Govt offers new N70b bonds

VANGUARD Newspaper-Mathias Okwe

AS investors show greater interest and confidence in the Nigerian economy, the Federal Government is opening up another N70 billion bonds offer for them for the month of November.

The preceding month (October’s) bonds’ offer was characterised by a rush, which led to its over-subscription by N28.17 billion.

Consequently, the Nigerian Debt Management Office (DMO) has concluded arrangements for this month’s N70 billion bond issue, which opens on November 18.

Statistics and other documents obtained from the DMO in Abuja at the weekend showed that investors’ preference is for the longest tenor offer - the 20-year bond.

Outside the bond market, the government is also paying attention to the real sector, specifically on the cement industry, where glut in the market and losses by local manufacturers have persisted.

Local production is reportedly suffering a glut of 575,000 tonnes put at N15 billion linked to the restriction of consumption capacity occasioned by the continued imports of the product into the country.

And based on information supplied the government by the local firms that Nigeria is now self-sufficient in cement production, the government says the continued import of cement into the country may be reviewed.

On the bond offer, the result for last October exercise shows that investors were attracted to the 20-year yield curve than they were to the shorter tenors of three and seven years, signifying their rising confidence in the Nigerian economy.

In fact, the 20-year bond recorded more bidders than the other two offers as well as an over-subscription of N28.17 billion over the original N40 billion target by the DMO whereas the seven and three years issues suffered under-subscription, not meeting the targeted N62.81 billion and N40 billion in that order. For the seven-year yield, it recorded N54.10 billion while the three-year bond generated N37.78 billion.

“Successful bids for the three-year and seven-year offers were allotted at the cut-off rates of 10.50 per cent and 11 per cent respectively. The 20-year offer was allotted at the marginal rate of 14.00 per cent. However, the original coupon rates of 5.50 per cent, 9.25 per cent and 10 per cent for the three-year, seven-year and 20-year respectively will be maintained,” DMO said in an accompanying statement for October.

For next week’s offer, N70 billion is being targeted, with a breakdown of N20 billion for the three-year bond and N25 billion each for the seven and 20-year bond. Their maturity dates are February 2013, September 2014 and July 2030 with a coupon rate of 5.5 per cent, 9.25 per cent, and 10 per cent in that order.

For the re-opening of previously issued bonds (where the coupon is already set), successful bidders will pay a price corresponding to the yield-to-maturity bid that clears the volume being auctioned, plus accrued interest from the original issue date. Interest payment is made semi-yearly while bullet repayment on the maturity date.

The Federal Ministry of Finance about three years ago appointed Primary Dealer Market Makers (PDMMs) to act as secondary market, where investors can participate in the bond market as part of government’s efforts to deepen the market.

Those appointed include Access Bank Plc. Ecobank Nigeria Plc, Kakawa Discount House Ltd, Afribank Nigeria Plc, Express Discount Ltd, Oceanic Bank International Plc, Associated Discount House Ltd, Fidelity Bank Plc and Stanbic IBTC Bank Plc.

Others are Bank PHB Plc, First Bank of Nigeria Plc, Standard Chartered Bank Nigeria Ltd, CitiBank Nigeria Ltd (Citigroup), First City Monument Bank Plc, Union Bank of Nigeria Plc, Consolidated Discounts Ltd, First Securities Discount House Ltd, United Bank for Africa Plc, Diamond Bank Plc, Guaranty Trust Bank Plc and Zenith Bank Plc.

Speaking on the state of the cement industry in Nigeria, President of Dangote Industries Limited, Alhaji Aliko Dangote and the President of Cement Manufacturers Association, Joseph Makoju, who is also the Chief Operating Officer of Dangote Cement Plc, told the Finance Minister, Mr. Olusegun Aganga and the Minister of State, Hajia Yabawa Lawan Wabi, during a visit to the Obajana Cement Plant, Kogi State, that the country has achieved self-sufficiency in cement production.

They told the ministers that plans were at advanced stage to begin cement export to neighbouring African countries from next year when the Dangote Cement Group, comprising the Obajana Plant and the Benue Cement Company, Gboko, get production full stream of 20 million tonnes by July 2011.

Dangote Cement expected production by July 2011 is 20 million tones while Dangote’s Ibese Line 1 will be commissioned in January 2011, Ibese Line 2 will be commissioned in February 2011. Both lines have installed capacity of six million tonnes.”

Obajana Cement Plant Line 3 will be commissioned in July 2011 with total capacity of 10.25 million tonnes. Benue Cement Company Plc (BCC) has capacity of 3.75 million tonnes. Grand total of all Dangote cement plants is 20 million tonnes.

Local cement production in Nigeria in 2009 was 7.9 million tonnes while import for the same period was 6.9 million. Dangote cement accounts for 50 per cent of the market.
To encourage local production and generate more jobs, Dangote advised the government to consider the use of cement in road construction.

He said: “A study conducted in India has shown that concrete road construction is only 20 per cent costlier than bitumen, but it has a greater lifespan and is not amenable to abuses by contractors who are in the habit of cutting corners to produce below specification.’’

Responding, Aganga expressed delight at the level of investment and quantum of production by the Dangote Group, hoping that by 2012, Nigeria will become a net exporter of cement.

He also promised to discuss the matter at the Economic Management Team of which he chairs and assured that the current administration will continue to engage genuine groups and individuals to enunciate the right economic policies to fast- track growth and save the country huge foreign exchange.


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