DMO: 3 corporate entities accessed domestic bonds market in 2017

 

 

The Debt Management Office (DMO) says only three corporate entities accessed the domestic bonds market in 2017 with a total issuance of N23.15 billion.

This is according to its recently published 2017 Annual Report and Statement of Accounts, made available to news reporters in Abuja.

The report added that the bonds segment of the domestic bond market witnessed a slowdown in activity in 2017, compared to 2016, which had N108.04 billion issued by nine corporates.

It said that this represented a percentage decrease of 78.57 percent, adding that the decline in the issuance by corporates could be attributed to the high borrowing cost prevalent in the domestic capital market in 2017.

It listed the three corporates to be Dufil Prima Foods Plc, Viathan Funding Plc and LAPO Micro Finance Bank SPV Plc.

It, however, said it expected corporate bonds issuances would increase in the near term with the easing of inflationary pressure and reduction in yields of sovereign benchmark.

The report stated that allotments of Federal Government bonds by residency classification showed that resident holders accounted for N1.35 million or 87.20 percent of bonds in 2017, compared to N1.29 million or 98.62 percent in 2016.

“On the other hand non-resident investors held N198.39 million or 12.80 percent of the bonds in 2017, compared to N18 million or 1.38 percent in 2016, indicating an increased participation by the non-resident category of investors at the auctions.

“This was on account of the relative stability in the Foreign Exchange Market and the improving macroeconomic indicators, which have enhanced investor confidence in the Nigerian economy.”

The DMO also said that the size of the Domestic Bond Market was N13.51 billion as at December 31, 2017, compared to N12 billion as at December 31, 2016, representing an increase of N1.48 billion or 12.30 percent.

It added that the share of Federal Government of Nigeria’s securities relative to the total size of the domestic bond market increased from N11 billion in 2016 to N12.58 billion in 2017 due to the introduction of new debt instruments in the market.

It said that while corporate and States Government bonds recorded minimal issuances relative to the redemption of existing instruments, the Supra-national bond witnessed no new issuance during the period under review.

The report stated that in five consecutive years, the Federal Government’s bonds witnessed over subscription.

Giving an analysis of the bonds primary market activities, it said that benchmark bonds of five, 10, and 20 years were issued by the Federal Government in the primary market in 2017.

The report added that sub-national bond issuance rose from N47 billion in 2016 to N97.39 billion, in 2017, an increase of 107.21 per cent in the volume of issuance.

It, however, said that only the Lagos State Government accessed the domestic bond market in 2017.

Nigeria issues sovereign bonds monthly to support the local bond market, create a benchmark for corporate issuance and fund its budget deficit.

The DMO’s primary responsibility is to manage public debt. This it does by introducing initiatives and products to support the development of the domestic market.

Rising debt service to revenue ratio can expose Nigeria to debt crisis, DMO warns

 

