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FG August N135 Billion Bond Fails with 41.5% Subscription

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  • FG August N135 Billion Bond Fails with 41.5% Subscription

The federal government’s N135 billion bonds issued by the Debt Management Office in August was 41.5 per cent subscribed as the agency could only raise N56.05 billion from the auction. The latest auction reflects a poor outing not experienced in the market in a very long time and is a sharp contrast to the January auction, where the bonds were sold at slightly higher rates but raised a total of N215 billion, 165.3 per cent of the amount that was on offer.

The auction for the N135 billion bonds, which proceeds the federal government plans to finance part of the deficit in the 2017 budget opened on August 23 and closed on August 25, 2017.

The bonds, floated in three tranches of N35 billion FGN Bonds, N50 billion FGN Bonds and N50 FBN Bonds were sold at 14.5 per cent, 16.2884 per cent and 16.2499 per cent respectively. They, respectively, have 5-year (July 15, 2021), 10-Year (March 17, 2027), and 20-Year (April 18, 2037) maturities.

The bond auction coincided with the open market operation (OMO) of the Central Bank of Nigeria and an FX auction also conducted by the apex bank. A total of N171billon in OMO bills was sold by CBN on Monday, August 21; Tuesday, August 22 and Wednesday, August 23 – all in the same week the DMO (Wednesday) auction failed.

The poor subscription to the bonds might not be unconnected with investors’ preference for the 1-year tenor OMO bills, which were more attractive at 18.549 per cent than the bonds that were sold at the rate of 16.80 per cent of at least 5-year tenor.

Besides, market sources reasoned that, “When you consider that over N200 billion of OMO bills were sold in the prior week, then one might argue that CBN took all the money from the system so nothing was left for the bond auction.”

“Even if they had taken all the money offered at the maximum bid rate, they would have raised only N63.65 billion, a 47.1 per cent success rate. This abysmal level of interest has not been seen in a few years,” a treasurer lamented.

The results of the CBN OMO auction revealed that, a total of N171.072 billion worth of treasury bills were sold, broken down into N51.929 billion sold on August 21; N60.866 billion sold on August 22 and N58.277 billion sold on August 23.

An industry source, who is a dealer in one of the major banks, noted: “With the 1-year tenor OMO selling for a discount rate of 18.549 per cent, this is actually a true yield of 22.60 per cent. With risk free 1-year rates at that level, there is no way long term bonds can sell in large volumes at 16.9 per cent yield. This inverted yield curve has been with us for over a year and shows no signs of normalising.”

On concerns raised on budget deficit financing, Director, Union Capital Ltd, Egie Akpata, reasoned that, “The low subscription levels of the August DMO bond auction were very unusual and so it is premature to say if it will have any impact on the FGN budget deficit funding.”

Cautioning that, “If we should have another month of such low performance this year, then a few more questions might need to be asked.” Akpata, however, allayed the fears that the bond failure has left the government with scarce resources. “It is worth noting that in the January bond auction, DMO took up N215 billion as against an initial plan of N130 billion so there is some room to have sub par auctions and still raise the funds to finance the budget deficit.”

The director, who is a capital market operator, acknowledged that, “The CBN has successfully stabilised the exchange rate and is bringing down inflation by maintaining very tight liquidity conditions.” He, however, cautioned that, “Any deviation from that script could easily send the naira into a free fall, inflation could rise and the economy fall back into recession.”

“However, it is very likely that this laser focus on liquidity management starved the August DMO bond auction of much needed demand. I would expect to see better coordination between the CBN and DMO around future auctions. At least now the FGN/DMO knows what other bond issuers face trying to issue long term debt into a market where CBN is paying up to 22.6 per cent for 1 year risk treasury bills,” he added.

CEO/Founder Investors King Ltd, a foreign exchange research analyst, contributing author on New York-based Talk Markets and Investing.com, with over a decade experience in the global financial markets.

Finance

Emefiele Pledges Accommodative Monetary Policy to Boost Economic Growth

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Godwin Emefile

Emefiele Pledges Accommodative Monetary Policy to Boost Economic Growth

The Central Bank of Nigeria (CBN), Mr. Godwin Emefiele, has pledged to adopt accommodative monetary policy stance in 2021 in order to support economic growth in the country.

Emefiele, said this on Friday, while speaking at a CBN/Bankers’ Committee’s initiative for economic growth, which is a one-day special summit on the economy by bank chief executive officers.

The theme of the summit is: “How to Overcome the Pitfalls of Recession.”

