. Operators lament high impact of borrowing cost on competition
The Debt Management Office sold Treasury Bills (T-bills) valued at N622.7 billion across its auctions in September 2024. The figure exceeded N507.1 billion offered in August 2024 by 22.8 per cent or N115.6 billion, indicating sustained demand for the instrument.
For emphasis, T-bills are short-term debt instruments issued by the Central Bank of Nigeria (CBN) on behalf of the Federal Government. These bills are used to raise funds to finance government projects and are considered one of the safest investment options in Nigeria.
FMDQ Exchange in its financial markets monthly for September noted that the CBN sold OMO bills worth N714.5 billion and FGN bonds valued at N264.5 billion within the period.
According to FMDQ, sovereign securities offered by the DMO in its FGN Bond and T-bills auctions were oversubscribed by 176.6 per cent and 220.7 per cent respectively during the review period.
The exchange said there were no new listings and redemptions of non-sovereign bonds listed on the FMDQ Exchange in September 2024, as such the value of non-sovereign bonds outstanding remained flat at N2,254.42 billion.
While the total value of T-bills sold rose by 22.8 per cent, the total value of Commercial Papers (CPs) quoted on the FMDQ Exchange in September 2024 declined by 42.5 per cent or N28.4 billion to N38.5 billion from N66.9 billion quoted in August 2024.
Commercial Papers (CPs) are short-term debt obligations of corporations. They can be issued for tenors of up to 270 days in the Nigerian financial markets. Like Treasury Bills, they are typically issued at a discount and redeemed at par (face value amount) upon maturity.
CPs are also typically issued by large corporations with good credit ratings and history and are quoted and traded/reported on relevant platforms of FMDQ Exchange.
In September 2024, quoted CPs were issued by institutions from the Financial Services (five), Chemical Supply & Oil Service (two), and the Education (two) sectors.
In addition, the outstanding value for CPs decreased MoM by 2.06 per cent (N13.07 billion) to N622.8 billion in September 2024 due to the N51.6 billion worth of CPs that matured during the review period.
Due to high interest rates and rising inflation, coupled with dwindling demand and outputs, commercial paper issuances, which help to support the working capital requirements of corporate, come in small sizes.
Even existing loans will incur higher interest rates, raising the cost of capital for businesses, especially for corporate that do not borrow within what is optimal to their capacity utilization.
Vice President of Highcap Securities Limited, David Adonri, decried the level at which the Federal Government is crowding out funds from the private sector.
According to him, corporates are unable to compete for funds in the money market due to the high cost of borrowing.
“What is happening between T-bills and CPs is a classical case of the crowding-out effect. Corporate borrowers are unable to compete for funds in the money market because of the high cost of borrowing. “FGN is prepared to borrow at any price thus establishing a competitive advantage over corporate borrowers,” he said.
Investment Banker and Stockbroker, Tajudeen Olayinka, said the government securities market serves as a benchmark for other securities markets in terms of yield and risk-free nature.
