Another difficult calendar for the DMO –FBNQuest

The Debt Management Office (DMO) has issued its provisional issuance calendar for first-quarter (Q1) 2016, together with its offer circular for this month.

It has had to set out its plans without an approved budget in place. This has become its lot each January but additionally the oil price is falling, which has given rise to suggestions that the assumptions in the FGN’s budget proposals may have to be adjusted (downwards).

Over the quarter the DMO seeks to raise between N260bn (US$1.30bn) and N350bn (US$1.75bn) from primary issue. Debt offices globally like to front-load their issuance, which explains the sharp increase from the calendar for Q4 2015 (a range of between N180bn to N270bn).

The current proposals project net domestic borrowing of N980bn this year. Additionally holders of the Aug ‘16s with a face value of about N560bn will have to be repaid.

We assume that the DMO has low expectations of offshore buying interest and will therefore be looking to the domestic market to meet its targets. To give some perspective to the calendar, we note from PenCom data that the PFAs held N2.8trn in FGN bonds at end-October, equivalent to 56.2% of their AUM. (The share of ordinary shares was 9.9%).

The calendar includes the launch of two new benchmarks (for ten-year and 20-year paper this month and March respectively). Such issues tend to generate their own demand for reasons of novelty, and the 20-year instrument should prove popular with the PFAs as a match for their long-term pension liabilities.