Investors Shun DMO’s N225bn Bond Issuance Programme

…Only 52% Of Bonds Sold During Auctioning Programme

…Expert Blames Low Coupon Rate On Govt Bonds

The Federal Government has seen one of the worst drop in its bond auction in recent years as tighter monetary policies and low rates are scaring investors from the country’s securities.

In the October bond programme of the Debt Management Office, the government had called for the subscription of N225bn bond through re-openings of the 14.55 per cent FGN APR 2029, 12.50 per cent FGN APR 2032 and 16.25 per cent 2037 FGN bonds.

But investors were averse to the Nigerian sovereign bond which would help the government meet its fiscal obligations.

At the auction for the three tenures, the subscription by investors was only N119.18bn or 52 per cent of the N225bn which it targeted.

However, the debt manager allotted only N107.88bn bond.

According to the auction result seen by THE WHISTLER, the FG hoped to raise N75bn from the 4.55 per cent FGN APR 2029 bond, but could only raise N3.125bn.

For the 12.50 per cent FGN APR 2032 bond, out of the N75bn that was targeted, investors were only alloted N11.9bn worth of bond.

But the 16.25 per cent 2037 FGN bonds witnessed high subscription as N92.85bn was raised against the N75bn target.

The development is coming after Moody’s Investors Service (Moody’s) downgraded Nigeria’s local currency and foreign currency long-term issuer ratings as well as its foreign currency senior unsecured debt ratings to B3 from B2 and placed them on review for downgrade.

Moody’s said the “rating downgrade is driven by the significant deterioration in Nigeria’s government finances as well as its external position, exerting increasing pressure on the sovereign credit profile despite a strong increase in international crude oil prices in 2022.

“Moody’s assessment is that these developments are partly the result of weak governance and likely to last. The steep fall in oil production in 2022 and the extension of the expensive oil subsidy have almost entirely eroded the boost to government revenue and exports that would otherwise have been anticipated from higher oil prices.”

Recently, the Central Bank of Nigeria warned investors of successful bids at the Open Market Operations auctions to desist from accessing the discount window on the auction date.

The CBN said that non-adherence to the directive would lead to reversal of the allotment.

But reacting to the development, a
Professor of Capital Market Studies and the Chairman of Chartered Institute of Bankers of Nigeria, Abuja Chapter, Uche Uwaleke told THE WHISTLER that investors are apprehensive to Nigeria’s sovereign bonds for two major reasons.

They are the recent downgrade by Moody of Nigeria’s credit rating and the hike in the Cash Reserves Ratio by the CBN to 32.5 per cent from 27.5 per cent which is squeezing liquidity.

Uwaleke said, “The recent downgrade by Moody’s of Nigeria’s credit rating from B2 to B3. So, you should expect any investor (lender) in government bonds to be more cautious.

“The hike in CRR to 32.5 per cent from 27.5 per cent is squeezing a lot of liquidity from the system.”

He said one of the solutions is for government to increase substantially the coupon on any issued bonds.

He believes it will, “compensate for the risk inherent in Moody’s downgrade, in order to incentivise renewed interest in government bonds from investors.”