The cash strapped federal government has intensified borrowing to finance the 2015 budget, against the backdrop of increasing risk of default.
Renewed interest in borrowing is the result of the substantial loss of revenue from crude oil price drop and an empty treasury.
It comes at a time when investors exiting the crashing equities market are looking towards fixed income instruments that can hold value against a weakening naira.
The government has issued N7.6 trillion debt instruments in bonds and treasury bills expected to mature by 2020.
The FMDQ OTC (FMDQ), an over-the-counter (OTC) securities exchange and self-regulatory organisation, admitted on its platform the listing of N4, 846,818,821,000.00 Federal Government of Nigeria (FGN) bonds and a N2,804,793,035,000.00 Nigerian Treasury Bills, both outstanding as of July 13, 2015.
Government debt rises to N19tr
With these latest debt instruments, the country’s total debt is expected to jump to about N19 trillion, having N12 trillion outstanding debt as of May 29 when President Muhammadu Buhari assumed office.
The new government had raised the alarm about a near empty treasury, debt, and a backlog of workers’ salaries it inherited from the Goodluck Jonathan administration.
Buhari came up with multiple intervention packages totalling N713.7 billion to rescue state governments and alleviate the pains of workers nationwide.
N413b tax paid by NLNGL
The money constituted N413 billion tax and dividend payout to the government by the Nigerian Liquefied Natural Gas Limited (NLNGL), and a N300 billion loan package by the Central Bank of Nigeria (CBN) for distressed states.
Banks have also embarked on a capital raising spree through bonds and rights issues to boost their capital base ahead of the full implementation of the Basel II guidelines issued by the CBN.
Banks have been shoring up their balance sheets for the adoption of stricter international capital requirements, leading to a drop in capital ratios for most banks by between 100 and 400 basis points.
The latest banks planning to raise funds are Stanbic IBTC (N20.4 billion), United Bank for Africa (N11.5 billion), and Fidelity Bank (N30 billion).
Stanbic plans to raise N20.4b
Stanbic IBTC plans to raise N20.4 billion ($102.6 million) in rights issue this year after a scrip issue (bonus shares) to shareholders should proposals to that effect get shareholders’ approval.
Its capital adequacy ratio stood at 10 per cent. Return on Equity (ROE) fell to 14.2 per cent in the first half of the year, compared with 28.9 per cent a year ago. It ROEs is forecast to reach 18 per cent by year-end.
Stanbic IBTC shares fell 3.81 per cent to N24.79 as on Tuesday, July 14, underperforming Nigerian Stock Exchange (NSE’s) All Share Index, which ended down 0.81 per cent on that day, its 10th day in a string of losses.
FMDQ OTC recently listed on its platform Stanbic IBTC’s N15.540 billion bond as part of the bank’s Series 1 (Tranches A & B) 10-Year Subordinated Notes under a N150 billion, Structured Note Programme due in 2024.
The bank recorded a 40 per cent drop in profit after tax for the first-half ended June 30.
Its half year financial statement filed with the NSE showed profit after tax profit declined to N9.695 billion in 2015, against N16.184 billion in 2014. Gross earnings rose 11 per cent to N68.295 billion, against N61.715 billion in 2014.
Stanbic IBTC Chief Executive Officer, Sola David-Borha, said she expects increased regulatory pressure to impact on industry profits this year and that the bank has revised its 2015 loan growth down to the regulatory minimum of 10 per cent.
The bank cut its interim dividend to 90 kobo per share, from N1.10 declared last year and also cut back on loan advances which have grown by 4 per cent in the first six months of 2015.
UBA raises N11.5b
UBA last week raised N11.5 billion ($57.8 million) by selling new stock to existing shareholders to bolster its capital base.
It raised N11.5 billion through an equity offering; a rights issue of one ordinary share for every existing 10 units at a price of N3.50 each.
With this additional equity, UBA said it has fortified its capital base ahead of the full implementation of Basel II, which requires higher capital buffer for banks to accommodate credit, operational and market risks.
The bank had in December last year raised N30.5 billion in tier-II capital through the issuance of seven-year fixed rate unsecured notes, maturing in 2021.
Fidelity raises N30b
Last week, Fidelity Bank raised N30 billion through an unsecured bond at 16.48 per cent to fund increased lending to small businesses and retail clients.
The fixed-rate bond due 2022 may be redeemed after five years, said the financial advisers to the issue.
Fidelity Bank shares have recorded about 3 per cent appreciation at N1.70 per share this year, against 39 per cent decline last year, as the bank expects N23.5 billion profit this year up from N16.5 billion in 2014.