Despite the lull in activities in the bond market, the Debt Management Office (DMO) plans to raise to raise between N140 billion ($870 million) and N250 billion ($1.56 billion) over the next three months, its issuance calendar for FGN bonds for Q3 2013, has revealed.

When compared with the range of N230 billion to N410 billion for the second quarter of the year, it showed that the DMO is concerned at the situation in the market by reducing its activities.

At last month’s auction, investors had collected just N21 billion of the N85 billion offered because the DMO declined the majority of bids, which ranged up to 18.25 per cent for Nigeria’s long bond (10.00 per cent Jul ’30).

Meanwhile, experts at FBN Capital believe the slowdown by the DMO is highly welcome, following current market conditions. In a report made available to THISDAY, FBN Capital noted that the slowdown is possible because of the front-loading in issuance by the DMO in line with best practice.

According to the experts, “The DMO has raised N521 billion (gross) in H1 2013 and net domestic borrowing is projected at N578 billion for the full year in the budget. Once we exclude domestic borrowing, and the proposed Eurobond and small Diaspora issue from the projected deficit of N887 billion, there remains a financing gap of about N130 billion which is to be covered by signature bonuses and asset sales. We expect little from the former, given the impasse over the petroleum industry bill.”

They stated that the gap could be covered by privatisation in the power sector, pointing out however, that the federal government has allocated the greater part of the sales proceeds to severance pay for employees of the state-owned power company.

“The pay-offs were not fully provided for in the 2013 budget. The DMO may therefore have to step up its issuance over the target in the budget. The DMO consults stakeholders on its calendar. Its menu for Q3 consists of the long bond in each month, a re-opening of the 4.00 per cent Apr ‘15s in July, and the new Aug ‘16s in August and September.

“It is not reopening the issues in the middle of the curve which are favoured by the offshore community and have dominated the DMO’s programme this year. The total monthly bid has averaged N166 billion over the past 12 months. The two problematic auctions have been September 2012, when the auction was held the same week as the Central Bank of Nigeria (CBN) (of NTBs) and last month,” they said.

The experts also pointed out that Q3 threatens to be rather more challenging in consequence of the expected tapering of quantitative easing in the United States. They added that, “the offshore community is not the dominant player in the FGN bond market but often provides a lead of sorts for domestic institutions.

Source: Punch (by Eromosele Abiodun)