…Pegs 2018 borrowing limit at $6.25bn
…Asks FG to privatise Nipost, Mint, others

                                                             Oniha, DG, DMO

Debt Management Office, DMO,  warned that Nigeria’s high debt service to revenue ratio, which deteriorated in 2016, could trigger a debt crisis. The DMO gave this warning in its 2017 Debt Sustainability Analysis, DSA, saying the country could experience debt crisis in the event of prolonged shocks (decline) in revenue, exports and naira devaluation.
The DMO also said for the country to stay within its 25 percent debt to Gross Domestic Product, GDP, threshold, the three tiers of government should not borrow more than $6.25 billion in the 2018 fiscal year.
The DMO stated: “The Fiscal Sustainability Analysis for the Federation (federal, states and FCT), showed that the ratio of Total Public Debt-to-Gross Domestic Product, GDP, remained below its threshold throughout the projection period. The ratio of Total Public Debt-to-GDP for 2017 was projected at 19.80 percent.
“Both the External and Fiscal Sustainability Analyses showed that all the revenue indicators (the ratios of Debt-to-Revenue and Debt Service-to-Revenue) deteriorated under varying shocks, suggesting that any prolonged shocks on the revenue would lead to debt distress in the medium to long-term, except other sources of revenue are speedily developed to enhance the revenue generation performance of the country.”
The DMO recommended that in order for the country to remain in the proposed country-specific threshold of 25 per cent borrowing limit, it would have to borrow (domestic and external) the maximum of $6.25 billion or N1,906.37 billion for this year.
“In order to estimate the borrowing limit for 2018, it requires the determination of the difference between the proposed Country-Specific Threshold of 25 percent and the end period.
“Therefore, the maximum amount that could be borrowed (domestic and external) for the fiscal year-2018 by the government without violating the proposed Country-Specific Threshold of 25 percent up to 2020 would be $6.25 billion or N1,906 billion (at N305 per dollar).”
Asks FG to privatise Nipost, Mint, others “Accordingly, for the fiscal year 2018, the maximum amount of $6.25 billion that could be borrowed is proposed to be sourced equally (50:50) from the Domestic and External sources, respectively, as follows: new Domestic borrowing $3.125 billion or N953.18 billion and new External borrowing: $3.125 billion or N953.18billion.”
The DMO also recommended that the government should boost revenue generation strategies by broadening the tax base, increasing tax revenue collection and privatise some viable enterprises.
“In order to enable government raise fresh funds to supplement its revenue for capital investments, government is encouraged to privatise some of its viable enterprises and have them listed on The Nigerian Stock Exchange.
“Hence, the need for government to sustain the on-going efforts aimed at reforming, restructuring and repositioning some of these enterprises for privatisation or commercialisation, including Nigerian Postal Services, NIPOST; Nigerian Commodities Exchange, Lagos International Trade Fair Complex, National Stadia and Nigerian Security and Minting Company, NSPMC.
“Aside saving government huge budgetary funds usually allocated for such entities annually, it will lead to wealth redistribution through public ownership of enterprises, as well as facilitate further deepening of the domestic capital market.”

 

FG makes N343.05m from savings bond in July– DMO

 

 

The Federal Government said it made N343.05 million from sales of savings bond in July.

 

The results of the sales published on the website of the Debt Management Office (DMO) on Wednesday in Abuja, showed that N79.98 million was allotted for July 2020 at 10.48 per cent.

 

It also indicated that N263.06 million was allotted at 11.48 per cent for July 2021 papers.

 

According to the result, the sales were made after 288 successful subscriptions.

Savings bond issuance is expected to help finance the nation’s budget deficit.

 

The bond issuance is part of the Federal Government’s programme targeted at the lower income earners to encourage savings and also earn more income (interest), compared to their savings accounts with banks.

 

The bonds are debt securities (liabilities) of the Federal Government backed by its ‘full faith and credit.

Interests are to be paid at regular periods and principal repaid at maturity.

 

The bonds have a tenure of between two to three years and a minimum size of investment of N5, 000 and maximum of N50 million.

 

The bond is aimed at deepening national savings culture, diversifying funding sources for the government and providing opportunity to all citizens, irrespective of income level to contribute to national development.

It will also enable all citizens to participate and benefit from the favourable returns available in the capital market.

 

 

DMO debunks report on debt management

Nigeria’s Debt Management Office (DMO) has refuted a report published by a national daily that the country had no debt management strategy.

The Director-General of DMO, Ms. Patience Oniha, in a statement issued by the Office, disclosed that Nigeria has a subsisting debt management strategy.

“Contrary to the publication on the front page of the Newspaper of July 4, 2018, Nigeria has a duly approved Debt Management Strategy. The Debt Management Strategy was approved by the Federal Executive Council in June 2016 and has an expiry date of December 2019. The document is available on https://www.dmo.gov.ng/publications/other-publications/debt-management-strategy, Oniha said.

