The opening of access and establishment of the Nigerian sovereign bond in the International Capital Market have helped to increase foreign investors’ holding in the Federal Government securities by over 900 per cent from $500m to $5.11bn within the space of one year, figures from the Debt Management Office in Abuja have shown.

The sharp growth has also led to increased foreign exchange inflows, which have contributed to the growth in the external reserves and stability of the naira.

According to the report from the DMO office, the over 900 per cent growth occurred between January and December 2012.

Within the same year, the International Finance Corporation issued N12bn naira-dominated bonds in the bond market.

Giving further details of the growth, the report said the development led to “increase in the relative share of foreign investors’ holdings in the FGN securities – while foreign investors accounted for near zero per cent of 2011, their share had increased to 19.52 per cent  as at the end of 2102.”

“Significant reduction in government’s cost of borrowing-fall in yields by about 400bps between August and December, 2012; growth and further diversification of the investor-base for FGN securities; and creation of more borrowing space for other domestic borrowers to access funds in the local market, which addresses the risk of crowding-out the private sector.”

The report noted the development came on the heels of the competitive presence established by Nigeria in the ICM through its debut offer of $500m 10-year 6.75 per cent Sovereign Eurobond issued in January 2011.

This, according to the DMO, was followed by the successful issuance of $1bn dual-tranche bond offering on July 2, 2013.

The dual-tranche bond involved a $500m five-year bond and $500m 10-year bond at coupons of 5.125 per cent and 6.375 per cent per annum respectively.

“The opening of access and establishment of the Nigerian sovereign bond in the ICM have helped to provide foreign investors with requisite market information for investment decisions; create market benchmarks for future borrowings by the sovereign, sub-nationals and corporate; and, provide reliable prospectus and credible country story supportive of foreign direct investments,” the report added.

The DMO noted that following the historic Paris and London Club exit in 2005 and 2006, topmost on the country’s agenda was the need to articulate a domestic debt management strategy.

This, it said, included using a market-based approach to raise finance in the domestic debt market to meet government’s borrowing needs at minimal cost and prudent degree of risks.

Others involved funding the nation’s budget deficit in a non-inflationary manner, without recourse to monetary financing; and creating a market for long-term debt instruments, which the private sector could build upon to raise funds for the funding of long-term investment in real sector.

According to the report, the government also wants to develop the domestic bond market as part of the overall programme for the development of the financial sector.

Source; Punch (by Oyetunji Abioye)