BY OLUSHOLA BELLO, Lagos
The Nigeria Stock Exchange (NSE) has approved and listed a total of N6.951 billion Federal Government of Nigeria (FGN) Savings Bond on the floor of the exchange for the year 2017.
However, investors’ participation in the FGN Savings Bond has been on a decline since its introduction in March 2017. For instance, the monthly listing of the FGN Savings Bond on NSE under the two-year Bond showed that in March amount allocated in March stood at N2.068 billion; in April, N419.327 million; May, N483.199 million; June, N335.696 million.
Also, monthly amount allocated from July to December stood N239.803 million, N522.497 million, N252.658 million, N115.279 million, N273.914 million and N72.424 million in that order, while the total number of investors also dropped from 2,068 in March 2017 to 72,424 in December, 2017.
While for the three-year Bond, monthly listing on NSE, ranges from N868.69 million, N307.647 million, N271.556 million, N160.770 million, N215.664 million, N160.044 million, N273.914 million and N183.807 million respectively. Also, the total number of investors also dropped from 868,690 in April 2017 to 183,807 in December 2017.
The Debt Management Office (DMO) of Nigeria, on behalf of the Federal Government of Nigeria, launched a new retail investment programme, the FGN Savings Bond to help enhance the savings culture among Nigerians while providing all citizens irrespective of income level, an opportunity to contribute to National Development; as well as the comparatively favourable returns available in the capital market.
FGN Savings Bond is safe and backed by the full faith and credit of the Federal Government of Nigeria, with quarterly coupon payments to bondholders. The Bond has a minimum subscription of N5, 000 with additions in multiple of N1,000, with a maximum of N50 million. Fixed coupon will be paid quarterly to investors and the Bond tenors range from two to three years tenor. It is been issued on a monthly basis through an Offer for Subscription and with a period of five days from the date of announcement.
However, the increase in the coupon rates, have not attracted enough subscription to the bond despite the steady decrease in the inflation rate in the country since January 2017. The coupon rate on the two-year Bond which was 13.01 per cent in March 2017 rose to 13.817 per cent in October 2017 and later dropped to 13.091 in December.
Similarly, the coupon rate on the three-year Bond which was 13.794 per cent in April, the first time a three-year bond was issued, went up as high as 14.817 per cent in October, before declining to end the year, December at 13.091 per cent.
The declining investment appetite for the Savings Bond, according to capital market operators, is caused by a number of factors including the rally in the stocks market and unattractiveness of the Bond relative to other fixed income instruments. For 2017, the Nigerian Stock Exchange All Share Index (NSE-ASI) appreciated by 42.30 per cent between January 3, 2017 and December 29, 2017.
The managing director/chief executive officer of APT Securities and Funds Limited, Mallam Kurfi Garuba said that Bond is another alternative source of income to equities, explaining that when the equities market is not doing well, investors move to bond market and vice-versa.
He pointed out that many retail investors diverted funds to the equity market to take advantage of capital appreciation. Garuba further noted that the coupon on the Savings Bond are less attractive than prevailing fixed income securities, and have been cut on a month-on-month basis in the last four months, which coincided with a strong rally in the equity market.
Also, the managing director of HighCap Securities Limited, Mr. David Adnori said that the acceptance of the Savings Bond by investors is below expectation, adding that what further compound the situation is it inefficiency of the secondary market window for Savings Bond.
He explained that there is limited information on how to trade the product either as traders or investors as well as the structure of the instrument as it is not structured as a regular bond, which makes the pricing slightly opaque.
Adnori also noted that there is disparity in the interest rate between other traditional FGN bonds and Treasure Bill, saying there is a wide gap between them which has hamper investors attraction to Savings Bond.
For instance, according him, the Savings Bond coupon is not competitive as it lagged behind other instruments like Treasury Bills, which attracts 18 percent, and FGN Bond, which attracts 15 percent. “The Savings Bond coupon is below inflation rate of 15.91 percent and lower than Monetary Policy Rate (MPR) at 14 percent and not as liquid as listed equities.”
On future prospect, the chief operating officer of InvestData Consulting Limited, Mr. Ambrose Omordion stated that there is huge potential for the Savings Bond, calling on DMO and other fiscal and monetary authorities to deepen awareness and investor education on the products.
Also, the managing director of Cowry Asset Management Limited, Johnson Chukwu, pointed out that the future prospect of the Savings Bond is tied to improvement in the nation’s macro-economic conditions, especially as it concerns low income earners.
He stated, “We may see a reversal in the declining trend in the Savings Bond in 2018 as the economy improves and jobs are created leading to more incomes for low income earners. As households have more income to meet their needs, they will be able to set aside some for savings, and hopefully, this will lead to more investment in the Savings Bond.”
- Bstan Group Seeks PPP To Address Housing Deficit In Nigeria
- North-Central APC Youths Caucus Demands SGF Position
- Kano Coalition Calls On Sultan Abubakar To Wade into Kano Emirate Tussle
- Ukraine’s New President Urges Dissolution Of Parliament
- Imo Govt. Hands Over General Hospitals To Security Agencies, Churches
SPONSORED16 hours ago
Place your sponsored article on LEADERSHIP for good mileage
NEWS15 hours ago
JUST IN: FG Appoints Yadudu As New FAAN MD
COVER STORIES21 hours ago
Voting Pattern Threatens Inauguration Of 9th Senate
NEWS21 hours ago
‘Ortom Fuelled Hatred In Benue’
COLUMNS21 hours ago
The Legend Of Buratai
COVER STORIES21 hours ago
Govs Move Against NFIU’s Monitoring Of Joint Account
NEWS21 hours ago
2019 Polls: Facebook Leak Indicts FG, Exposes APC – PDP
EDITORIAL21 hours ago
Ngige And The NLC Face-off