DMO Faces Dilemma over N40bn FG Bond
By Uche Obike
The campaigns embarked upon recently by the Debt Management Office (DMO) to seek the assistance of market operators may not have achieved the desired success.
Feelers from the financial industry revealed that the banks which consituted 50 per cent of the subscribers to the N150 billion FG bond issue last year will not be patronising the proposed N40 billion for 2004 FG bond.
The reason is that the banks were more involved in the pursuit of meeting the recapitalisation requirement announced recently by the Central Bank of Nigeria (CBN).
The Debt Management Office recently embarked on another round of campaigns at sensitise the investing public to its plans to issue the 2004 Federal Government Bond.
The leader of the team, Dr. Mansur Muhtar, Director-General of DMO, who, after an interactive session with representatives of the various banks and financial institutions in Nigeria told the capital operators in another forum that "the responses we have been getting from some banks and financial institutions have necessitated that we engage in further consultations to agree on the funding and the volume of the bond. With the recent development in the financial system, including recapitalisation by the Central Bank of Nigeria (CBN) and the withdrawal of the public sector funds, we need to come back to our stakeholders because we want it to be successful."
During an interactive session between the stockbrokers and the DMO officials, Muhtar reported that they have had a very useful discussion with the CBN and with the banking sector the previous day in which they confirmed some of those concerns that have been highlighted separately and individually.
Also, during their chat with stockbrokers, the top officials of the DMO were asked whether they wanted to compete with the banks considering the timing for the issuance of the N40 billion 2nd FGN Bond that will be in tranches as follows:
*N20 billion 2nd FGN Bond 2007 (August 30 - September 13, 2004).
*N20 billion 2nd FGN Bond 2007 (October 18 - November 1, 2004).
The brokers advised the DMO to shift the offer dates for the FG bond since many banks were expected to come to the market within the period to raise funds for recapitalisation as directed by the Central Bank of Nigeria (CBN) recently.
The brokers were of the opinion that if the banks will be in the market during the period, the FG bond will certainly not attract its desired attention.
It was clear by the end of the interactive session that the stockbrokers were in sympathy with the banks, and advise the DMO to shift grounds.
A look at the analysis of the subscription level of the 2003 bond floatation as revealed by the DMO shows that the banks emerged the highest subscribers with N40.93 billion, representing 56.41 per cent, while pension funds' subscription was valued at N18.25 billion or 25.16 per cent. The non-bank institutions like the insurance and parastatals achieved N6.27 billion or 8.64 per cent, while discount houses subscribed N5.65 billion or 7.79 per cent and individuals made N1.46 billion or two per cent subscription for the bond.
With 56.41 per cent subscription, there is no doubt that the banks were the highest subscribers to the FG bond. That was when the goings were smooth with the banks.
The on-going N25 billion recapitalisation controversy and the withdrawal of public funds from the banks, the DMO may not be able to get the banks at this time to participate in investing their money in bonds. And, if the banks will not take part in subscribing to the 2004 FG Bond, the DMO may have to change gear, and restructure its debt refinancing strategy.
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