Sovereign, other debt instruments to soar in 2017

The Nigerian capital market and the nation’s economy have been positioned to record more long-term debt instrument to further boost the economy and infrastructural developments.

Experts explained that it is expected that in 2017, the federal government would exploit the opportunities in the capital market to raise funds for infrastructural development.

Principal partner, Matog Consulting, Mr. Matthew Ogagavworia, said that based on reduced earnings from the equities market, more investors would begin to trade on debt instruments, adding that the market is fertile for the federal government to raise developmental funds.

The Debt Management Office (DMO) publication on yield and closing price as at December 28th 2016 showed that the three dollar-denominated Eurobonds with 2018, 2021 and 2023 maturity dates reflects impressive yields and commanding rates.

The Nigerian Eurobonds include 5.125% US$500M JUL 2018 which on December 28th, 2016 commanded 3.658 per cent yield from 5.375 per cent yield at issue was traded for $102.167.

Also, Eurobond 6.75% US$500M JAN 2021 opened trade on Thursday, December 29th, 2016 closed trade at $101.458 closed at 6.337 per cent yield from 7.000 per cent yield on the issue.

While Eurobond 6.375% US$500M JUL 2023 opened trade December 29th, 2016 at $97.051 at a higher yield of 6.944 per cent, from 6.625 per cent yield on the day of issue.

Nigeria’s domestic debt stock by instruments as at June 30, 2016, showed a total value of N10,606,334,215,592.50, excluding FGN bonds in the sum of N680.42bn issued to restructure states’ commercial debt.

The N10.61 trillion domestic debt stock is made up N7, 473,539,169,592.51 70.46 Federal government bond representing 70 per cent.

Nigerian Treasury Bills N2,901,807,046,000.00, accounting for 27.36 per cent, while Treasury Bonds of N230,988,000,000.00, accounted for 2.18 per cent of the total Nigeria domestic debt stock.

Director General Debt Management Office (DMO), Dr. Abraham Nwankwo, had earlier explained that as  at  end – June  2016,  external  debt  accounted  for  only 18.33 per cent of the country’s total debt stock of about N16 trillion (USD 61 billion) compared to the optimal target of 40 per cent established in the country’s medium-term Debt Management Strategy (2016-2019).

Moreover, within that very small external debt, concessional debt (with average interest rate of about 1.25% per annum and average tenor of about 40 years) accounted for about 80% of the total.

Similarly, the table (Column (b)) shows that the ratio of the external debt to the GDP was only about 2.24% as at end -June, 2016 –compared to the internationally defined threshold for external debt, of 40% for the applicable peer group.

Correspondingly, the external debt service accounted for an insignificant proportion of the total public debt service expenditure: The annual external debt service expenditure for the last 5 years was always less than 6.5% of the total public debt service outlay.

These features, Nwankwo said reflect the strategic stance taken after the exits from the Paris and London Club debts in 2005 and 2006 respectively.

“Nigeria deliberately decided to develop and depend more on the domestic bond market as a reliable alternative source of borrowing by the government” He explained that more of domestic debt was to avoid compelled dependence on external sources.