant to the scheme of arrangement between Consolidate Hallmark Insurance Plc and holders of the fully paid ordinary shares of N0.50 each at N1.09 per share.

Despite regulators’ efforts, there has been a shortage of new corporate listings on the exchange since the 2009 global financial crisis.  For instance, MeCure Industries and VFD Group are the only new companies listed on the NGX in 2023.

The Chief Executive Officer, NGX, Mr Temi Popoola noted that the exchange had a renewed focus on listings for the year 2023, stressing that “we will be using listings as a vehicle for meeting strategic aspirations as the new dispensation comes in through increased advocacy and engagements.”

On his part, a Professor of Finance and Capital market, Uche Uwaleke at a conference in Lagos called on the need for the government to unlock the huge potential of long-term financing inherent in the capital market and ensure borrowings tied to infrastructure bonds.

He said this became necessary for the nation’s economy to grow steadily at 16 per cent per annum over the next six years to attain the projected $1 trillion economy by 2030.

Uwaleke stated that with the nation’s infrastructure investment need which had continued to widen, and government debt profile which is substantially high, mobilising long-term financing through the capital market and deploying domestic market borrowings into infrastructure bonds had become critical to achieving the target.

Financing this huge infrastructure gap presents a formidable challenge to the government given Nigeria’s low revenue-to-GDP ratio of less than 10 per cent making inevitable the capital market route.

However, Uwaleke pointed out that the nation’s capital market is currently beset with myriads of challenges, which have continued to constrain its full development despite the giant strides achieved in the last two decades.

On FGN bonds, Adnori expressed concerns that Nigeria’s rising debt profile could become unsustainable if not managed properly.

Adonri, noted that listings of new companies have been low for some years, noting that the market had witnessed more companies delisting than new entrants.

He noted that investors’ confidence is still low especially in the primary market segment, noting that the ability to form capital has diminished in the market, which is also a major reason why companies delist on the NGX.

He explained that, “the major oil companies in Nigeria should be compelled to list on the daily official list of the Exchange as they contributed largely to the nation’s GDP.”

Adnori called on the government to induce the oil companies and other multinational companies by introducing tax holidays and other incentives such as government contracts to make listing attractive to them.