Nigeria’s economy recently came out of recession, according to the Gross Domestic Product report for fourth quarter 2020 released by the National Bureau of Statistics.

Owing to the slump GDP growth of 0.11 per cent that lifted the economy out of recession, Emefiele said it was imperative that, “we do all we can in 2021 and beyond to ensure that we build on the positive momentum and strengthen our efforts at stimulating growth.”

He expressed optimism that with the discovery and deployment of vaccines worldwide, 2021 would be a year of massive global recovery and Nigeria must not be left out.

“The banks CEOs are here, whether by moral suasion or by force, they will have to participate in this journey. In order to drive and sustain this recovery therefore, we need to sustain the accommodative fiscal and monetary policy measures aimed at improving access to finance for households and businesses.

“Secondly, we must prevent a resurgence in Covid-19 related cases. Thirdly, we must ensure that a significant number of our population is significantly vaccinated and also improve foreign exchange inflows into our country,” he added.

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Banking Sector

CIT Microfinance Bank Disburses Over N16bn Loans

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CIT Microfinance Bank Disburses Over N16bn Loans

CIT Microfinance Bank Limited says it has disbursed about N16bn loans since it commenced operations as part of its contributions to the financial sector and empowerment of businesses.

The Managing Director of the microfinance bank, Mr Kingsley Eremionkhale, disclosed this during the company’s 10th anniversary in Lagos recently.

He reiterated that the bank was committed to supporting the growth of small and medium-scale enterprises in the country.

“Since inception, we have disbursed loans worth about N16bn. Our operation is not just about profit-making, but we have impacted many lives, empowered many businesses, and done a lot in terms of our core mandate as a microfinance bank.”

While appreciating its customers who had been loyal to it for years, he said it was concerned about their business success.

The managing director said, “We are part of our customers’ businesses. We provide services beyond lending and savings products and we also give financial advisory services.”

He appreciated the customers who had stayed with the financial institution for many years.

The managing director noted that the MfB is a state-licensed bank operating in Lagos, and a subsidiary of Capitalfield Investment Group.

He also attributed the success of the MfB to the board of directors which it said had been supportive, the management team and its workforce in the past 10 years.

While saying that the bank could lay claims to exponential growth, he said the public should expect more from it.

He also said that it was driving its operations through its digital offerings and our e-channels, to improve its services to our customers.

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Finance

FMDQ Approves Valency Agro’s N5.12bn Commercial Paper

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FMDQ

FMDQ Approves Valency Agro’s N5.12bn Commercial Paper

FMDQ Securities Exchange Limited has announced the approval of the quotation of the Valency Agro Nigeria Limited N5.12bn Series 1 Commercial Paper under its N20bn CP Programme on its platform.

The Exchange said in fostering the development of the Nigerian debt capital markets, it had continued to avail its credible and efficient platform as well as tailor its listings and quotations services to suit the needs of issuers and registration members through innovative and uninterrupted service delivery.

It said in a statement on Thursday that the Valency Agro Nigeria CP debut issue came at a time when the Nigerian economy was bedeviled with soaring food prices, amidst compounding challenges of insecurity.

It said the agricultural sector and its attendant transformation agenda had never been more important in driving increased and sustainable production of agricultural products as well as the derived foreign earnings through exports.

The Exchange said the proceeds from the issue of the CP would be applied by Valency Agro towards meeting the mid-term working capital requirements of the various agricultural produce under its portfolio such as cashew, sesame, cocoa and in value addition prior to export.

The Executive Director, Valency Agro Nigeria Limited, Mr Sumit Jain, was quoted as saying, “We are thankful to our investors towards showing their faith in our agenda to grow the agriculture-focused business with a clear aim to maximise value addition and create employment opportunities in Nigeria.

“We would also like to commend the efforts made by FBNQuest Merchant Bank Limited’s team to build the reach and FMDQ for their unconditional support for the industry”.

The Head, Capital Markets, FBNQuest Merchant Bank, Mr Oluseun Olatidoye, said, “FBNQuest Merchant Bank Limited is delighted with the successful debut of the N5.12bn Series 1 CP issued by Valency Agro Nigeria Limited. This reiterates our effort to enable underserved sectors access the debt markets, optimise their capital structure and further deepen the domestic capital markets.

“We are proud of the instrumental role FBNQuest Merchant Bank played in this transaction and appreciate the trust the management of Valency Agro placed in us to assist them. Our clients remain our priority, and we strongly believe their success is our success.”

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