She advised the public to disregard the media report, adding that the Federal Government was implementing the nation’s debt management strategy in full.

The Director-General of DMO, Ms. Patience Oniha

“The publication is absolutely false and the claim that they obtained a confirmation from the Director-General of the Debt Management Office to the effect that the DMO was ‘working on it’ is also very wrong. The enquiry by the Newspaper was on the DMO’s Strategic Plan (an institutional plan) and not the Public Debt Management Strategy. This action amounts to deception and manipulation of information.

“There is a difference between the Debt Management Strategy and the DMO’s Strategic Plan. The Strategic Plan is a statement of the institution’s Goals and Objectives as well as, the activities that will enable their achievements.

“It covers issues such as Human Resources, Technology, and Market Development amongst others. This contrasts very sharply with the Public Debt Management Strategy which is entirely about the strategies for managing the public debt to ensure that borrowing is prudent and the public debt is sustainable,” she explained.

The DMO Director-General disclosed that a new Strategic Plan that would deliver a new, robust and all-encompassing strategy was at its final stage of preparation.

According to her, a robust strategic plan became necessary due to developments in the macro-economy, the Economic Recovery and Growth Plan (ERGP) and the need to come up with creative ways to fund the Government in the face of lower Revenues.

She said further that a new Strategic Plan for the DMO had to be prepared in a holistic manner to incorporate these developments and expectations.

 

Anxiety over Nigeria’s N22tn public debt

In the view of economic and financial analysts, the nation’s rising debts portfolio does not bode well for an economy in dire financial straits fueled in part by depleting oil revenues and other sources.

To say the alarming rate at which the nation’s public debt is growing has become a source of worry to many is certainly stating the obvious. Truth is, the public debt has literally gone south again, barely few years after the country exited the much contentious debts bobby trap.

Domestic debt is defined as debt denominated in local currency. The management of domestic debt in Nigeria has hitherto been conducted by the Central Bank of Nigeria (CBN) through the issuance of government debt instruments

According to analysts, Nigeria has relied much on public debt to finance its development projects in the past two decades ago with public debts which put its debt profile so high. Thus, before the debt write-off by the Paris-club and London club the result shows that the impact on Nigeria economy was much compared to present time. Though, the exit from the Paris club and London club actually reduced Nigeria’s external debt, whereas the domestic debt and the effect created by the huge debt before the debt write-off still have lag effect on the economy. Therefore, based on the above findings we recommended that Nigeria should not borrow now either internally or externally.

DMO’s alarm

According to the Debt Management Office, Nigeria’s total public debt rose marginally by 4.52% to $74.28 billion (N22.71 trillion) as at March 31, 2018.

The DMO said the Q1 2018 increase was accounted for largely by the increase in the domestic debts of the 36 states of the federation and the Federal Capital Territory (FCT), as well as the $2.5 billion Eurobond issued in February 2018 by the federal government whose proceeds were still being deployed to redeem maturing domestic debt.

The DMO made this known in its first quarter 2018 public debt data released penultimate Wednesday, in Abuja, the nation’s capital.

Further analysis by DMO

The DMO said a total of N643.6 billion was spent on servicing the nation’s domestic debt within the period.

It said N239.8 billion was spent on domestic debt servicing in January, N144 billion in February and N259.7 billion in March 2018.

N223.4 billion was an interest accruing on Nigeria Treasury Bills/Bonds (NTBs), while N411.7 billion was interest on federal government bonds.

Interest on the federal government of Nigeria savings bond was N241.8 million while Sukuk bonds stood at N8.167 billion.

A sum of N279.6 billion of NTBs was redeemed in Q1 2018.

The Debt Management Office said the debt figures showed that the implementation of the debt management strategy, which entails an increase in the external debt stock through new external borrowing and the substitution of high cost domestic debt with low cost external debt, is achieving the desired results in several areas.

