Election – Induced Bond


11th of August, 2010


The Nigerian Senate has approved a N87.7 billion supplementary budget to fund the forth coming electoral polls which is being proposed to take place in January 2011. The electoral body has specifically stated that the funds are necessary to enable the country conduct credible elections.


Breakdown of the budget is as follows:

1.                  ICT Voter Registration: N54.9 billion

 2.                  Vehicles: N4.0 billion

 3.                  Review of voter register: N5.4 billon

 4.                  Operations and Personnel cost requirements: N10.8 billion

 5.                  Hotel accommodation for political appointees: N222 million


The above breakdown totals N75.322 billion. However, we highlight that the INEC Chairman requested the need for an additional N10 billion, which was to fund hazard and sundry allowances for staff of the Commission. The above electoral budget was apparently excluded from the approved 2010 budget, creating the need to fund the supplementary expenditure via a domestic bond issuance.


We expect that this will be supplementary to the already planned monthly FGN bond auctions. We recall that the government is expected to raise N315 billion in bonds in the Q3 2010, with N105 billion apportioned for each month within the 3 month period. The July auction has already been concluded for the said amount. We expect the election- induced bond auction will take place in Q3 2010 as well, in order to provide the required amount early enough to fund INEC’s preparatory activities, if the polls are expected to be conducted in January 2011.


With this bond issue, Nigeria’s domestic debt profile is likely to increase by about 2.3%. It currently stands at N3.76 trillion as at 30th June 2010 of which FGN bonds account for 63.97%.


The expected participants in the bond issue are expected to be the PDMMs (DMBs and Discount Houses), Pension Fund Administrators, Asset Management funds, Oil Majors, and Insurers.


We however highlight the unattractive yield on domestic debt instruments, across most maturities, which are currently sub-inflation. At the last July auction the 3-Yr closed at 7.48%, 5-Yr 8.85%, 20-Yr 10.0%. At the penultimate June auction, the 3 Yr closed at 6.24%, 5-Yr 7.61%, and 20-Yr 8.69%. Inflation for June 2010 is put at 10.3%.


Thank you and best regards,

Source: Vetiva Research



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