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Diaspora Bond: Nigeria Pays $300 Million Debt – DMO

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The Debt Management Office (DMO) has said the Federal Government of Nigeria redeemed a US$300 million diaspora bond on June 27, 2022.

According to a statement published on the agency’s website, the diaspora bond was issued on June 27, 2017 in the International Capital Market for a 5-year tenor.

Part of the fund was used to finance the deficit in the 2017 Appropriation Act. The issuance also gave Nigerian Diaspora the opportunity to invest in their home country.

DMO explained that by redeeming the bond as when due, the Federal Government has demonstrated commitment to honouring its debt obligations.

The statement read in part, “Nigeria has again demonstrated its commitment to honouring its debt obligations as at when due by the redemption of the $300m Diaspora Bond which matured on June 27, 2022.

“The Diaspora Bond was issued on June 27, 2017, for a tenor of five years in the International Capital Market and the proceeds were used to partly finance the deficit in the 2017 Appropriation Act.

“In addition to the objective of raising funds for the Government, it was an initiative to avail the Nigerian Diaspora the opportunity to invest in their home country. With the redemption of the $500m Eurobond in January 2021 and recently, the $300m Diaspora Bond, the FGN has increased investors’ confidence in its commitment and ability to fulfil its debt obligations at maturity thereby reinforcing its presence in the International Capital Market.”

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

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A Challenging Bond Auction for the DMO – Coronation Merchant Bank

The DMO held its monthly auction of FGN bonds yesterday. It offered N225bn but raised N200.9bn (USD466.5m) through re-openings of the 2025, 2032 and 2042 FGN bonds.

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The DMO held its monthly auction of FGN bonds yesterday. It offered N225bn but raised N200.9bn (USD466.5m) through re-openings of the 2025, 2032 and 2042 FGN bonds.

The participation level was higher when compared to the auction held in July. However, total subscriptions remained lower when compared with the average of the first six months of 2022. The DMO secured a total bid of N247.1bn (USD574.6m) at the bond auction held yesterday.

The bids for the 3, 10 and 20-year benchmarks were allotted at the marginal rates of 12.5% (previously; 11.0%), 13.5% (previously; 13.0%) and 14.0% (previously; 13.7%) respectively.

The relatively low demand at the auction mirrors tight system liquidity. We note that market liquidity stood at a deficit of -N3.6bn on Friday (12 August ‘22). Overnight and repo rates closed within a range of 12 – 15%. The tightness in system liquidity can be partly attributed to CBN’s continuous use of the discretionary cash reserve ratio (CRR) debits.

We suspect that the negative real interest rates given the elevated inflation figure has contributed to investors’ apathy towards FGN bond yields. The latest inflation report released by the NBS shows July’s headline inflation increased by 104bps (when compared with the previous month) to 19.64% y/y. This is the highest reading since 2005.

Meanwhile, average yield in the secondary market for FGN bonds is 12.7% (as at 16 August ’22). The CBN’s in-house estimates suggest that inflation is likely to remain considerably high, partly due to the build-up of increased spending related to the 2023 general elections.

The monetary policy committee (MPC) believes that further tightening would help moderate worsening inflationary trend and narrow the real interest rate gap. The MPC/CBN raised the policy rate by 100bps from 13% to 14% in July ‘22. However, given the upward trend in inflation, expectations of another rate hike is not far-fetched.

The DMO had set out to raise a maximum of N1.9trn by end -Q3 ’22. However, year-todate, it has raised N2.1trn. exceeding its target by 12% or N220bn. Given that the debt management office is expected to offer instruments worth N221 – 240bn through reopenings of the 13.53% FGN MAR 2025, 12.50% FGN APR 2032 and 13.00% FGN JAN 2042 bonds in September, the DMO is likely to exceed its borrowing target for FGN bonds by end -Q3 ’22.

Allowing for the smaller amounts which the FGN raises from the sale of other debt instruments such as NTBs and savings bonds, DMO is on track pro rata to meet or exceed the domestic borrowing target for the year set at N3.53trn.