As at December 2017, the country’s debt stood at $70.92 billion, several months after the largest economy in Africa emerged from its worst recession in over 20 years.

Also in April 2018, Christine Lagarde, the IMF Managing Director, opined that Global debt stood at $164 trillion which were 25% of global GDP. She lamented that the rising debt levels presented a risk to low-income countries.

Lagarde said such countries may face hardship and be unable to repay these debts if they do not look for alternative measures to borrowing but Nigeria’s finance minister, Kemi Adeosun dismissed the insinuation, saying Nigeria is not among low-income countries.

While commenting on the country’s Debt Management Strategy (DMS), Oniha said the Federal Government’s domestic debt at the end of 2017 was N12.589 trillion. The 36 states and the Federal Capital Territory (FCT) have a domestic debt overhang of N3.348 trillion.

The combined external debt of the Federal Government and the states is N5.787 trillion.

The new DMS, Oniha said, has brought about the restructuring of the debt portfolio, which “has resulted in reduction of debt servicing costs, lowering interest rates in the domestic market and an improved availability of credit facilities to the private sector.”

The recent spate of borrowings the DMO boss said, is essentially “for financing capital expenditure and stimulating the economy. The funds injected through the borrowings strongly supported the implementation of the Federal Government’s budget, which helped the country to exit recession in 2017.”

The figures showed that Nigeria’s Debt Management Strategy is achieving its objective of reducing the ratio of Domestic Debt in the portfolio, with a target of 60% Domestic and 40% External.

The composition of the Debt Stock as at the end of 2017 showed that External Debt was 26.64% of the portfolio, up from 20.04% in 2016. Domestic Debt was 73.36%, down from 79.96% in 2016.

The key benefits of the restructuring of the portfolio, Oniha explained “are the reduction of the Government’s Debt Service Costs, lowering of interest rates in the domestic market and improved availability of credit facilities to the private sector.”

The DMO repaid N198 billion Nigerian Treasury Bills in December 2017 with the proceeds of Eurobond issuances and the DMO has continued further implementation of the strategy in 2018, with the issuance of the USD2.5 billion Eurobonds in February 2018, the proceeds of which is being used to repay maturing domestic debt, starting with N130 billion NTBs repaid on March 1, 2018.”

“The Total Public Debt as at December 31, 2017 represents 18.20% of Nigeria’s GDP for 2017. This shows that Nigeria’s debt continues to be sustainable and is well within the threshold of 56% for countries in Nigeria’s peer group,” Oniha stated.

Ms. Oniha assured Nigerians that the most important consideration for these borrowings was that the proceeds were being prudently applied to bridge infrastructure gaps occasioned by the decline in revenues.

She also promised that “the rate of increase of debt servicing would reduce, going forward, given the Federal Government’s attention to raise revenue through the Voluntary Assets and Income Declaration Scheme (VAIDS), as well as targeted efforts to increase local production of some of the goods responsible for high foreign exchange demand.”

She also noted that Nigeria borrows from other countries, such as Japan, France, India and Germany, “based on Nigeria’s needs, interests and conditions considered favourable to the nation.”

Meanwhile the research team at Proshare noted that the public debt (total of both external and domestic debt) in Nigeria has been increasing over the last five years and the issue of the sustainability of the debt level has generated a lot of debate.

The increase in external borrowing and the impact of exchange rate depreciation were the main reasons for the reduction in the proportion of the domestic debt stock. The FGN has set what it believes to be an optimal domestic debt to external debt ratio at 60:40. At the current (external to domestic debt) level of 78:22, it appears that there is still room to increase the external debt component of the total debt stock.

The major stress point is the rising level of interest payment relative to government revenue. The ratio of interest payment-to-government revenue increased from 24.48% in 2012 to an estimated 35.32% in 2016.

“In the short-to-medium-term, government will need to borrow both from external and domestic sources in order to augment the low revenue facing the country as a result of the current economic challenges. The FGN needs to improve critical infrastructure in the country to increase the competitiveness of the economy to attract investments. This requires more money than current government revenue.”

