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Debt Securities

Nigeria’s total public debt stock increased by N2.381 trillion in 3 months

The Debt Management Office revealed that Nigeria’s debt stock increased by N2.381 trillion.

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President Buhari not to blame for increase in debt – DMO DG

Nigeria’s Total Public Debt Stock stood at N31.009 trillion as of June 30, 2020. The disclosure was contained in a press release by the Debt Management Office (DMO), on September 9, 2020.

The data shows that the Total Public Debt Stock which comprises the Debt Stock of the Federal Government, the 36 State Governments, and the Federal Capital Territory, increased by N2.381 trillion within 3 months when compared with the N28.628 trillion recorded on March 31, 2020.

READ: BOOM: Nigeria’s total debt portfolio hits at N27.4 Trillion

The N2.381 trillion increase was accounted for by the $3.36 billion Budget Support Loan from the International Monetary Fund (IMF), New Domestic Borrowing to finance the Revised 2020 Appropriation Act including the issuance of the N162.557 billion Sukuk bond, and Promissory Notes issued to settle Claims of Exporters.

Backstory: It will be recalled that the 2020 Appropriation Act had to be revised due to the adverse impact of COVID-19 on the Government’s revenues, and the increased expenditure needs on health and economic stimulus amongst others.

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READ: Debt Servicing: Nigeria pays $1.12 billion to World Bank, others in 10-month 

What to expect

According to the Debt Management Office, the Public Debt Stock is expected to grow, as the balance of the New Domestic Borrowing is raised, and expected disbursement is made by the World Bank, African Development Bank, and the Islamic Development Bank, which were arranged to finance the 2020 Budget.

Explore Economic and Financial Data on our Nairalytics Website

Additional Promissory Notes are also expected to be issued before the year ends. This and New Borrowings by State Governments are expected to increase the Public Debt Stock.

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Chike Olisah is a graduate of accountancy with over 15 years working experience in the financial service sector. He has worked in research and marketing departments of three top commercial banks. Chike is a senior member of the Nairametrics Editorial Team. You may contact him via his email- [email protected]

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Companies

Flour Mills moves to diversify funding sources with N29.8 billion bond listing

Flour Mills Nigeria Plc lists N29.8 billion bonds to diversify funding sources from the Nigerian capital market.

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Flour Mills makes one of the largest contributions to COVID-19 relief fund

Flour Mills Nigeria Plc’s fresh N29.8 bond listing will help the nation’s leading food business company to explore diversified funding sources from the Nigerian capital market, with the hope of enhancing growth and the development of the company.

This statement was made by the Group Managing Director of FMN, Mr. Omoboyede Olusanya, at the listing of the Tranche A and Tranche B bonds valued at N29.8 billion on the Nigerian Stock Exchange (NSE).

The food and the agro-allied company which has remained Nigeria’s largest and oldest integrated agro-allied business with a broad profile and robust Pan-Africa distribution issued these bonds under its N70 billion Bond Issuance Programme.

Olusanya said that the company would continue to explore funding opportunities inherent in the capital market to ensure business growth and continuity.

While speaking about the Credit Rating of the Programme, he disclosed that FMN’s credit rating, as well as the operational financing of the Group, have improved considerably.

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According to him, the bonds floated by Flour Mill will help to strengthen the company’s capital base and provide the needed working capital required by the Company. He added that Flour Mills Group will continue to deleverage and replace short term financing with longer-tenured and lower price funding to optimize capital structure and reduce financing cost.

He noted that Flour Mills will continue to explore opportunities to raise fundings via the capital market as this enables the company to diversify its funding sources and continue to play a role in the capital market as a significant player in it.

What they are saying

The Group Managing Director of FMN, Mr. Omoboyede Olusanya, at the virtual event, said;

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  • “We are delighted with the response from the market, we are happy to be listed.
  • “We are introducing an N29.9 billion listing under an N70 billion bond issuance cover; we will continue to raise funding to diversify our funding sources.
  • “The company remains passionate about feeding the nation to improve the quality of living for Nigerians through increased production and investments in backward integration.”

