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Bamidele Famoofo

No fewer than 11 bond instruments with tenors ranging between five and 10 years are due for maturity in 2018.

THISDAY investigations revealed that redemption period starts from February to December, 2018.

The estimated value expected to be redeemed to investors in 2018 stands at N189billion. This figure excludes the value of two Federal Government Bonds billed to mature in the investment year.

Breakdown of the maturing bonds, which include a Supra-National Debt listed by the International Finance Corporation (IFC), the investment arm of the World Bank, state and local debts floated by three state governments in Nigeria and four corporate bonds, showed that investors will get returns on investment (ROI) or coupon ranging between five per cent and 16 per cent.

The bonds listed on the Nigerian Stock Exchange (NSE) and FMDQ OTC Exchange for trading was mainly dominated by state governments. Three state governments, namely, Delta, Niger and Ekiti, whose bonds will mature in different months in 2018, accounted for about 56 per cent of the N189billion billed to be redeemed in 2018.

Delta State, a major oil-producing state in the Niger-Delta region of Nigeria borrowed N50billion from investors at 14 per cent coupon rate. It represents 26.5 per cent of the estimated value to be redeemed in 2018. Delta State is expected to fully pay back the borrowed money with interest to investors who invested in its bond instrument by September 30, 2018. Niger State, another issuer in Nigeria’s North-central region followed Delta State with a N30 billion borrowing, representing about 16 per cent of the total value expected to be redeemed in 2018. Niger State also offered investors a 14 per cent coupon rate to attract them to its offer while Ekiti State, which is due to redeem N25billion at 14.5 percent coupon will do so on December 9, 2018.

United Bank of Africa (UBA) Plc is the biggest bond issuer expected to redeem its N35billion seven-year tenor bond by September 30, 2018. The corporate bond/debenture debt issued by one of the oldest financial institutions in Nigeria was at a coupon rate of 14.0 percent.

Other Corporate issuers that are expected to redeem their Corporate Bond/Debenture Debt in 2018 are   La Casera Company Plc, Dana Group Plc and Tower Fund Plc. Corporate Bonds issued by four companies that will be redeemed in 2018 amounted to N72billion, which represents 38.1 percent of N189 billion expected to be redeemed in the bond market in 2018. The Dana Group Plc will pay back N13billion to investors while La Casera Plc will redeem N15billion. At full issuance, Tower Fund Plc will refund N9 billion to subscribers.

Besides, the International Finance Corporation (IFC) will redeem its N12billion supra-national debt by February 11, 2018.

The Debt Management Office (DMO) has said it would repay N198.032 billion worth of Nigerian Treasury Bills (NTBs), which will mature in December 2017 to investors.

According to the DMO, “The N198.032 billion comprises of N131.415 billion and N66.617 billion of NTBs which will mature on December 14, 2017 and December 21, 2017 respectively. Before now, the practice has been to rollover NTBs at maturity.”

It will be recalled that the government had announced plans to refinance some maturing domestic debts with external borrowings as part of its overall debt management strategy of reducing debt service costs. Other objectives of this strategy are to free up space in the domestic market for other borrowers and achieve a more sustainable debt portfolio mix of 60 percent domestic and 40 per cent external.

“In addition, the redemption over time will help reduce the refinancing risk associated with short-term borrowings through NTBs with tenors of 91, 182 and 364 days. As at September 30, 2017, NTBs accounted for 30.23 per cent of the FGN’s domestic debt of N12.5 trillion compared to the DMO’s target of a maximum of 25 per cent”, a statement from DMO disclosed.

The NTBs will be redeemed primarily using proceeds of the USD500 million raised through a Eurobond Issuance by Nigeria in November 2017. Nigeria had issued a dual-tranche USD3 billion Eurobond in November 2017, out of which USD2.5 billion is to part-finance the deficit in 2017 Appropriation Act and the balance of USD500 million is for the refinancing of domestic debt.

“By redeeming the N198.032 billion NTBs, the government is not only implementing its debt management strategy but also providing liquidity to the financial system to enable the private sector access credit from banks and issue securities in the domestic market to raise funds. The DMO expects operators in the market to use this opportunity to develop the other segments of the debt capital market such as Corporate Bonds,” the DMO noted.

The strategy of enabling the private sector to access funds and possibly at a lower cost than hitherto possible is consistent with the government’s policy of a private sector-led growth. 

Meanwhile, Fitch Rating, an international financial rating agency based in London has warned that the Nigerian financial institutions, banks especially will witness a slowdown in profit as the focus of Nigerian government to finance its budget is shifting more to foreign borrowings at the detriment of NTBs.

“Our 2018 rating outlook for the Nigerian banking sector is negative, reflecting continued fragility in the operating environment and the Negative Outlook on the sovereigns ‘B+’ rating,” Fitch said.