The Debt Management Office (DMO) has announced the results of the February 2023 FGN bond auction.
The auction featured the re-opening of four bonds: the 13.98% FGN FEB 2028 (10-Year Bond), 12.50% FGN APR 2032 (10-Year Bond), 16.2499% FGN APR 2037 (20-Year Bond), and 14.80% FGN APR 2049 (30-Year Bond).
The auction, which was held on February 13, 2023, saw a total of 577 bids worth N724.9 billion received for the total amount offered of N360 billion. The total amount allotted was N771.56 billion, with successful bids allotted at marginal rates of 13.99%, 14.90%, 15.90%, and 16.00%.
The original coupon rates for each bond will be maintained, with successful bids for the 13.98% FGN FEB 2028 (10-Year Bond), 12.50% FGN APR 2032 (10-Year Bond), 16.2499% FGN APR 2037 (20-Year Bond), and 14.80% FGN APR 2049 (30-Year Bond) being allotted at the marginal rates of 13.99%, 14.90%, 15.90%, and 16.00%, respectively.
The settlement date for the auction was February 15, 2023, and the bonds will mature on February 23, 2028, April 27, 2032, April 18, 2037, and April 26, 2049, respectively.
The appetite for FGN Bonds is still high
The auction results indicate strong demand for FGN bonds, as the total amount allotted exceeded the total amount offered. It also suggests investor confidence in the Nigerian economy and the ability of the government to meet its debt obligations.
In a statement, the DMO said the auction was part of its efforts to raise funds for the implementation of the Federal Government’s 2023 budget and to finance critical infrastructure projects across the country.
The DMO has been actively promoting the issuance of FGN bonds as a means of diversifying the country’s funding sources and reducing its dependence on short-term borrowing. The FGN bond market has grown significantly in recent years, with a wide range of maturities and attractive yields for investors.
Overall, the results of the February 2023 FGN bond auction highlight the continued strong demand for FGN bonds and the government’s commitment to meeting its funding needs through the capital markets.
But, In recent years, Nigeria’s rising debt profile has been a topic of concern, with some experts warning that the country’s debt levels are unsustainable. The Debt Management Office (DMO) stated in January that Nigeria’s public debt could rise to N77 trillion if the country’s “ways and means” are securitized.
“Ways and means” refer to the Central Bank of Nigeria’s (CBN) lending to the federal government. The DMO said that the “securitization of ways and means” is not unusual and is a common practice in many countries, but it is not a decision that can be made by the DMO alone.
The DMO noted that the debt-to-GDP ratio, which was at 21.6% in September 2021, is still within the sustainable threshold of 40%.
However, some experts have expressed concerns that Nigeria’s rising debt levels could become unsustainable if not managed properly.
The government has argued that borrowing is necessary to finance critical infrastructure projects and stimulate economic growth.
What is a reopened bond?
A reopened bond is a type of bond that has been previously issued but is now being offered for sale again. When a bond is first issued, it is known as a new issue or an original issue.
Once the bond has been sold and is outstanding, it can be reopened for additional sales in the future.
Reopened bonds have the same coupon rate, maturity date, and other features as the original bond, but they are sold at a different price and yield, which may be higher or lower than the original issue price and yield.
Reopened bonds are often used by governments and corporations to raise additional funds without incurring the costs of issuing a completely new bond. Investors who purchase reopened bonds receive the same cash flows and credit risk exposure as those who purchased the original issue.
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