June 27, 2022

FG’s borrowing from local investors rises 21% in H1’22

FG’s borrowing from local investors rises 21% in H1’22

Minister of Finance, Zainab Ahmed

• As DMO raises N1.84trn from bond auctions

• Borrowing to rise further in H2’22-Analysts

By Babajide Komolafe, Economy Editor

The Federal Government borrowed N4.2 trillion from local investors in the first half of the year (H1’22), representing  21 per cent, year-on-year YoY, increase  from N3.89 trillion borrowed in the first half of 2021 (H1’21).

The increased borrowing was driven by a 30 per cent increase in FGN Bond sales, 49 per cen t increase in FGN Savings Bonds sales and about 14 per cent increase in borrowing through the Nigeria Treasury Bills, NTBs during the six months period.

Read Also: Over 5,000 debtors owe FG N5.2trn — Finance Minister

FGN Bonds Auction

Vanguard Public Report findings from bond auctions results showed that the amount of FGN bonds sold in H1’22,  rose to N1.84 trillion from  N1.42 trillion in H1’21, representing a 30 per cent, YoY increase. 

Further analysis showed that the amounts of FGN bonds offered by the Debt Management Office, DMO, rose by 25 per cent YoY to N1.13 trillion in H1’22 from N900 billion in H1’21. 

Similarly, total subscription, representing demand by investors, rose by 69 per cent YoY to N3.02 trillion in H1’22 from N1.79 trillion in H1’21. This resulted in 168 per cent oversubscription up from 99 per cent recorded in H1’21.  

Total allotment rose by 38 per cent to N1.56 trillion in H1’22 from N1.12 trillion in H1’21. 

During the six months period (H1’22) the DMO sold two tenors of FGN Bonds namely 10-years bonds and 20-years bonds.

The DMO offered N675 billion worth of 10-years bonds which attracted public subscription of N1.312 trillion, resulting in 94 per cent over subscription, while the total amount sold stood at N919.45 trillion.  

Furthermore, the DMO offered N450  billion worth of 20-years bonds which attracted public subscription of N1.71 trillion resulting in oversubscription of 280 per cent  while the amount sold stood at N916.31 billion. 

Vanguard Public Finance findings from the quarterly results of FGN bond auctions showed a rising trend in the amount offered by the DMO and demand by the investing public.

Total amount of bonds offered rose in the second quarter Q2’22 by 33 per cent, quarter-on-quarter, QoQ, to N675 billion from N450 billion in Q1’22. 

Similarly, total public subscription rose by 3.8 per cent QoQ to N1.64 trillion in Q2’22 from N148 trillion in Q1’21, resulting in oversubscription of 128 per cent down from 229 per cent in Q1’21. Total sales rose by 7.9 per cent QoQ to N952.7 billion in Q2’22 from N883.1 billion in Q’22. 

The amount of 10-years FGN bonds offered by the DMO in Q2’22 rose by 100 per cent, QoQ to  N450 billion from N225 billion in Q1’22 but  total public subscription dropped by 3.5 per cent QoQ to N644.5 billion resulting 43 per cent oversubscription, down from 197 per cent in Q1’21. 

While the DMO offered N225 billion worth  of 20-years bonds in Q2’22, same as in  and Q1’22, it however reduced the amount sold by 24 per cent to N396 billion  from N520.31 billion in Q1’22. This was in spite of a 9.8 per cent increase in total public subscription to N892.9 billion in Q2’22 from N813 billion in Q1’22. 

FGN Savings Bonds

Furthermore, the DMO raised N7.5 billion through FGN Savings Bonds (FSB) the first half of the year (H1’22), 

Representing 53 per cent, year-on-year, YoY,  increase  from N4.9 billion in H1’21.

The FSBs are issued monthly in tenors of 2 and 3 years. 

Minimum subscription is N5,000 with additions in multiples of N1,000, subject to a maximum of N50 Million.

Vanguard Public Finance  findings showed that  the DMO raised N2.576 billion  through the  2-year FSB representing a 57 per cent YoY increase from  N2.576 billion in H1’22 from N1.638 billion in H1’21. Similarly, the DMO raised N4.882 billion  through the 3-year FSB in H1’22 representing  51 per cent, YoY, increase  from N3.223 billion in H1’21. 

Further analysis showed an upward trend in  FSB sales in H1’22. In Q2’22 FSB sales rose 23 per cent, QoQ  to N4.12 billion from N3.34 billion in Q1’22. 

The 2-year FSB sold by the DMO in Q2’22 rose by 72 per cent QoQ to N1.63 billion from N944.4 million in the Q1’22, while the 3-year FSB sold rose by 3.9 per cent, QoQ in Q2’22 to N2.48 billion from N2.39 billion in Q1’22. 

Treasury Bills Sales 

Analysis of Nigeria Treasury Bills (NTBs) auctions by the Central Bank of Nigeria, CBN, showed that the amount of bills offered by the apex bank in H1’22 dropped to N1.64 trillion representing 17 per cent YoY decline from N1.978 trillion in H1’21. Total public subscription rose to about N4.59 trillion representing about a 30 per cent YoY decline from N3.53 trillion in H1’21, which resulted in 30 per cent  oversubscription, down from 79 per cent in H1’21. 

While the CBN increased the TBs sold in Q2’22 by 29 per cent to N925.3 billion from N715.6 billion in Q1’22, total public subscription however fell by 19 per cent to N2.05  trillion from N2.54  trillion in Q1’22, resulting in oversubscription of 122 per cent, down from 254 per cent in Q1’22. In the same vein the apex bank reduced the TBs sold by 25 per cent QoQ to N1.01 trillion in Q2’22 from N1.34 trillion in Q1’22. 

FG to borrow more in H2’22

The upward trend in FG’s borrowing from local investors in H1 ’22 will  persist in the second half of the year, H2’22, according to Vetiva Capital Management Company.

In the company’s outlook for H2’22, they stated: “The latest bond offer calendar for Q2’22 shows that the government is expected to increase its borrowings by 50.0 per cent, and barring an improvement in oil revenue, we expect the government to borrow aggressively in H2’22 as it seeks to meet its financing needs. 

“The expansion of the budget deficit by N965 billion should further boost liquidity in the bonds space, as the country is expected to tap the domestic market to fill the gap. 

“Given that the government expects to tap the domestic market to meet its funding needs as well as raise capital for its infrastructure projects ahead of the 2023 elections, we expect this to result in an uptick in yields.”

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