A tall order for DMO bond issuance

Proshare

Wednesday, April 06, 2016 9:37AM /FBNQuest Research

The DMO has issued its provisional issuance calendar for Q2 2016. Over the quarter the DMO looks to raise between N275bn (US$1.40bn) and N365bn (US$1.85bn) from the reissue of FGN bonds. The figures may look challenging yet the 2016 budget projects domestic debt financing of about N950bn.

Additionally, the maturity of the Aug ‘16s will require the repayment of N560bn to bondholders. Rather than add substantially to a debt service burden which the DMO estimated at 37% of projected revenues this year (
Good Morning Nigeria, 07 March 2016), the authorities may be more comfortable with an increase in concessional borrowing from external sources.

Offshore buying interest is likely to be negligible, given the delays in repatriations at the CBN. The DMO will be looking to the domestic institutions for takers, particularly the PFAs.

We see from PenCom data that they held N2.96trn in FGN bonds at end-November, equivalent to 56.2% of their AUM. (The share of ordinary shares was then 10.00%).



The PFAs can be expected to have particular appetite for the new long bond, which was issued at last month’s auction.

Holdings of its predecessor, the Jul ‘34s, amount to N1.08trn although this figure was swollen by last year’s, DMO-led restructuring of state governments’ bank borrowings. A more accurate benchmark would be the N590bn holdings of the Jul ‘30s.


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