How Nigeria raises N269bn at high rates from debt market

How Nigeria raises N269bn at high rates from debt market

The Debt Management Office (DMO) on behalf of the Federal Government of Nigeria (FGN) raised a whopping N269billion from bonds reopenings as the subscription levels improved significantly but at an increased spot rates.

Just recently, the Nigerian debt office offered N225 billion but raised N269.1 billion, through re-openings of the 14.55 per cent FGN APR 2029, 12.50 per cent FGN APR 2032 and 16.24 per cent 2037 FGN bonds.

Demand level improved on a month-on-month basis, as the DMO secured a total bid of N344.0 billion compared with a total bid of N119.2 billion at last month’s auction, according to Coronation Research.

Analysts said the bids for the APR 2029, APR 2032, and 15-year tenor benchmarks were allotted at the marginal rates of 14.75 per cent (previously: 14.5%), 15.2 per cent (previously; 15.0%), and 16.2 per cent (previously; 16.0%) respectively. The auction result shows that bid-to-cover stood at 1.27x, compared with 1.10x in October.

The demand at this auction primarily reflects improved system liquidity and end-year rebalancing/portfolio build-up by fund managers, according to analysts’ notes. Healthier system liquidity was attributed to inflows of N105 billion and N193 billion on the back of recent maturities from OMO and NTB instruments.

The upticks recorded in FGN bond yields since the last auction in October combined with the three consecutive month-on-month declines recorded in headline inflation have encouraged fund managers to proceed with end-year rebalancing activities or portfolio build-up, Coronation Research said.

Headline inflation surged moderated to 1.24 per cent compared with 1.82 per cent in July 2022, according to data from the National Bureau of Statistics.

The DMO’s bond issuance calendar shows a plan to raise a maximum of N2.47 trillion through FGN bonds to meet a domestic borrowing target of N3.53 trillion.

However, year-to-date, it has raised N2.75 trillion, exceeding the target by about N284.4 billion, according to a Coronation Research note. Based on the proposed 2023 FGN budget, the projected deficit is estimated at N10.8 trillion, representing 4.8 per cent of the estimated 2023 nominal gross domestic product (GDP).

Coronation Research said this is above the three per cent threshold set by the Fiscal Responsibility Act 2007, noting that the deficit would be financed mainly by new borrowings totalling N8.8 trillion.

The balance is expected to come from privatization proceeds and drawdowns on bilateral/multilateral loans secured for specific development projects/programmes, analysts stated.