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Nigeria to reduce domestic borrowing for more corporates to raise funds

By Helen Oji
18 December 2017   |   2:04 am
The problem associated with government crowding out funds from the local market may soon become a thing of the past, as the Director -General, Debt Management Office, Patience Oniha disclosed that the ratio of external borrowing to domestic in the next five years is expected to be at 60 per cent to 40 per cent.…

The problem associated with government crowding out funds from the local market may soon become a thing of the past, as the Director -General, Debt Management Office, Patience Oniha disclosed that the ratio of external borrowing to domestic in the next five years is expected to be at 60 per cent to 40 per cent.

Oniha, who spoke in an interview with The Guardian noted that government has decided to reduce domestic borrowings to enable other corporates within the financial system and the listed firms to borrow at a lower rate to avoid government crowding out funds from the system.

This, according to her, is in addition to the to the $3 billion to repay domestic debt.

Already, $500 million has been borrowed last month out of the $3 billion to repay the Nigerian Treasury (TBs) that has already matured for the month of December, which amounts to N198 billion.

“We want to see many companies come to raise capital and issue bonds so that fixed income market would have many instruments. It will create more varieties, liquidity and allow investors to diversify their portfolio.

“The books of these institutions will become healthier. We expected that the market would develop in corporate bonds but because government is always borrowing making the rate to be higher that is why they say we are crowding out, we want to pull out now and will continue to repay.

“We got approval in June that we would restructure our debt profile; we would borrow less in Naira and more in foreign currency because it is cheaper and also because we want to prevent crowding out the private sector.

She added: “We want to create room for the private sector to be able to borrow so they can grow and create jobs. So as part of that, we sought approval and that was granted for us to refinance treasury bills.

“As treasury bills mature we will be refinancing them into dollars. Up to $3 billion worth of treasury bills will be refinanced into dollars.
Stock market investors had recently expressed concerns over the current high yields on securities and money market instruments, saying such returns impede the rebound of the equity market.

The investors, who argued that the high yields cast doubt on the resurgence of Initial Public Offering (IPO) in the market, urged the Monetary Policy Committee (MPC) to review the interest rate while the Central Bank of Nigeria (CBN) makes conscious efforts to reduce the yields on TBs and other instruments to buoy investment in equities and resuscitate IPO.

The investors noted that the secondary market segment of the Nigerian Stock Exchange (NSE) that is supposed to excite issuers and spur primary market activities for IPOs have witnessed fewer activities in the last few years.

They blamed the high money market yields and interest rate for the diversion of investors’ attention to the fixed income and debt instrument market at the detriment of the equity market.

The preference for the money market and debt instrument arises from the fact that returns on such facilities, which are loaned to government or corporate bodies, are guaranteed with high yields for the fixed period of their tenure, unlike stocks which are exposed to the vagaries of market forces as they are traded daily.

For instance, with 18 per cent on TBs, investors prefer to invest in them and other securities and instruments, because their yields are currently high. Similarly, the introduction of the Federal Government of Nigeria Savings bonds and Sovereign Sukuk in 2017 is also expected to diversify sources of government funding, as well as investors’ base of the domestic bond market

Specifically, the Founder, Independence Shareholders Association of Nigeria, Sunny Nwosu, maintained that investors would not shun money market instruments that attract profitable yields for volatile equity market.

“If you do not have a strong heart, you will exit the capital market. Government is not helping the capital market. All the products that government introduced are removing values from instruments in the capital market. Most investors in the capital market will not want to wait for a long time, but get out after seeing a profitable appreciation and attractive interest the money market offers without fluctuations.

“The little recovery witnessed in the market so far may not be sustained because when investors opt for money market instruments, the secondary market may become less attractive for issuers to patronise the market for IPO.

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