Following the drive to raise funds to finance the N4.28 trillion 2021 budget deficit, the federal government listed a total of N812.2billion new and supplementary bonds in October crowding out private sector listing on the Nigerian Exchange Limited (NGX).
The 2021 budget has huge debt components forcing the federal government to issue bonds to raise debt finance from the capital market.
But analysts decry the crowing out of the private sector stressing that excessive borrowing by the government at the expense of the private sector, which is the engine room of the economy, brings to question the soundness of the government’s economic strategy.
The private sector organisations that listed on the NGX during the month under review included; the Nigerian Exchange Group (NGX) Group, Jaiz Bank Plc and LFZC Funding SPV Plc, they listed just N45.5billion on the bourse.
In September 2021, the federal government listed new and supplementary bonds worth N3.2billion, while only one private company, Chemical and Allied Products Plc listed N1.73bilion that emanated from the Scheme of Merger between CAP Plc and Portland Paint and Products Nigeria Plc.
Out of the eight federal government bonds listed in the month of October, there were six supplementary and two new listings on the Nigerian capital market.
A breakdown revealed that the federal government listed N315.4 million new bonds on the NGX in October, while the supplementary listing was N811.87billion.
From all indicators, the federal government in October listed its savings and FGN Bonds on the bourse.
Federal Government issues FGN bonds in the primary market through the Debt Management Office (DMO) at its monthly auctions and these bonds are subsequently listed on the NGX for trading.
The government had announced plans to finance its deficit with new borrowings totalling N4.28 trillion, N205.15 billion from Privatization Proceeds and N709.69 billion in drawdowns on multilateral and bilateral loans secured for specific projects and programmes.
President Muhammadu Buhari had while presenting the 2021 budget estimates to a joint session of the national assembly in October 2020 said: “We remain committed to meeting our debt service obligations. Hence, we have provisioned N3.12 trillion for this in 2021, representing an increase of N445.57 billion from N2.68 trillion in 2020.
“A total of N2.183 trillion has been set aside to service domestic debts while N940.89 billion has been provided for foreign debt service. N220 billion is provided for transfers to the Sinking Fund to pay off maturing bonds issued to local contractors and creditors.”
Meanwhile, analysts have expressed mixed reactions, stating that government borrowing from the exchange is about the flow of liquidity, while some said economy unfavourable conditions forced companies to shun listing on the exchange.
In a chat with THISDAY, Former President, Association of Stockbroking Houses of Nigeria (ASHON), Mr. Emeka Madubuike said the intensive listing of federal government bonds implies that the capital market favours the economy.
According to him: “The stock market has witnessed improvement over the years and it has favoured the nation’s economy. This has impacted on the government listings its bonds on the Exchange. For so long stakeholders have been clamouring on government utilizing the capital market as long-term source for funds. Government is always the largest spender and when the government starts raising money through the capital market, of course, it brings about capital formation.”
He maintained that stakeholders would continue to canvass the government’s utilization of the capital market to finance the infrastructural deficit in the country.
“By so doing, we will then have a capital market that is a catalyst for economic development. Out of these borrowings, a significant part of it could come from the capital market. A lot of people have argued that our capital market not deep enough but we have found out that such argument does not hold water. It is the same market that carried banking sector consolidation. The issue is that managers of our economy must begin to look inwards.
“Other economies went through 2008 global economic meltdown. They recovered using macroeconomic policies to ensure there are local activities. If there is no local activity, how do you expect your market to move? For me, it is good the government is listing but it is still a drop in the ocean for me. If the market pickup, then you will find out that corporate companies will show interest to list on the Exchange.
“However, when you have an economy with many uncertainties, the corporate listing is expected not to show interest listing. The macroeconomic situation does not favour production and ease of doing business. There are three factors that affect the market- inflation, exchange and interest rates. If all these things are not favourable, you can’t have corporate companies to come raise money, “he said.
Also speaking, Vice Chairman, Highcap Securities Limited, David Adonri said: “Hike in government listing in October shouldn’t be surprising because Debt Management Office (DMO) came up with new bond issuance and those new bonds were subsequently listed on the NGX.
“The 2021 budget has huge debt components and the federal government is issuing those bonds to raise debt finance from the capital market. The federal government is overheating the capital market with bond listing and it was our fear that it will crowd out corporate bonds.”
He added that: “Excessive borrowing by the government at the expense of the private sector which is the engine room of the economy, brings to question the soundness of its economic strategy.”
Chief economist/head, Investment Research of PanAfrican Capital Holdings, Mr. Moses Ojo attributed the significant increase in bonds listed by federal government to market stakeholders’ advocacy, stressing that, “There has been increased discussion to market the bond market more buoyant. As you can realise, there was increasing activities in the month of October.”
He explained further that companies are pessimistic over listing on primary market of the Exchange over uncertainty in the economy.
He added that: “I strongly believe we will start to see activities in the primary market but for now, it is a good thing we are having government bonds listed on the Exchange.
In addition, the Chief Operating Officer, InvestData Consulting Limited, Ambrose Omorodion said the federal government listing on the Exchange is on the heels of making up with its deficits, stating that corporate bond across the globe carries more risk than government bond that is risk-free.
He stated, “The government can do anything to pay back the bond. Individuals do partake more in government than a corporate bond. If the government is in the market, and attract crash the bond rate, it will attract corporate bodies to participate.
If the government has dominated the market with a high rate of borrowing, corporate companies will not show interest. The major reason companies are not showing interest in the bond listing is because of the interest rate on government FBN and savings bonds.”