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Another Decent Bond Auction for the DMO – Coronation Merchant

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The DMO held its monthly auction of FGN bonds on Monday last week. It offered N225bn but raised N226.1bn (USD536.5m) through re-openings of the 2025, 2032 and 2042 FGN bonds.  Demand was considerably higher, as the DMO secured a total bid of N552.4bn.

The successful bids for the 3, 10 and 20-year benchmarks were allotted at the marginal rates of 10.1% (previously; 10.0%), 12.5% (unchanged) and 13.2% (previously; 13.0%) respectively from the auction conducted in May ‘22.

Coronation Merchant analysts observed that the DMO has a domestic funding target of N3.53trn and an external funding target of N2.56trn. This is to finance the projected deficit of N7.35trn in the FGN’s 2022 budget.

Based on the DMO’s bond issuance calendars, the debt management office set out to raise a total volume of between N1.1trn – N1.2trn in H1 ‘22. However, the DMO has raised N1.8trn at its bond auctions which include non-competitive sales to public agencies.

Allowing for the smaller amounts the FGN raises from the sale of other debt instruments such as NTBs and savings bonds, it is on track pro rata to meet the domestic borrowing target for the year.

On external borrowing, in March ’22, the DMO raised USD1.25bn (N526.8bn) through Eurobonds. However, In May ‘22, the finance minister stated that Nigeria is unlikely to borrow from the international capital market in the near-term. This is as a result of worsening external financing conditions as advanced economies tighten their monetary
policies to combat rising inflation.

Coronation Merchant notes that the average yield in the Eurobond market for sovereigns under our coverage has increased to 12.9% (as at 30 June ’22 ) from 7.2% at end-2021. Therefore, Coronation Merchant expects increased borrowings in the domestic debt market. However, the DMO’s bond issuance calendar for Q3 ’22 is yet to be published.

FGN bonds represented 70.7% of total FGN domestic debt as at end-March ’22, compared with 72% at end- December ‘21. It is worth highlighting that investors also have access to alternative fixed-income instruments such as corporate bonds and commercial papers.

According to the FMDQ, as at 30 June ’22, the collective market capitlisation of these instruments stood at N1.5trn.

Nigeria’s domestic fixed income market has been dominated by local investors since the peak of the pandemic in 2020. The participation of foreign portfolio investors in recent auctions has been minimal.

The latest monthly report by National Pension Commission (PENCOM) show that as at end-May ’22, FGN bonds held by pension fund administrators had increased by 3% m/m and 10.4% y/y to N8.5trn.

The PENCOM report shows that FGN bonds accounted for 59.7% of total assets under management, compared with 61.5% recorded in the corresponding period of 2021.

Although, the long-tenure nature of FGN bonds (with maturities of up to 50 years) contributes to the attractiveness of this asset class. YTD average yield in the secondary market for FGN bonds has declined by 37bps.

Is the CEO/Founder of Investors King Limited. A proven foreign exchange research analyst and a published author on Yahoo Finance, Businessinsider, Nasdaq, Entrepreneur.com, Investorplace, and many more. He has over two decades of experience in global financial markets.

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Ghana’s Eurobond Holders Pressured for Major Concessions in Debt Talks

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Ghana’s eurobond holders are being urged to accept significant reductions in their payments to align with the terms agreed upon by bilateral creditors, according to social justice organizations.

London-based Debt Justice, formerly the Jubilee Debt Campaign, and Accra’s Integrated Social Development Centre (Isodec) have called for bondholders to agree to a 50% cut in debt payments, arguing that this is necessary to match the relief granted by countries such as the UK and China.

The current discussions suggest that the debt relief being considered would result in bondholders receiving 15% more than bilateral creditors.

Debt Justice and Isodec stated that for bondholders to receive terms as favorable as those extended to government creditors, a 50% reduction in their payments is essential.

Ghana is restructuring nearly all of its $44 billion obligations as part of the conditions for a $3 billion International Monetary Fund (IMF) program.

After completing a domestic debt exchange last year, the nation is now close to finalizing an agreement with its bilateral lenders to restructure $5.4 billion and aims to reach a permanent deal with investors on $13 billion of US currency bonds by the end of June.

“Ghana’s negotiations with bondholders are at a crucial stage,” said a joint statement from Debt Justice and Isodec. “For a deal to be struck, bondholders must offer at least as favorable terms as government creditors, and the IMF must confirm that the terms meet their debt relief targets.”

Ghana’s initial agreement with bondholders, reached in April, was rejected by the IMF as it did not demonstrate a sufficient reduction in the country’s debt-to-GDP ratio, which is required to be reduced to 55% by 2028.

The initial proposal would have repaid bondholders 71 cents for every dollar lent, whereas an agreement in principle reached with official creditors in January offered 62 cents for every dollar lent.

“This means that for payments to bondholders to be reduced to 62 cents for every dollar lent—matching payments to governments—they would have to be cut by 50%,” stated the NGOs.

