FGN Bonds: DMO to Raise N280billion in Q2 2014

The Debt Management Office (DMO) has completed arrangements to raise between N200billion ($1.21billion) and N280billion ($1.70billion) from the sale of FGN bonds in Q2 2014, its interim calendar has revealed.

Analysis of the calendar for the quarter showed that the DMO plans to offer three-year paper (13.05% Aug ‘16s) and 10-year instruments (14.20% Mar ‘24s) in the quarter.

Additionally, the Debt Management Office (DMO) also plans to initiate a new 20-year benchmark in May and reoffer it in June this year. 

Experts believe the modest increase from the range of N200 billion in the previous to N270 billion is as a result of the continued delay of this year's budget.

“The FGN and the National Assembly have still not agreed on the 2014 budget. Their priorities are very different, and recent party political changes in the make-up of the assembly are potentially a complicating factor, “said analysts at FBN Capital.

On if the DMO can achieve its target for Q2, the analysts stated: “In Q1 the DMO raised N265 billion (gross), and we expect it will achieve its Q2 programme comfortably. Its last problematic auction came in June 2013 when it offered N85 billion and sold just N21 billion because the first bombshell from the US Federal Reserve on tapering had pushed up bids to levels it was not immediately prepared to accept."

They added: “The total monthly bid averaged N163 billion in 2013 and N182 billion in Q1 2014. Local institutions have limited alternative investment choices. The offshore community will struggle to find equally attractive returns in emerging markets of comparable liquidity although some investors have exited as a result of tapering and on concerns for the naira exchange rate."

The DMO has set a medium-term target of a 60/40 mix for the domestic and external debt of the FGN. Principally it has been guided 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.