Investors on Edge as Delay in Sukuk, Savings Bond Payments Raise Concerns

Samuel Mobolaji

Investors are growing anxious as delays in payments of the Federal Government of Nigeria (FGN) Savings Bond coupons and Sukuk bond obligations persist.

More than two weeks after the scheduled payment date, subscribers to the FGN Savings Bond have yet to receive their coupons, prompting concerns about the reliability of these government-backed securities.

The Debt Management Office (DMO), which oversees the issuance of government bonds, recently announced that it raised N3.59 billion from the September 2024 auction. However, it attributed the payment delays to “system issues.”

Despite assurances from the DMO that the technical problem is being resolved, analysts warn that if not quickly addressed, it could erode investor confidence in government securities.

In addition to the delayed Savings Bond payments, it was gathered that there have also been delays in settling some Sukuk bond obligations.

Sukuk bonds and the FGN Savings Bond have been popular among retail investors due to their perceived safety. The FGN Savings Bond, in particular, allows individuals to invest with as little as N5,000, making it an accessible option for small-scale investors seeking a secure return.

Director-General of the DMO, Patience Oniha, acknowledged the issue, stating that the delay was due to a “system, process issue” and assured investors that the problem is being addressed and would be resolved in the coming days.

However, the situation has raised deeper concerns among analysts. Delays in bond payments may signal broader issues within the government’s fiscal management, particularly given the pressure from Nigeria’s rising debt burden.

Analysts point out that this delay, though technical, could have significant implications for confidence in treasury securities and might raise doubts about the government’s ability to meet its financial obligations.

Nigeria’s debt servicing costs have been rising rapidly, putting further strain on the country’s finances. According to fiscal data published on the government’s Open Treasury platform, debt service payments reached 2.3 trillion naira in the first three months of 2024. This figure is nearly double the government’s revenue of 1.4 trillion naira over the same period, highlighting the increasing challenge of managing the national debt.

Despite these concerns, the DMO continues its borrowing activities. It raised N2.748 billion through the 3-year savings bond at an interest rate of 18.202 per cent and N843.58 million through the 2-year bond at 17.202 per cent during the September auction.

Additionally, the DMO is expected to raise up to N150 billion this week through the sale of FGN Bonds.

While the DMO is confident that the current payment delay will be resolved soon, investors remain wary.

The growing debt burden and delays in bond payments are contributing to a jittery atmosphere among bondholders, potentially impacting the long-term appeal of government securities in the market.