The Debt Management Office (DMO) has released its issuance calendar for FGN bonds for Q2 2013, and seeks to raise between N230billion ($1.46billion) and N410billion ($1.46billion) over the three months. This calendar, unlike that for the first quarter, has been prepared with an approved 2013 federal budget in place: total expenditure of N4.99trillion, a deficit of N887billion and domestic borrowing (net) of N578billion.
Once we exclude the proposed $1billion Eurobond and the $100million Diaspora bond, we are left with a deficit financing gap of about N140billion. This could be covered by asset sales and signature bonuses although the FGN’s recent track record for the first is poor and prospects for the second are undermined by the continuing impasse over the petroleum industry bill in the National Assembly. We accept that best practice requires a range for issuance and favours front-loading in the calendar year. Yet the low point in the range for Q2 still looks high in the context of the DMO’s sales of bonds totaling N285billion (gross) in Q1 and of the projection for domestic borrowing (net) in the budget.
The DMO consults stakeholders before the release of the calendar. Its latest features the reopening of three staples of the recent menu (Apr ‘17s, Jun ‘19s and Jan ‘22s). It also offers the 4.00% Apr ‘15s at auction in both May and June for the first time since October 2011.
Nigeria’s long bond (10.00% Jul ‘30) is to be offered each month. The DMO reopened the bond in February and found that it attracted the highest bid at auction (N79billion). This vindicated the DMO’s thinking that this reopening would be well-received, given the increasing role of the PFAs and other institutional investors at auction. The total monthly bid has averaged N161billion over the past 12 months, with just the one poor result in September (N83bn) when the auction was held the same week as the CBN’s (of NTBs).
We expect the DMO to meet the calendar comfortably. We detect a certain cooling of offshore interest in the market, and cite the sharp increase in sales at the CBN’s fx auction on Monday in support. That said, we feel that the good inflation story as well as Nigeria’s inclusion in the government bond indices of JP Morgan and Barclays will underpin strong demand for domestic and some offshore investors respectively.