The FBNCapital Research team is also on the same page with Proshare. “In our second commentary on the DMO’s data release for end-2016, we highlight the alarming increase in FGN domestic debt service (see chart). Payments have soared from N354bn in 2010 to N1.23trn last year.”

Besides, the researchers inferred that the focus on the domestic payments because they comprise close to 90% of the total burden, and because the FGN’s external debt obligations are overwhelmingly concessional and far less costly than its naira borrowing.

“The strength of the message on the successful Eurobond roadshow in February was based on the FGN’s external balance sheet.”

According to the team, to highlight the strains on the public finances, total debt service in 2016 represented a projected 35.4% of total FGN revenue. The ratio is so dire, of course, because the record of revenue collection has been poor. The Economic Recovery and Growth Plan 2017-20 has the ratio deteriorating to 38.1% in 2018, and improving marginally to 34.5% in 2020.

“The explanation is twofold. Firstly, the projections assume stronger revenue collection and spending discipline, such that a primary surplus (before the deduction of interest payments) is achieved from 2019.”

Secondly, they have financing of the deficit predominantly external from next year (66% in 2018, rising to 72% at the end of the plan period in 2020).

The test of the plan is successful delivery, above all the use of the borrowed funds to create growth, employment and diversification of the economy. This administration has to set far higher standards than its predecessors.

Whereas the Debt Management Office has assured that the seeming rising public debts is nothing to worry about other experts believe there is serious cause for alarm.

According to Paul Ndubuisi, a researcher, the act of borrowing creates debt. Debt therefore, refers to the resources of money in use in an organisation which is not contributed by its owners and does not in any other way belong to them, it is a liability represented by a financial instrument of other formal equivalent.

Echoing similar sentiments, Chris O. Udoka of the Department of Banking & Finance University of Calabar, Calabar, Cross River, and his counterpart, Samson Ogege, at the Department of Finance, Faculty of Business Administration University of Lagos, Lagos, in a joint paper titled, ‘Public Debt and the Crisis of Development in Nigeria Econometric Investigation,’ while noting that national debt consists of all securities issued by the federal government and held by the Central Bank of Nigeria, individual and foreigners, government agencies and trust funds, private sector as well as those held by commercial banks, however said, increase in the debt stock was largely as a result of the interest component of additional payment arrears that accumulated, and continued depreciation of the US dollar against other currencies in which the debts were denominated.

Domestic Debts

It also identified external debt relief as a good option for poor unsustainable indebted countries as a way of making resources available for economic growth with the real sector being the focal point where value is created rather than impeding it with mismanagement and servicing debt. Udoka and Ogege examined the extent of external debt crisis and its consequences on, economic development using data on the Nigerian economy for the period 1970 to 2010.

Rewane’s fears over servicing external debts

Expectedly, the Managing Director/Chief Executive Officer, Financial Derivatives Company Limited, Mr. Bismarck Rewane has expressed concern over the nation’s foreign debts.

Rewane who spoke during a presentation at a breakfast session sponsored by Rand Merchant Bank in Lagos, said the forecast for the nation’s economy showed a mixed outcome of positivity and negativity.

“The pressure on the exchange rate will build up due to increased liquidity and demand pressures, and there would be a temptation to appreciate the naira for political expediency. Key policy reforms will take the back burner for politics. Nigeria’s foreign debt service will become a potential problem. Nigeria’s external trade will be more balanced between Asia, the European Union and America.”

Alarming States ‘debts

The debt stock data released by the National Bureau of Statistics (NBS) revealed that the smallest state in Nigeria- Lagos, with a landmass of 3,345km, has the largest debt burden among all states. The state’s debt stock is 35.61% of the country’s foreign borrowings. Kaduna (5.79%), Edo (5.64%), Cross River 4.08% and Enugu 3.23%, are all clustered behind Lagos.

