If there is one thing the GEJ Government has been consistent about over the last 12 months then it has to bonds, FGN Bonds. As reported in an earlier blogpost Nigeria’s domestic debt profile crossed the N6tr mark for the first half of the year an historic landmark in our country’s borrowing spree. If that was alaming then an article by Businessday that the total value of bonds issued for the first half of this year at N370b may well be heart wrenching. See below;
There is a bit of good news in all of this though, attraction to Nigerian bonds have continued to reach record subscription levels. This is indicative of purchasers appetite in our local bonds one might think. However, that is not totally the case here. Subscription levels remain high due to the high coupon rates that these bonds attract. A 10year bond currently attracts about 16% in tax free interest and a 3year bond about 15%. The Government on average will cough out about N59b in interest payments annually for the N370b bonds alone. For investors who have shown no love for our equities market, a return of 16% on a ‘risk free’ investment most will crush for. Very few Nigerian companies are able to match that in terms of returns on equity without throwing risk out of the window. Is it then wiser for companies to abandon their core businesses and allocate most of their assets towards bond purchase? Who doesn’t like a ‘cheerful” giver.