March 30, 2020
The auction of FGN bonds last week was tricky for the DMO because it launched two new issues (15 and 30-year benchmarks), and naturally wished to contain the cost of the coupons. It offered N50bn, raised N50bn (US$130m) on a competitive basis and attracted a total bid of N181bn. The marginal rate for the Apr ’23s picked up to 10.00% although the rate for the new 30-year paper of 12.98% was at least tighter than the 14.50% for its predecessor (April ’49s). Including non-competitive bids, the DMO has now collected N642bn in just three months.
Even allowing for a bond maturity of about N600bn last month, this is an impressive start to the year for which the DMO has a domestic funding target of N745bn in the 2020 budget.
That budget is being rewritten around a new oil price assumption of US$30/b. We understand that the FGN aims to slash total expenditure by N1.5trn to N9.09trn to allow for a slump in tax receipts from the energy sector.
Our understanding is that the cost to the FGN budget of what the CBN has termed a N3.50trn package to confront the coronavirus is limited. It appears that the CBN’s balance sheet is to take the greater part of the strain through a combination of its own interventions and interest rate reductions on its existing programmes. We will see if the reworked budget revises projected borrowing of N1.59trn (N850bn external and N745bn domestic). Plans for a quick move to tap the Eurobond market have been pushed back by the global financial turbulence.
Sales and demand at FGN bond auctions (N bn)
Sources: Debt Management Office (DMO); FBNQuest Capital Research
Investors can also look forward to plans to securitize the FGN’s overdraft drawings from the CBN under the Ways and Means vehicle. They will presumably be able to buy the new paper at a discount in the market.