What you should know

  • With the successful issuance of the new N29.8bn Tranche A and Bonds, FMN has utilized its bond issuance program registered in 2018.
  • It is important to note that the Senior Unsecured bond listing includes an N4.89bn under Series 4 Tranche A of the bond issuance programme, at a 5.5% rate for 5 years, due by 2025, and a 25bn under Series 4 Tranche B of the same program at a 6.25% rate for a tenure of 7 years, due by 2027.
  • The bond proceeds will be used to refinance existing debt obligations. It will also help the company take collaborative actions to diversify the company’s financing options beyond expensive short term debt.

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Debt Securities

January 2021 FGN Bond records oversubscription of N88.3 billion

FGN bond offer has received a total bid of N238.28 billion across all tenors.

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Debt management office, DMO,Nigeria's Debt to revenue ratio, DMO suspends April 2020 FGN savings bond offer

The January 2021 FGN bond offer has received a total bid of N238.28 billion across all tenors, indicating it was oversubscribed by approximately N88.3 billion.

This fact was implicitly revealed through a disclosure by the Debt Management Office (DMO), seen by Nairametrics.

Nairametrics had earlier reported the offering of N150 billion worth of FGN bonds by the Debt Management Office for January 2021. In line with the notice, the auction occurred on the 20th of January, 2021 (yesterday).

Key highlights

The following are the key highlights of the 2021 FGN bond auction;

  • A total of N91.84 billion was submitted for the 10-Year tenor worth N50 billion, implying that it was oversubscribed by N41.84 billion.
  • The 15-Year tenor recorded a total subscription of N106.37 billion, implying an oversubscription of N56.37
  • On the other hand, the 25-Year tenor was undersubscribed by N9.93 billion, after it recorded a total subscription of N40.07 billion.

What you should know

  • Recall that the December 2020 FGN bond offer was oversubscribed by more than N70 billion, as reported by Nairametrics.
  • Nairametrics learnt that the oversubscription is sequel to higher rates across all tenors for January 2021, at 7.98%, 8.74% and 8.95% for the 10-Year, 15-Year and 25-Year period respectively, compared to the rates of 6.945% and 7.00% for the 10-Year and 15-Year tenors at the last auction in December 2020.

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Debt Securities

Collapse in domestic bills and bonds yields forcing local funds into stocks

A collapse in yields on domestic bills (3 months at 0.35%) and bonds (five-year at 3.5%) is forcing local funds into stocks.

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Nigerian Treasury Bills falls to 3.05% per annum, Implications of the new CBN stance on treasury bill sale to individuals

EFG Hermes has stated that a collapse in domestic bills yield (3 months at 0.35%) and bonds yield (five-year at 3.5%) is forcing local funds into stocks.

This is according to a recent report by the company tagged: 2021 The Year Ahead — Is the Recovery in the Price?

The report notes that current fixed income yields, of which bills and bonds are a part, seem unsustainable – citing that real 12 month yields are -13.8%. Hence, the report suggests that the country is likely to remain a cautious market for foreign investors in 2021.

READ: CAC says defaulting lawyers to face 2 years imprisonment for filing false documents

Despite the awareness, the company is of the opinion that fixed income yields in Nigeria could stay higher than 2020 lows for the next few months, which may lead to heavy bond issues in early 2021, as precedent suggests.  

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  • The company believes that the macro context is weak and policy-making is unpredictable in the country – pointing that although the country is facing a slow-burning BoP and fiscal crisis, it appears the authorities are making little efforts towards the difficult decisions necessary to put the economy and market on a sustainable footing.
  • This may, according to the company, impact earnings growth negatively in 2021 and 2022.

Accordingly, the report contends that this is one of the reasons why foreign investors avoid investing in the country’s instruments – noting that foreign investors seem to be happy selling to the local institutional bidders so that current data on holdings and flows depicts there is not much foreign money left in the market – as illustrated by foreign and domestic portfolio investment.

READ: Nigeria’s GDP growth to rebound between 1.7% and 2.0% in 2021 – United Capital report

What EFG Hermes is saying

  • “While foreign portfolio investors are seeing some relief on the backlog, until we see serious policy changes, we do not think foreign investors will become net buyers of Nigerian stocks. There is no indication that such changes are in the pipeline.
  • “We, therefore, expect a rising share of future net contributions to go to stocks, as well as cash coming from bond and bill maturities. However, we note that PFAs remain reluctant buyers, and the list of stocks in which they are happy investors is short.”

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