DLM Capital Group has redeemed a major part of the CERPAC Receivables Securitization Funding SPV and paid investors involved in the N25 Billion Future Flow Receivables backed Securitization transaction, a total of N20.161Billion.

These redemptions were for the Discrete and Series 1 bonds executed by the Group.

The CERPAC N25 Billion Securitization Programme is a five-year bond issuance created in May 2017 when Continental Transfert Technique Limited (“the Sponsor”, “the Seller”) sponsored the incorporation of the special purpose vehicle, to raise funds in connection with the funding program for the purchase of current and future receivables accruing to the seller from the sale of the Combined Expatriate Residence Permit and Alien Cards (CERPAC Cards) in Nigeria.

CERPAC Receivables Funding SPV is unique in the sense that the only metric that informs the success of the company is the performance of the purchased CERPAC Receivables, which in turn are used to service the SPV’s debt obligations.

Since its creation in 2017, CERPAC has had four issues: the first N4.877Bn 5-year 18.25% Discrete Bond due 2023, the N12.5Bn 5-year 15.25% Series 1 bond due 2023, N1.600Bn 5-year 15.5% Series 2 bond due 2023, and the N1.250Bn Series 3 bond due 2028.

In November 2019, an asset backed commercial paper of about N2.87billion was issued and fully repaid in June 2020.

On the 15th of January 2023, the Discrete N4.8Bn and Series 1 N12.5Bn matured and were fully paid. Upon the final payment of both the Discrete and Series 1 bonds, DLM also refunded the total sum of N2.3Bn kept in the Reserve accounts to Continental Transfert Techniques Limited.

Since the course of the CERPAC transaction, DLM Capital Group had raised about N23.011Bn and paid a total sum of N31.144Bn covering both Principal and coupons to date. The CERPAC Series 2 and 3 bonds will mature on 15^th July 2023 and 15^th July 2028, respectively.

Mr. Sonnie Babatunde Ayere commented as follows, “the current collateral cover to the remaining investors in Series 2 & 3 as at December 2022 was 34.5x, average DSCR (including principal) is approximately 4x and current credit enhancement is 64.17%.

Based on these facts, the rating agencies should have re-rated the deal for an upgrade. This was the first ever SEC approved combined offer, which allowed the SPV to issue both debt & equity at the same time and from the same prospectus to investors.

Whilst the debt has performed fantastically well, so has the equity. The equity investment returned year-on-year, an average of 55.65% per annum beating most market indices, appreciating from N50 a share to N189 a share as of December 2022.

Finally, whilst this transaction was initially frowned upon by real money managers in 2017, we were glad to note that at final redemption, a big chunk of the paper was finally held by the Funds as they had come to find comfort from its fantastic performance and transparency”.

DLM Advisory, headed by Mr. Emeka Ngene, (the Group’s investment banking subsidiary) acted as the Issuing House on the deal while DLM Trust Company Limited (the Group’s Trustee subsidiary) was the Lead Bond Trustee.

The Managing Director, DLM Trust Company Limited, Mrs. Ololade Razaaq remarked that the receivables had posted very strong cashflows over the last decade till date. “Since the inception of the programme, there have been no record of delinquency or default as all investors received their principal and full coupon as and when due.

This was also the first transaction in Nigeria to provide investors with a 100% transparency by providing investors with detailed monthly performance reports”.

Other successful securitization transactions executed by DLM Capital Group include the Primero BRT Securitization, the MAX Receivables Securitization SPV Ltd and the NMRC Pass-Through transaction which is still ongoing.

The DMO held its monthly auction of FGN bonds on Monday (20 March ’23). It offered N360bn (USD780.1m) but raised N563.2bn (USD1.2bn) through re-openings of the 13.98% FGN FEB 2028, 12.50% FGN APR 2032, 16.25% FGN APR 2037, and 14.80% FGN APR 2049 FGN bonds.

The participation level (demand) at this auction declined by -22.6% to N808.4bn (USD1.7bn) compared with N991.9bn (USD2.1bn) recorded in February ’23. The bids for the 5, 9, 15, and 27-year benchmarks were allotted at the marginal rates of 14.00% (previously 13.90%), 14.75% (previously 14.90%), 15.20% (previously 15.90%), and 15.75% (previously 16.00%) respectively. Bid-to-cover stood at 1.4x

YTD the DMO has now raised NGN1.9trn at its bond auctions, exceeding its borrowing target (via FGN bonds) by 58.3% in Q1 ’23. It is clearly on track pro rata to meet the target for H1 2023.

The MPC/CBN raised the policy rate by 50bps to 18% at its latest meeting held in March. Further tightening is expected to offset the upward risk in price development and narrow the real interest rate gap. There was a slight uptick in the average FGN bond yield following the 50bps rate hike. We note that MPR – Inflation is currently at -3.9%.

The domestic institutions are still the core buyers of the bonds, which accounted for 61.5% of the assets under management of the PFAs at end-December ‘22. Some foreign portfolio investors (FPIs) outside the payments pipeline may be tempted back into the market by a little more retracement. More likely in our view, the domestic institutions will again make the running and the FPIs will generally stick with less complicated trades with similar (or better) returns elsewhere.

Looking ahead we expect a small boost to system liquidity due to an FGN bond maturity, NTB maturity, bond coupon payments and an OMO maturity in April and May. These maturities and coupon payments collectively amount to N1.45trn. A slight moderation in the avenge yield of fixed income instruments is likely.

In H2 2023 liquidity is expected to reduce while domestic borrowing increases, potentially resulting in further upticks in yields. However, the level of system liquidity largely impacted by items such as auctions, CRR debits/refunds, bond/NTB maturities and coupon payments would influence the movement in yields.

Over the next month, we see the mid-curve FGN bond yields around 13.7% – 14.9% and yields at the longer end of the curve between 13.5% – 15.8%.

The Debt Management Office (DMO) in Nigeria has announced that it raised N724.9 billion in the Federal Government bond auction held on February 13, 2023.

This marks a 100% increase compared to the previous year. A total of 577 bids worth N724.9 billion were received for the N360 billion amount offered, with the total amount allotted being N771.56 billion, Investors King reports.

Successful bids were allotted at marginal rates of 13.99%, 14.90%, 15.90%, and 16.00%, respectively, for the 10-year, 10-year, 20-year, and 30-year bonds. The auction was part of the DMO’s efforts to raise funds for the implementation of the Federal Government’s 2023 budget and to finance critical infrastructure projects across the country.

While Nigeria’s rising debt profile has been a topic of concern, the DMO has been actively promoting the issuance of FGN bonds as a means of diversifying the country’s funding sources and reducing its dependence on short-term borrowing.

The FGN bond market has grown significantly in recent years, with a wide range of maturities and attractive yields for investors.

The success of the February 2023 FGN bond auction highlights the continued strong demand for FGN bonds and the government’s commitment to meeting its funding needs through the capital markets.

The settlement date for the auction was February 15, 2023, and the bonds will mature between February 2028 and April 2049.