While the Oniha-led DMO is giving joy to investors and building confidence in the bond market, the federal government is the biggest gainer; MARK ITSIBOR writes.
For many investors in the Nigerian Treasury Bills (NTBs), return on investment is beyond the shadows of skepticism and fears. By divine providence and intervention of the current Director General of the Debt Management Office (DMO), Ms. Patience Oniha, dreams to receive the accumulated proceeds on their investment with the Nigerian government at a time like this to possibly reinvest or diversity same to new bonds or other investment areas have become reality.
On December 12, the debt management agency announced its readiness to repay the N198.032 billion Nigerian Treasury Bills (NTBs) maturing this month in full. Data from the debt office showed that N131.415 billion and N66.617 billion of NTBs matured on 14 and 21 of December. The eventual fulfillment of that promise has multiple benefits for both the federal government and the private investors.
The NTBs were redeemed primarily using proceeds of the $500 million raised through a Eurobond Issuance by Nigeria, last month. Nigeria had issued a dual-tranche $3 billion Eurobond in November out of which $2.5 billion is to part-finance the deficit in 2017 Appropriation Act. The balance of $500 million was set aside for the refinancing of domestic debts.
Some of the investors who spoke with our correspondent say the development has won the government huge confidence of the investors even as they rejoice that they now have available cash to embark on new businesses in 2018. “This is great! Coming at the tail end of the year when am thinking of raising cash to fund some of my businesses in early 2018 is a big joy for me. I can now plan my year ahead,” one of the investors who would not want his name to be mentioned said. “Again, this will go a long way to court investors’ confidence on the Nigerian bond market. You never can underestimate the impact the repayment of this NTBs will have on investors like me,” he added.
Their joy is understandable. Before now, the practice was to rollover NTBs at maturity, a situation many investors had grumbled doesn’t help them plan. The successful repayment of the bills is a signal that the federal government treasury bills were the most profitable investment in the outgoing year in line with the federal government’s policy of a private sector driven economic growth. Government bonds have many advantages to investors or debt-holders. Risk is usually relatively low compared to equities, as interest and principal will be repaid provided the relevant governments do not default on their bonds. Bonds can be an excellent diversifier, as they frequently perform well when other asset classes perform badly as in the case of many companies in the country in recent times.
While the Oniha-led DMO is giving joy to the investors and building confidence in the bond market, the federal government is the biggest gainer. For instance, the redemption overtime was deliberately designed to help reduce the refinancing risk associated with short-term borrowings through NTBs with tenors of 91, 182 and 365 days. That has been the plan. As at September 30, NTBs accounted for 30.23 per cent of the Federal Government of Nigeria’s (FGN’s) domestic debt of N12.5 trillion compared to the DMO’s target of a maximum of 25 per cent.
Beyond implementing the debt management roadmap of the federal government, the DMO under Oniha is also helping to create liquidity in the country which economic experts say Nigeria need to among others, make credit available in the system and enable the banking industry issue securities in the domestic market through the repayment of the N198.032 billion bills, an action that has been widely applauded.
Some experts in the Nigerian stock market expressed optimism on the fact that the debt holders will reinvest the funds in the recently launched N10.96 billion sovereign green bonds, the first ever in Nigeria and Africa, which opened to the investing public in mid-December, 2017 and other corporate bonds.
The DMO is indeed effectively helping to raise revenue to fund government projects. During a roadshow to sensitise the public on the pros and cons of the sovereign green bond recently, the DMO DG allayed fears of possible defaults of government, saying the projects are not meant to service the debts, rather the Federal Government will retire the debts from the budget appropriation.
Oniha explained that “This green bond is risk free and is like any other bonds issued by the Federal Government. It is captured in the Federal Government budget and will be retired by the government. So, the projects to be financed from the proceeds of the bond are not expected to generate revenue but are expected to have multiple effects to the people and economy.”