FGN Bond Auction for June Oversubscribed by N6.67b

Data released by the Debt Management Office (DMO) has shown that the FGN bond auction for June 2018 recorded a huge success.

The exercise, which was conducted on Wednesday June 27, 2018, received subscriptions worth N66.7 billion from investors for the N60 billion worth of the bonds offered by the debt office on behalf of the federal government.

At the auction, the DMO had offered the bonds in three tenors of five, seven and 10 years.

It was gathered that the exercise recorded such success despite the forex sale of $210 million by the Central Bank of Nigeria (CBN) on Thursday, which mopped up over N65 billion from the market.

In addition, the CBN also mopped up over N200 billion from the system through the sale of OMO Bills on Monday.

The two exercises by the apex bank on Monday and Thursday tightened market liquidity and pushed up interest rates. To moderate Debt Service Costs, the DMO adopted a conservative approach by allotting only N31.2 billion at rates between 13.50 and 13.81 percent.

Investors Oversubscribe FGN Bond Auction

Investors oversubscribed the FGN Bond Auction for June 2018, which held wednesday, at which bonds in three tenors – five years, seven years and 10 years were offered.

The Debt Management Office (DMO) said in a statement that investors bid for N66.7 billion compared to the N60 billion on offer.

The debt management agency stated that this was in spite of the sale of US$210 million foreign exchange (FX) by the Central Bank of Nigeria (CBN) last Thursday, which mopped up over N65 billion from the market.

“In addition, the CBN also mopped up over N200 billion from the system through the sale of OMO Bills on Monday.

The FX sale and the OMO (Open Market Operation Auction tightened market liquidity and pushed up interest rates.

“To moderate Debt Service Costs, the DMO adopted a conservative approach by allotting only N31.2 billion at rates between 13.50% and 13.81%,” the statement said.

Nigeria spends N643.6bn on domestic debt servicing in Q1 – DMO

Nigeria’s ministry of finance building

 

The federal government spent N643.6 billion on servicing the nation’s domestic debt for January to March, says the Debt Management Office (DMO).

In its Quarterly Debt Data for Quarter one (Q1), obtained from its website on Wednesday in Abuja, it said the figure was the total actual domestic debt service for the three months.

It said N239.8 billion was spent on domestic debt servicing in January, N144 billion in February and N259.7 billion in March.

Giving a breakdown, it said N223.4 billion was interest on Nigeria Treasury Bills/Bonds (NTBs), while N411.7 billion was interest on Federal Government Bonds.

It also said the interest on the Federal Government of Nigeria Savings Bond stood at N241.8 million and that of Federal Government Sukuk was N8.167 billion.

It noted that N279.6 billion of NTBs were redeemed in the first quarter.

According to the data, Nigeria’s public debt stock as at March 31, stood at N22.7 trillion with external debt of the Federal Government, states and the Federal Capital Territory (FCT) at N6.746 trillion.

Domestic debt of the federal government stood at N12.5 trillion, while domestic debt of states and the FCT stood at N3.38 trillion.

Giving a breakdown of the federal government domestic debt stock by instruments, it said federal government bonds was N8.96 trillion (71.32 per cent).

It added that the Nigerian Treasury Bills amounted to N3.3 trillion (26.34 per cent), while Nigerian Treasury Bonds stood at N175.9 billion (1.40 per cent).

Others are the Federal Government of Nigeria Savings Bond of N7.780 billion (0.06 per cent), Federal Government of Nigeria Sukuk N100 billion (0.80 per cent) and Green Bond which stood at N10.690 billion (0.08 per cent).

The DMO’s primary responsibility is to manage public debt, this it does by introducing initiatives and products to support the development of the domestic market.

Nigeria issues sovereign bonds monthly to support the local bond market, create a benchmark for corporate issuance and fund its budget deficit. (NAN).