The FGN was unable to meet its revenue target for Jan – Apr 2022, it underperformed by 51%. FGN’s retained revenue stood at N1.63trn, compared to the prorate target of N3.32trn. Debt service (N1.94trn) accounted for 119% of the FGN’s revenue in April ‘22.

In the near term, we expect increased borrowing (via FGN bonds) to result in an uptick in yields across the curve. We see mid-curve FGN bond yields around 12.0 – 13.5% and yields at the longer-end of the curve between 13.25% – 14.25% over the next one month.

However, the level of system liquidity (impacted by items such as auctions, CRR debits/refunds, bond/NTB maturities, coupon payments and FAAC allocation) would also influence movement in yields.

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Sub-optimal Demand at DMO’s Latest Bond Auction

Demand was considerably lower, as the DMO secured a total bid of N142.3bn (USD331.6m)

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Bonds- Investors King

The DMO held its monthly auction of FGN bonds on Monday. It offered N225bn but raised N123.9bn (USD288.7m) through re-openings of the 2025, 2032 and 2042 FGN bonds.

Demand was considerably lower, as the DMO secured a total bid of N142.3bn (USD331.6m). The bids for the 3, 10 and 20-year benchmarks were allotted at the marginal rates of 11.0% (previously; 10.1%), 13.0% (previously; 12.5%) and 13.7% (previously; 13.2%) respectively. The DMO has a domestic funding target of N3.53trn to finance the projected deficit of N7.35trn in the FGN’s 2022 budget.

The relatively lower demand at the auction is reflective of tight system liquidity which can be partly attributed to CBN’s continuous use of the discretionary Cash Reserve Ratio (CRR) debits.

According to the MPC/CBN, the use of discretionary CRR debits are vital in controlling excess liquidity. We note that system liquidity stood at -N169.5bn as at 18 July ‘22.

Investors’ apathy towards the current level of FGN bond yields is another reason for weaker demand. The domestic fixed income market is currently dominated by local investors and real interest rates have remained negative. The headline inflation stood at 18.60% y/y in June ‘22. This is the highest headline inflation rate since January ‘17.

At its latest meeting held yesterday, the monetary policy committee raised the monetary policy rate (MPR) from 13% to 14%. The committee expects this additional tightening to assist with moderating rising inflation and narrow the real interest rate gap.

For Q3, the DMO plans to raise between N630bn – N720bn through FGN bonds. The debt management office had set out to raise between N1.7trn – N1.9trn by end-Q3 ’22.

However, year-to-date, it has raised N1.9trn. Therefore, the DMO is likely to exceed its borrowing target for FGN bonds by end -Q3 ’22. Allowing for the smaller amounts which 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.

In the secondary market for FGN bonds, YTD the average yield has declined by 8bps. In the near term, we expect yields to trend upward on the back of increased supply by the FGN. On a separate note, the international debt market is now more expensive for emerging economies like Nigeria amid monetary policy tightening by advanced economies.

We see mid-curve FGN bond yields around 11.5% – 12.7% and yields at the longer-end of the curve between 12.5% – 13.7% over the next one month. However, the level of liquidity (influenced by items such as auctions, CRR debits/refunds, bond/NTB maturities, coupon payments and FAAC allocation) would also impact the movement in yields.

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MTN Nigeria Seeks Approval to Raise N200 Billion for Network Expansion

MTN Nigeria, Africa’s leading telecommunication company, is seeking approval from the Securities and Exchange Commission to raise another N200 billion via bond issuance for network expansion.

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MTN Nigeria, Africa’s leading telecommunication company, is seeking approval from the Securities and Exchange Commission to raise another N200 billion via bond issuance for network expansion.

The telecom giant disclosed this in a statement signed by Uto Ukpanah, Company Secretary, MTN Nigeria, and obtained by Investors King.

According to the statement, this is a follow-up to the N200 billion debut bond issued in 2021 under the company’s N110 billion 13% 7-year series I bonds due 2028 and N90 billion 12.75% 10-year series II bonds due 2031.

MTN Nigeria plans to use the proceeds of the bond issuance for capital expenditure such as network expansion, working capital management, and general corporate purpose.

“The company will decide on issuances under the Second Bond Issuance Programme in due course subject to prevailing market conditions and obtaining relevant regulatory approvals,” the company added.

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