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Sanusi: Analysts predict low subscription to FG bonds

By BusinessNews Staff on March 11, 2014

The uncertainty that have trailed the economy following the suspension of the Central Bank of Nigeria Governor, Mr. Lamido Sanusi, and combined effect of political tension in the country and the recent commencement of quantitative easing by the United States may lead to low subscription of Federal Government bonds in coming months, especially that of next week, analysts have predicted.

The Federal is planning to sell N90bn ($547.61m) of bonds with maturities of three years and 10 years on March 12 at its third monthly debt auction this year, the Debt Management Office has said.

The DMO said it would issue N45bn each of the three-year and 10-year bonds, maturing in August 2016 and March 2024 respectively, using the Wholesale Dutch Auction System. The notes are re-openings of previous issues, according to the debt office.

Economic and financial analysts said foreign investors’ excitement about federal government bonds were already waning due to recent developments in the economy. As a result, they said the bond sale due next week might attract low subscription.

Analyst at Afrinvest, a research and financial advisory firm, Mr. Ebo Ayodeji, noted the interest rate on Federal Government bonds issued on month basis had been increasing.

This, he suggested, might not be unconnected with the country’s risk perception as investors have to factors in risk premium to every bond they invest in.

The analyst also pointed out that foreign investors were more willingly to subscribe to the three-year bonds than the 10-year bonds.

This indicates the extent foreign investors are willing to keep Nigerian instruments, except for those who may buy with the plan to sell them before maturity.

“Interest rates usually increase in line with country risk perception by investors. This encompasses political risk, exchange risk among others.”

The government, he noted, usually raised bonds to finance budget deficit, and that this was usually pre-determined by the budget office.

The Afrinvest analyst, however, predicted government might issue bonds worth N1bn this year considering the budget deficit as well as the bond sale history of the country.

The Managing Director, Cowry Asset Management Limited, a Nigeria-based research and financial advisory firm, Mr. Johnson Chukwu, equally predicted in the federal government bonds, stressing that foreign investors were beginning to lose appetite for Nigerian instruments because of the uncertainties surrounding the economy.

Chukwu recalled that foreign investors did not favour much of the Federal Government treasury bills sold recently.

Foreigners had stayed away from the government latest Treasury Bill auction, the first since the suspension of Sanusi, in a sign that investor confidence is yet to recover after the banker’s removal, Reuters reported.

The Federal Government offered N180bn ($1.1bn) in Treasury Bills on Wednesday, with a similar amount maturing in the week.

It sold N275.09bn, with yields on the 182- and 364-day papers rising further above 13 per cent, the central bank said on Thursday.

Traders said foreign buyers remained on the sidelines and demand was dominated by less risk-averse local investors drawn by the attractive yields.

Foreign participation was “very marginal,” said one analyst. “It’s probably that as those bills mature some international investors won’t roll over the position in the new auctions, so they’ll just take their foreign exchange and leave,” he said, asking not to be named.

Reuters reported that offshore investors had been pulling back from Nigeria before Sanusi’s suspension amid a broader retreat from emerging markets.

But Sanusi’s sack further undermined faith in policy stability in Africa’s second-biggest economy at a time of heightened uncertainty before elections in February next year, according to Reuters.

[Punch]

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