The federal government Wednesday in Abuja said its proposed $2.5 billion Eurobond already approved by the National Assembly would yield N762.5 billion proceeds for the refinancing of treasury bills. According to the government, the deal would result in annual savings of N64 billion.
The Debt Management Office has released a statement explaining the $2.5 billion external financing arrangement. The agency said the loan is not a new incremental debt.
Read the full statement below.
The proposed move is to help refinance the country’s maturing domestic debts and re-balance Federal Government debt portfolio, the Debt Management Office, DMO, said. It is not a new or incremental debt because it will not lead to an increase in the public debt stock. The DMO said the refinancing arrangement would involve increasing the external component of the debt portfolio while reducing the domestic in line with the country’s Debt Management Strategy. The strategy is targeted at achieving a 40:60 per cent ratio for external to domestic debt from the current position of about 25:75, respectively. The DMO said proceeds from the refinancing plan would be converted to Naira and used to redeem relatively more expensive domestic debts. Government said it was expected to save about N64 billion per annum in interest cost which would help reduce the Debt Service/Revenue ratio and free up the fiscal space for other government priorities.
Read the full statement below.
The proposed move is to help refinance the country’s maturing domestic debts and re-balance Federal Government debt portfolio, the Debt Management Office, DMO, said. It is not a new or incremental debt because it will not lead to an increase in the public debt stock. The DMO said the refinancing arrangement would involve increasing the external component of the debt portfolio while reducing the domestic in line with the country’s Debt Management Strategy. The strategy is targeted at achieving a 40:60 per cent ratio for external to domestic debt from the current position of about 25:75, respectively. The DMO said proceeds from the refinancing plan would be converted to Naira and used to redeem relatively more expensive domestic debts. Government said it was expected to save about N64 billion per annum in interest cost which would help reduce the Debt Service/Revenue ratio and free up the fiscal space for other government priorities.
More so the Minister of Finance, Mrs. Kemi Adeosun, who made this disclosure while briefing journalists at the end of the weekly Federal Executive Council (FEC) meeting in the State House, said the $2.5 billion Eurobond issuance was not a new borrowing but had already been approved by the National Assembly as part of the government’s external borrowing plan. She recalled how the $500 million bond issued in November 2017, yielded N162.50 billion, which she said was used to redeem treasury bills, which matured in December 2017 and led to a significant drop in the bid rates of both treasury bills and federal government bonds.
Giving the impact of the $500 million bond, Adeosun disclosed that in December 2017 and January 2018, treasury bills bid rates dropped from about 16 per cent to 13 per cent while government bond rates dropped from about 16-16.50 per cent to 13.50 per cent.
“This translates to savings for government on new borrowing while also making the cost of borrowing for the real sector cheaper since the sovereign rate serves as a benchmark for other borrowers,” she stated.
Stating the potential savings from the $2.5 billion refinancing, the minister said the estimated proceeds of the N762.5 billion expected from the bond would be used to redeem treasury bills in a way that “at the estimated current NTB rates of 15 per cent (following mop-up operations by the CBN), the savings from the refinancing of N762.5 billion of domestic debt using external capital raising is about N64 billion per annum.”
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Giving the impact of the $500 million bond, Adeosun disclosed that in December 2017 and January 2018, treasury bills bid rates dropped from about 16 per cent to 13 per cent while government bond rates dropped from about 16-16.50 per cent to 13.50 per cent.
“This translates to savings for government on new borrowing while also making the cost of borrowing for the real sector cheaper since the sovereign rate serves as a benchmark for other borrowers,” she stated.
Stating the potential savings from the $2.5 billion refinancing, the minister said the estimated proceeds of the N762.5 billion expected from the bond would be used to redeem treasury bills in a way that “at the estimated current NTB rates of 15 per cent (following mop-up operations by the CBN), the savings from the refinancing of N762.5 billion of domestic debt using external capital raising is about N64 billion per annum.”
source: This day live and Premium times
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