• Wednesday, May 29, 2024
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What investors need to know as N4 trillion Tsunami of new issuance set to hit markets

Odds favour the bears in early part of H2 over FX illiquiditymarket

One of the reforms on the cards in Nigeria whose economy has been exposed by plunging oil prices is that the Central Bank of Nigeria (CBN) will now work to securitise its loans to the Federal government as part of broader efforts to repair its balance sheet.

Sources familiar with the matter say there has been an acknowledgement of the dire economic implications of the CBN acting as a piggy bank for the Federal government in violation of its own rule of not lending above five percent of revenue to the federal government.

The CBN’s net claim on the federal government surged to a 20-year high of N4.4 trillion as at August 2019 from N400 billion in December 2018, according to CBN data.

This money will now be securitised and sold to private investors in the form of bonds with varying tenors by the Debt Management Office (DMO).

This way the CBN gets some cash flow and is able to repair its balance sheet which has taken a hit from the increased funding of the Federal Government via ways and means in response to lower revenues.

The tenors of the securities and offer rates are yet to be decided.

Also, no specific timeline has been given to when this will happen but BusinessDay learnt that the President has given his approval.

The impact of the move will likely see yields on other government securities move up as supply would have increased by the time the new securities hit the market.

Demand for the securities is mostly anticipated to come from the pension funds and other non-bank local investors who have been banned from buying Open Market Operations (OMO) bills.