FG Raises N984.28bn Via Bonds In 4 Months, Amid 2022 Budget Deficit

Following the drive to raise local funds to finance the N6.26 trillion 2022 budget deficit, the federal government has borrowed a total of N984.28 billion through FGN bonds between January and April 2022, FGN bond auction result released by the Debt Management Office (DMO) has revealed.

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

The 2022 budget has a deficit of N6.26 trillion, 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 is to hit N45.86 trillion by December 2022.

The N984.28billion raised by DMO from local investors represents an increase of 43.66 per cent compared to N685.16 billion FGN bond raised in first four months of 2021.

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

The FGN Bond auction result issued by DMO revealed that the total amount offered between January and April 2022 increased to N675billion as against N600 billion offered between January and April 2021.

The DMO’s FGN bond auction result, showed that the N225 billion offered in April 2022 is the highest so far this year. The raised amount in April was N219.88billion.

The DMO in the first three months of 2022 offered N150 billion, while amount raised eventually was N764.4billion, attributable to investors’ oversubscription.

Economic Confidential gathered that the FGN bonds issued by DMO in the first four months of 2022 have recorded oversubscription despite mixed interest rates.

A total of N1.3 trillion oversubscription was reported by the DMO in the four months under review.

Monthly breakdown revealed that FG bond issuance for the month of January 2021 by the DMO recorded an oversubscription of N175.24 billion to stand at N170.64 billion despite only seeking to raise N150 billion in its 20-year bond issuance.

DMO issued two tranches of bonds in its first issuance for the year, reopening its 12.50 per cent 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.

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.

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 per cent.

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 per cent.

In addition, FGN bond issuance for April 2022 recorded an oversubscription of N184.46 billion over the intended N225 billion offered by the DMO.

The bond issuance was auctioned in three tranches with a 13.53 per cent 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 per cent.

In the same vein, the second bond programme, the 12.5 per cent FGN Apr 2042 bond raised a total subscription of N78.22 billion across 227 bids, representing an N3.27 billion oversubscription on the offered amount of N75 billion with a marginal rate of 12.50 per cent.

The DMO in April re-opened 13.00 per cent 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 per cent.

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

According to him, “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 incomes earned from the securities are tax exempt compared to treasury bills.”

Analyst at PAC Holdings, Mr. Wole Adeyeye also 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 N4 trillion, 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 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 FBN bond is a lucrative investment, stressing that the low risk involved attracted investors.

He added that, “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.”

Today (May 16, 2022), the DMO is expected to announce the outcome of the May 2022 FGN auction to influence the direction of yields in the bonds secondary market.

According to analysts at Cordros research, “At the auction, the DMO will be offering instruments worth N150.00 billion through re-openings of the 13.53 per cent FGN MAR 2025, 12.5000% FGN APR 2032 and 13.0000% FGN JAN 2042 bonds. In the medium term, we maintain our stance of uptick in yields as the FGN’s borrowing plan for 2022FY points to elevated supply.”