Last week, the Federal Government presented a cheque of N100 billion sovereign Sukuk proceeds to the Ministry of Power, Works and Housing for the construction and rehabilitation of 28 key economic roads under the 2018 capital vote. The Director General of Debt Management Office, Patience Oniha, responded to some questions from journalists after the cheque presentation. Excerpts:
How has the diversification of FGN savings bond gone so far?
Our goal for the Federal Government savings bonds, up till 2009, was to diversify that investor base because when you look at it, up till 2008 the banks were taking up about 64-65% of our auctions but now they are taking much smaller because we have reached out to pension funds, insurance companies, and other institutions and I think it is a good thing. But the decrease you are seeing in the level of subscription and the inching up of the interest rate has to do largely with liquidity in the system.
If we look at the FGN savings bond, it is targeted at retail investors, so it’s like the small investors somehow don’t understand the FGN bond and don’t even know how to invest in it. Also our primary dealer market makers were always seating in their head offices and dealing with larger institutions. So we needed to come down and open a window for the retail investors.
I believe subscription was good, but I wouldn’t say very high when we look at our expectations. What has also happened is if you buy this month with the savings you have you may not have built up enough savings to invest in it again, so the retail investors typically have to build up savings to be able to invest.
So what are we doing? We are doing a lot of sensitization. Last year we had outreaches to the markets, to professional bodies and we plan to do that as well this year.
How are you counting the success in the FGN savings bonds?
Really in terms of the number of investors we are getting, we will be glad to have larger volumes but being able to get more first time investors is also success for us and at the last count we had reached about 10 thousand for the federal savings bonds and that’s a measure of success for us.
Would you say that the elections coming up could have any effect on foreign investors pulling out their monies or issues like that?
I think I won’t tie it to the elections, I would say what’s happening globally, especially to interest rates in the international markets, and foreign investors are looking for opportunities wherever in the world it is safe and where the returns are good and also where they can come in and go out easily; maybe where there is ease of entry and exit. So to that extent I will say there are probably bigger issues happening outside in terms of US interest rate that would affect them more than the elections.
But let me quickly say I believe in May 2015 we actually had a higher subscription level from foreign investors. When I say higher, one would think oh! they were waiting to see what happens but that auction was actually higher.
Having said that let’s look at our strategy in general. We are not looking at concentrating on one investor which explains why we started diversifying to various investor segments. We are happy to have foreign investors but we also want to have more domestic investors participating in the market.
We have seen the use of Sukuk to fund infrastructure, aside roads are you thinking of funding other infrastructural facilities?
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 borrowing that was already included in the budget and projects also included in the budget so you are right, our first experience was last year and we are doing roads because the impact was so huge and we tried that model and it worked. So going forward we should be able to extend it to other capital projects.
Should we wait for Sukuk before we tie borrowing to projects?
With the way you say tie borrowing to projects, don’t forget capital releases that are done with the Ministry of Finance also goes to capital projects. What we have done is to isolate these ones and tied it to them. But I think what the media should help us to do is more awareness; we can’t do it alone and you have a much wider reach than we do. We would like to say for instance there are capital projects in the budget for N500 billion and we want to assure that if we issue a Sukuk for N500 billion the market can absorb it. So let’s begin to sensitize the public, deepen that investor base and we will all be the better for it.
What are the conditions and payment plans for the Sukuk?
The Sukuk we issued is a seven-year Sukuk and we will redeem it at maturity, meaning seven years from December last year. The rentals like our FGN bonds are paid every six months at 15.7%.