Ghana, utilizing the Group of 20’s Common Framework to reorganize its bilateral loans, recently received a draft memorandum of understanding from its official creditor committee.

The country is currently renegotiating some terms with these creditors to finalize an agreement that aligns with the January in-principle pact.

Signing this memorandum of understanding will enable the IMF to make its third disbursement of $360 million to Ghana, increasing the total amount received under the program to $1.56 billion since it began in May last year.

The G-20 framework has broadened the traditional Paris Club of sovereign creditors to include major lenders such as China, reflecting a more inclusive approach to global debt restructuring.

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Senegal Secures $750M Debt Deal Amid Investor Confidence Surge

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Senegal has secured $750 million in debt through bond sales as investors’ confidence in the nation’s economy surged.

Senegal is the fourth sub-Saharan African nation to tap into the bond market this year, suggesting a renewed sense of stability and economic promise.

The bond, which matures in 2031, was issued in two tranches at a coupon rate of 7.75%. Initially, $500 million was sold on Monday with an additional $250 million on Tuesday.

According to data compiled by Bloomberg, JPMorgan Chase & Co. acted as the lead manager for the bond issuance. A spokesman for Senegal’s Treasury confirmed the total amount raised.

The successful bond sale marks a notable turnaround for Senegal, which faced considerable uncertainty earlier this year.

Former President Macky Sall had postponed the elections originally scheduled for February, prompting widespread protests and raising concerns about political instability.

However, the situation stabilized when Sall conceded to public pressure and held the vote in March.

The election saw opposition leader Bassirou Diomaye Faye triumph over Sall’s chosen successor. Faye’s victory brought initial unease regarding his policy direction, but market sentiment has since improved.

According to Samir Gadio, head of Africa strategy at Standard Chartered Bank, market uncertainty has significantly moderated post-election, though some risk premium persists.

“This market comeback by Senegal was unexpected so soon, even though investors generally felt the country could be a candidate for a new issuance,” Gadio remarked, emphasizing the surprise and optimism surrounding the bond sale.

The proceeds from this bond issuance are expected to bolster Senegal’s financial reserves, providing a buffer for potential additional financing needs.

This includes the repayment of $162.9 million on a bond maturing in July, which is a crucial step in maintaining fiscal stability.

Economic projections from the International Monetary Fund (IMF) are optimistic about Senegal’s future.

The IMF anticipates the country’s budget shortfall will decrease to 3.1% of GDP in 2024 from 3.9% last year.

The commencement of oil and gas production later this year is expected to significantly boost economic growth, potentially doubling the growth rate to 8.3%.

Moreover, the IMF forecasts a decline in Senegal’s debt-to-GDP ratio, from 79.6% last year to 72.5% in 2024. This reduction follows increased borrowing to finance stakes in oil projects and election preparations.

Senegal’s successful bond issuance comes in the wake of other sub-Saharan African nations re-entering the international capital markets.

Ivory Coast led the way with a $2.6 billion eurobond sale in January, followed by Benin and Kenya, which raised $750 million and $1.5 billion, respectively.

The positive reception of Senegal’s bond sale signals a broader investor confidence in the country’s political and economic trajectory under Faye’s leadership.

With the anticipated start of oil and gas production, Senegal is poised for substantial economic growth, making it an attractive prospect for investors seeking stability and returns in emerging markets.

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Investor Appetite Wanes as FG Bond Auction Sees Lowest Participation of the Year

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Subscription for the Federal Government bond auction on May 13, 2024 was the lowest so far in 2024.

Despite the subdued interest, the government successfully raised N380.76 billion, albeit experiencing a 39 per cent reduction compared to the proceeds from the previous month’s auction.

The aggregate subscription across all tenors amounted to N551.316 billion, representing a decrease from the N920.08 billion recorded in the preceding month.

The Debt Management Office (DMO) reported a non-competitive allotment of N301.30 billion.

The auction featured various bond tenors with the new 9-year bond taking center stage. This bond attracted substantial interest, garnering N373.875 billion in subscriptions.

Of this amount, N285.124 billion was allotted, inclusive of N179.00 billion under non-competitive bids.

The bids ranged from 16.95 per cent to 22.00 per cent, eventually settling at a marginal rate of 19.89 per cent.

Meanwhile, the 7-year bond received bids totaling N76.875 billion, with N62.975 billion allotted. Non-competitive allotments accounted for N85.80 billion.

The bids ranged from 17.20 per cent to 20.80 per cent, resulting in a final marginal rate of 19.74 per cent.

In addition, the 5-year bond attracted bids amounting to N100.56 billion, with an allotment of N32.67 billion.

An additional N36.500 billion was allocated through non-competitive bids. Bids spanned from 17.50 per cent to 21.00 per cent, and the marginal rate was set at 19.29 per cent.

The subdued subscription level in May 2024 indicates a lack of robust investor participation in government bonds compared to previous auctions.

This decline in investor interest could be attributed to various factors, including prevailing market conditions, economic uncertainties, and evolving investment preferences.

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