Home / INTERVIEWS / 2019 Elections: Foreign Investors Won’t Withdraw from Sovereign Sukuk Bond – DMO DG
The Director General, Debt Management Office (DMO), Ms Patience Oniha in a chat with newsmen, explained the Federal Government release of N100 billion for the rehabilitation of 28 key economic roads across the six geopolitical zones of the country through the Sukuk Bond raised by the DMO. TONY OBIECHINA was there for DAILY ASSET.
On the FGN’s N100 billion Sovereign Sukuk Bond which was recently over subscribed at N132.20 billion
Let us start with the big one which is the federal government savings bonds.When I say big one, I mean the volumes are large, and it is targeted, not deliberately but at institutional investors; so when we are talking constitutional investors, we are talking Banks, Pension Fund Administrators, we are talking non-bank financial institutions, those are the people that buy that one.
If you look at that segment in terms of liquidity – because to invest in bonds, you need liquidity – it is more like the PFA’s and the other segments, you know that for the banks, monetary policy has been tied so we don’t need to talk about too much in terms of the surplus they have to invest in FGN securities, whether it’s treasury bills or bonds. I think in some way, because of the monetary policy stance, the ability has somewhat been reduced. But having said that, our goal from about 2009 was to diversify that investment base anyway. So, if you look at before and up to 2008, the banks were taking up about 64 to 65 per cent as auctions.
Now they are taking much smaller because we reached out to Pension Funds Administrators, to Insurance companies and to other institutions and I think it is a good thing.
For those key investors, the decrease you think you are seeing in the level of subscription, and the inching up of the interest rates has to do largely with the level of liquidity in the system. If we look at the FGN savings bond, it is targeted at the retail investors so it’s like the small investor somehow doesn’t understand the FGN bond and doesn’t know how to invest in it. Also, our primary dealer market are also sitting in their head offices dealing with large decisions, so we needed to come down and open a window for the retail investors.
From the very first month, the subscription was good but I wouldn’t say very high if you look at our expectations. What has also happened if you look through is that if you buy this month with the savings you have, you might not have built up enough the next month to invest in it again.
The retail investor typically has to build up savings to be able to invest, so what are we doing? We are doing a lot of sensitisation.
How are we measuring the success in that product?
Really, in terms of the number of investors we are getting, we will be glad to have a larger volume but being able to get more investors, first time investors, is also success for us and I think at the last count, we had reached about 10,000 retail investors of the federal savings bonds and that is also a measure of success for us.
On foreign investors pulling out their monies because of election
I won’t tie it to the elections, I will say it is what is happening globally, what is happening to interest rate in the international market. Because the foreign investors are looking for opportunities where ever in the world; where it is safe and returns are good, where they can also come in and go out easily more like ease of entry and exit so, to that extent, I would say there are probably bigger issues happening outside in terms of interest rates that would affect them more than the elections. But let me quickly say that in May 2015 for instance, we actually had a higher level of subscription from foreign investors. Having said that, lets quickly look at our strategy. Generally, we are not looking at concentrating on one investor group which explains why we started diversifying to various other investor segments. We are happy to have foreign investors but we also want to have more domestic investors participate in the market.
On use of Sukuk to fund other infrastructure
That should be in the works but always remember what we are funding with the sukuk. The sukuk is not a different borrowing, it is a borrowing that was already included in the budget and then the projects that are included in the budget. Our first experience was last year. We are doing roads because the impact was so huge. We tried that and it worked. So I think going forward, we should be able to extend it to other capital projects.
When you say tying borrowing to projects, don’t forget the capital releases are done by the minister. What we did was isolate this one, and tied it to it; but I think what the media should then help us do is more publicity, we cannot do it alone, you have a wider reach than us. By the time the public is more aware that for instance, there are capital projects in the budget for N500 billion, we want to be assured that if we issue Sukuk of N500 billion, the market can absorb it.
On conditions and repayment plans for Sukuk
This Sukuk we issued is a seven year Sukuk and we would redeem it at maturity. What this means is that seven years from December last year, we will redeem it at maturity; the rentals like our FGN bond are paid every six months at 15.73 per cent I think.
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