Fixed-income investors seeking high-yielding securities in the light of the prevailing developments in the markets were successful for the first time in three months, as attempts by the Federal Government to raise revenue to fund budget deficit led to an increase in stop rates.
More than N142.76 billion worth of successful transactions were recorded at the Nigerian Treasury Bills (T-Bills) auction conducted on May 13, 2020, by the Central Bank of Nigeria (CBN) on behalf of the Federal Government of Nigeria (FGN) as investors bid at rates as high as 6.64 percent, 7.48 percent and 12.8 percent on the 91-day, 182-day and 364-day bills, respectively.
Subsequently, the CBN left the rates across the three tenors at 2.5 percent, 2.85 percent, and 3.84 percent respectively. While this is the first of improvement since January 29, 2020, the rates compare with 1.85 percent, 2.49 percent and 3.84 percent the apex bank cleared on the 91-day, 182-day and 364-day bills at the previous T-Bills auction.
According to Dayo Akinola, a Lagos-based financial and risk management consultant, the stop rates are a pointer to the fact that the FG is desperately looking for money to fund its budget deficit.
“They desperately need the money and can’t live in denial any longer. Don’t be surprised if they bite more than offered in the coming auctions. I suspect that this is necessary to meet budgetary exigencies and avoid debt servicing default since revenue has shrunk,” Akinola said in a tweet.
Analysis of the auction result revealed that investors jostled for the N33.84 billion the CBN sought to raise at the auction with N165.55 billion, oversubscribed by N131.71 billion.
The apex bank allotted N142.76 billion, meaning the lender raised more money than it offered by N108.92 billion.
Even though interest for the debt instruments waned when compared with the previous primary market auction, the week’s auction was oversubscribed by more than 4 times with most demand on the 182-day paper.
The CBN sold N19.78 billion worth of bills for the 91-day paper, N40.09 billion worth of bills were allotted on the N182-day paper, and bills valued at N82.89 billion were sold on the 364-day paper.
A breakdown of the result revealed that the central bank offered N4.38 billion for the 91-day maturity but investors were willing to place a subscription of N22.33billion. The apex bank eventually allotted N19.78 billion.
The 182-day medium-term paper was oversubscribed by more than three times. While the central bank offered N12.92 billion for auction, investors were willing to subscribe with N41.19 billion but the apex bank settled at N40.09 billion, N 27.17 billion more than the amount offered.
Further analysis of the auction result revealed that the central bank sold N82.89 billion worth of bills for the 364-day paper. Investors jostled for the N16.54 billion offered by the central bank with N102.03 billion subscription. The amount allotted for the one-year instrument was more than five times the amount initially offered for auction.
The Nigerian government plans to cut its cost of borrowing and ramp-up its revenue collection haven consistently failed to meet its targets in the past half a decade. To achieve this, the country’s central bank crash interest rates on T-Bills to single-digit after restricting local corporate and individual investors from patronising its OMO bills.
Meanwhile, Nigeria’s revenue capacity has in recent time come under pressure amid lower crude price. This has widened the nations the budget deficit.
The projected deficit embedded in the 2020 budget of Africa’s largest economy jumped to N5.2 trillion or 3.67 percent of its GDP, after the government slashed its already passed budget and revenue projections in line with new economic realities.
The budget cut to adjust fiscal plans to grimmer realities facing the country may still fail to achieve intended results as the country has a long history of poor revenue realization and budget utilization.
