The Debt Management Office (DMO) is to raise between N200 billion ($1.26 billion) and N270 billion ($1.70 billion) from the sale of FGN bonds in the first quarter of 2014, according to its provisional calendar.
The issuance shows an increase of N65 billion or 32.5 per cent and N35 billion or 12.9 per cent compared with the N135 billion and N235 billion raised in the last quarter of 2013.
Analysts at FBN Capital Limited believe the sharp increase from the range of N135 billion to N235 billion in the previous quarter can be explained by the budget impasse.
“The FGN and the National Assembly are probably several weeks away from agreement on the 2014 budget. Their priorities are very different, and recent party political changes in the make-up of the assembly are a potentially complicating factor. The DMO has to make its own assumptions about the approved borrowing requirement. Predictably, this week’s monthly auction seeks to raise N90 billion at the top of the range in the calendar,” the analysts said.
The DMO provisional calendar for Q1 showed that it will reopens two staples, the 13.05 per cent August ‘16s and the 10.00 per cent July ‘30s (Nigeria most liquid long bond). Additionally, it plans to launch a new 10-year benchmark, the March ‘24s.
FBN Capital further stated that it expects the DMO to achieve its programme in comfort because the agency consults domestic stakeholders on its calendar.
“It had just one problematic auction in 2013: in June it offered N85bn and sold just N21billion because the first bombshell from the US Federal Reserve on tapering had pushed up bids to levels it was not immediately prepared to accept. The total bid averaged N163 billion in 2013. Local institutions have limited alternative investment choices while the offshore community will struggle to find equally attractive returns in emerging markets of comparable liquidity, “said FBN Capital.
While admitting that they do not yet know the approved financing gap for the 2014 budget, the analysts said they are aware that the FGN plans to return to the international capital market to raise a further $1billion.
“The DMO has set a medium-term target of a 60/40 mix for the domestic and external debt of the FGN. It has been driven by the rising cost of domestic debt service to N664 billion in the 2014 budget, as well as the rate differential which favours foreign currency borrowing. We do not share fears of a steep, Ghana-style rise in the FGN deficit ahead of the elections. Last time round, it rose from 3.2 per cent of GDP to 3.7 per cent in 2010, the last full year before the last polls,” they said.
Source: Thisday (by Eromosele Abiodun)
