Despite the market and economic uncertainty due to the coronavirus pandemic, investors expressed a lot of confidence in Nigeria’s debt market.
The Debt Management Office (DMO) has announced an oversubscription of the third sovereign Sukuk for which it offered N150 billion to investors. The offer attracted a very high level of subscription from investors, with total subscriptions of N669.124 billion. This represents a subscription level of 446%.
The DMO said, “This impressive demand for the Sukuk came from a wide range of investors which included Ethical Funds, Insurance Companies, Fund Managers and Retail Investors amongst others. This participation by a wide range of investors is in line with the DMO’s objectives of diversifying the investor base for Government Securities and promoting financial inclusion.
“The issuance of the third Sovereign Sukuk, which followed the debut issuance of N100 billion in September 2017 and a second issuance of another N100 billion in December 2018, is based on the DMO’s commitment to using borrowed funds to finance infrastructure. The Sukuk issuances are project tied and are used to finance specific projects which are disclosed to investors.”
It allotted N162.557 billion to investors in the third Sovereign Sukuk. The proceeds of the issuance will be used to finance 44 critical road projects across the 6 geopolitical zones of Nigeria.
The earlier Sukuk issuances were also used to finance road projects which improved safety on the roads, ensured faster travel times, access to markets for farm produce, and it opened up parts of the country for development.
Other important benefits of using Sukuk to finance road projects are job creation and increased level of activity for service providers, many of whom are small businesses.
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The DMO expects to continue to raise funds through Sukuk to support improvement in infrastructure and development of the domestic capital market.
Some experts are uncertain of what to expect from money markets in H2 2020
In the meantime, liquidity in the Nigerian banking system is said to be below N100 billion
Money market experts are uncertain over what to expect as the second half of the year takes off. This uncertainty is specifically hovering over the treasury bills and OMO (Open Market Operations) side of the market, according to Constance Onyia, a Fixed Income Dealer with Access Bank Plc.
Speaking to CBN Africa, yesterday, about what is happening in the money markets and what to expect during the second half of the year, Onyia said the CBN’s changing strategy has made it difficult to be predictive.
“Actually, we are expecting OMO auction tomorrow. But being that CBN’s strategy has changed (in the last two months they’ve not been rolling over all the maturities and sometimes they don’t even come for OMO), we don’t know what to expect; if there will be OMO auction tomorrow or not. And even if there’s an auction, they might no rollover everything on offer. So, we see that the strategy has changed a bit and we don’t know what to expect for the month or for the second quarter,” she said.
Meanwhile, when the Head of Fixed Income Trading at United Bank for Africa (UBA) Plc, Bankole Odusanya, was asked the same question, he said “the Debt Management Office has a calendar and what is on play is simply that the exact amount that is maturing is what they plan to offer. If we saw that they increased the amount they wanted to offer, then you could be tinkering with your pricing. So, the amount that is maturing by-weekly (on Thursdays) is what they plan to raise.”
In the meantime, liquidity in the Nigerian banking system is said to be below N100 billion. And because this liquidity level is not excessive, experts do not expect the CBN to come in heavily with OMO maturities. As Odusanya pointed out, the amount of OMO bills by the CBN has reduced significantly over the last few weeks, even as the apex bank now relies more on Cash Reserve Ratio (CRR) to control liquidity.
Nigerian Treasury Bills plunge to 3.39% per annum
The CBN sells T-bills on a bi-weekly basis to investors and it is one of the safest investments available.
The latest data from the Treasury bill auctions concluded recently shows that Nigeria’s 364-day tenor fell to 3.39%. On the other hand, Stop rates printed lower for the 91-day tenor at 1.789% and 182-day tenor, which went for 1.91%.
At the Treasury bill auction, the Debt Management Office sold N10 billion on the 91-day paper, N20 billion on the 182-day, and N58.857 billion on the 364-day bills.
Ladi Belo a treasury analyst at a Nigerian tier-1 bank told Nairametrics in a phone chat interview, commenting on the latest treasury bill auction. He said;
“At the NTB auction that was conducted yesterday, we witnessed significant demand, especially on the new 1-Yr bill. This is still because of the exclusion of local corporates and retail investors from investing in Omo bills. As a result, the stop rates across board closed lower than the preceding auction at 1.789%, 1.91%, and 3.39% on the short, medium, and long-tenures papers, respectively. I expect these rates to go down further in the secondary market as market players try and fill their unmet demand.”
Quick facts: The massive disparity between the subscriptions and the offers recorded suggests investors are willing to earn a negative real return, compared to the higher risk in other assets such as stocks and real estate.
Basically, the CBN sells T-bills on a bi-weekly basis to investors and it is one of the safest investments available. Interests are paid upfront, with the principal paid in full upon maturity.
Understanding Treasury Bills: Basically, when the government goes to the financial market to raise money, it can do it by issuing two types of debt instruments – treasury bills and government bonds.
Treasury bills are issued when the government needs money for a short period, while bonds are issued when it needs debt for more than, say five years. The issuance of treasury bills is also used as a mechanism to control the circulation of funds in the economy.
Treasury bills have a face value of a certain amount, which is what they are actually worth. However, they are sold for less. For example, a bill may be worth N10,000, but you would buy it for N9,600. Every bill has a specified maturity date, which is when you receive the money back.
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The government then pays you the full price of the bill (in this case N10,000), giving you the opportunity to earn N400 from your investment. The amount that you earn is considered as the interest, or your payment for lending your money to the government. The difference between the value of the bill and the amount you pay for it is called the discount rate and is set as a percentage.
Telegram agrees to settle with SEC over $1.7 billion ‘unlawful’ digital coins
Telegram now has 30 days to pay SEC’s penalty and up to four years to pay back investors.
The world’s top social messaging app, Telegram has agreed to settle with the U.S. Securities and Exchange Commission (SEC) amounting to $18.5 million over its $1.7 billion “unlawful” token sale.
As part of the agreement, Telegram must also inform the SEC should it choose to issue another digital coin within the next three years.
The settlement between Telegram and the U.S. SEC effectively ends the months-long legal battle between the two parties, which began when the SEC sued Telegram back in Oct. 2019
Telegram now has “30 days to pay SEC’s penalty and up to four years to pay back investors.”
Why it matters: Telegram has already stopped the TON project. Therefore, the settlement will not have an immediate effect on Telegram’s futuristic projects. While the official TON chain is inactive, community developers and validators launched a fork of TON (called Free TON) last month.
As we’ve previously covered, this case and settlement could have more significant implications for other SAFT raises, especially for those projects that have yet to launch.
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