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Economic downturn: FG to sell Eurobond, issue sukuk

By on May 29, 2016

The Federal Government is working out details for issuing a debut sovereign sukuk this year and may also sell a Eurobond, the Director-General, Debt Management Office, Abraham Nwankwo, has said.

He said the DMO had yet to determine the size of a potential sukuk deal and was working with the Securities and Exchange Commission, the Central Bank of Nigeria and the Nigerian Stock Exchange to build capacity.

Nigeria, reeling from the plunge in vital oil revenues, has set up a government committee to advise on the amount to be raised from the Islamic bond sale, the timing and jurisdiction of issue, either domestic or foreign.

“We are definitely going to issue a sukuk this year. We may also likely issue a eurobond this year. We are working hard to put together all the necessary framework,” Nwankwo toldReuters on the sidelines of a media briefing.

The Federal Government is planning to borrow as much as N200bn ($10bn) from debt markets, with about half of that coming from foreign sources, to help fund a budget deficit worsened by the slump in oil prices that has slashed revenues and weakened the naira.

The Minister of Finance, Mrs. Kemi Adeosun,  has said the government wants to access concessionary sources to fill its funding needs, but any shortfall would be covered through the capital markets.

Issuance of a sovereign sukuk is part of a strategic plan developed by the DMO to develop alternative sources of funding and to establish a benchmark curve for corporates to follow.

In 2013, the Osun State Government had issued N10bn ($62m) of sukuk, but no other sukuk transactions have followed.

Meanwhile, the Nigerian overnight interbank rate eased to an average of five per cent for overnight lending on Friday, down from nine per cent last week in anticipation of April budgetary allocations disbursal to government agencies.

Money from oil revenue is distributed to the three tiers of government from a centrally held account, which provides liquidity for the banking sector and eases the cost of borrowing among banks.

“There was speculations of possible injection of April budget allocation into the system today (Friday), this forced down cost of borrowing from an average of eight per cent in early trade to five per cent at 1330GMT,” one dealer said.

Total banking system liquidity stood at N277bn ($1.39bn) on Friday, compared with N141.7bn last week, dealers said.

They said system liquidity should receive a boost next week by the time the central bank injected budget allocations to states and local governments.

Also on Thursday, the CBN retired about N83.81bn in matured treasury bills into the system, which further helped to lower the cost of borrowing at the interbank.

“We expect (the) rate to further drop next week when budget cash would have hit the system,” another dealer said.

 

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