United Cap­i­tal en­cour­ages DMO’s al­ter­na­tive debt in­stru­ment drive

Business a.m. - - FINANCE & INVESTMENT -

AN­A­LYSTS AT UNITED Cap­i­tal have praised the Debt Man­age­ment Of­fice for the devel­op­ments it has ac­com­plished with al­ter­na­tive debt fi­nanc­ing in­stru­ments in the Nige­rian fixed in­come mar­ket, and called for the in­tro­duc­tion of new in­stru­ments.

From green bonds to sav­ings bonds and sov­er­eign Sukuks, fis­cal au­thor­i­ties have con­tin­ued to drive the in­clu­sion of al­ter­na­tive debt fi­nanc­ing in­stru­ments in the Nige­rian fixed in­come mar­ket.

Over the course of 2018, the DMO con­tin­ued its monthly re­tail sav­ings bond auc­tion, which com­menced in March 2017, wherein N2.5bn was raised be­tween Jan­uary 2018 and Septem­ber 2018. Mean­while, the fed­eral gov­ern­ment Sukuk of­fer in 2018 re­ceived a healthy dose of de­mand, sug­gest­ing that we might see a larger tranche for the 2019 pro­gram.

The mar­ket ex­perts said, “the DMO should con­tinue to keep driv­ing the in­clu­sion of al­ter­na­tive debt in­stru­ments in meet­ing the gov­WITH ern­ment’s fund­ing needs as well as in­tro­duc­ing new in­stru­ments to de­velop Nige­ria’s cap­i­tal mar­ket.”

Speak­ing on the is­sue of ex­ter­nal debt and do­mes­tic debt mix of the coun­try, the an­a­lysts stated that if the Debt Man­age­ment Of­fice’s debt re­bal­anc­ing strat­egy is any­thing to go by, we will see more ex­ter­nal fi­nanc­ing, even though for­eign bor­row­ing costs have in­creased con­sid­er­ably in the wake of the Fed’s nor­mal­iza­tion process.

It is worth men­tion­ing that ex­ter­nal debt re­mains rel­a­tively cheaper than lo­cal bor­row­ings, and Nige­rian fis­cal au­thor­i­ties, which are al­ready bur­dened with do­mes­tic debt ser­vice to the tune of N1.7 tril­lion, would likely lean to­wards op­ti­miz­ing their bor­row­ing strat­egy in favour of cheaper notes.

In terms of the debt mix, the fed­eral gov­ern­ment tapped into the global debt mar­ket two times in 2018, rais­ing a to­tal of $5.2 bil­lion and bring­ing its naira to dol­lar debt mix to 62:38, close to its fis­cal tar­get of 60:40 by 2019.

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