By Peter Egwuatu
…. Savings bond accounts for 0.52% of stock market value.
The Federal Government’s target of wooing retail and high net worth investors in the Nigerian capital market, using the savings bond to finance the budget deficit may seem not to be materialising as the appetite for investment in the savings bond continue to diminish with the value of the bond subscription for seven months period accounting insignificantly to the stock market capitalisation (market value.)
Specifically, investors in the nations’ capital market have committed a total of N6.304 billion for the Federal Government savings bond in seven months, representing 0.52 per cent of the total market capitalisation of the Nigerian Stock Exchange, NSE as at September 28, 2017. Financial Vanguard’s investigation revealed that investors’ appetite for the savings bond continued to diminish after the first tranche issued in March 13, 2017 which recorded the highest value in the seven month period under review. Specifically, investors in the nation’s capital market have staked a total of N6.3 billion, representing 0.52 per cent of the N12.213 trillion market capitalisation recorded as at 28thSeptember this year.
The Federal Government savings bond was part of the government’s efforts to mobilise funds locally to fund its budget deficit. The bond was issued in two different tenors of every month, except for March when it debuts. A breakdown of the contribution of the value of bond subscription to the stock market capitalisation on a monthly basis are as follow: March 2017- Savings bond stood at N2, 068 billion, while market capitalisation was N8.829 trillion, representing a contribution of 0.23 per cent; April 2017- Savings bond stood at N1.288 billion, while market capitalisation stood at N8.913 trillion, representing 0.14 per cent of the market capitalisation; May 2017- saving bond was N790.85 million , while market capitalisation stood at N10.197 trillion, thus accounting for 0.07 per cent of market capitalisation; June 2017- Savings bond recorded N607.25 million subscription , while market capitalisation was N11.452 trillion, representing 0.05 per cent of the market capitalisation; July 2017- Savings was N400.57 million, while market capitalisation stood at N12.705 trillion, representing 0.03 per cent of the market capitalisation ; August 2017- Savings bond recorded N738.14 million subscription, while market capitalisation stood at N12.237 trillion, representing 0.06 per cent of the market capitalisation. In September 2017, savings bond recorded N412.7 million subscription, while the market capitalisation as at September 28, 2017 stood at N12.213 trillion, representing 0.03 per cent of the market capitalisation for the period. Further analysis revealed that after the first tranche of the issuance of the Savings bond in March, the level of successful subscription by investors was 2,575 people; the figure dropped in April to 1,798 people.
In May, the level of subscription dropped further to 1,233 people, while in June, the level went down to 921 persons. For the month of July, the level of subscription declined further to 779 persons; In August 2017, the level of subscription went further down to 761 people and September 2017, the number of subscribers dropped further to 578 people. Meanwhile, it will be recalled that during the listing of the bond in March this year at the NSE, the immediate past Director General of Debt Management Office, DMO, Dr. Abraham Nwankwo said : “ it is an exciting day for Nigeria and the DMO in particular. We were given the opportunity to introduce a savings bond and we thank the Central Bank of Nigeria (CBN), Securities and Exchange Commission (SEC) and other relevant agencies for supporting our efforts.”
He said the Federal Government wants to ensure that progress being witnessed in the economy gets to the grassroots. Nwankwo said “out of the 2,555 people that subscribed to the offer, over 95 per cent were individuals consisting of ordinary Nigerians on the streets, including barbers, hairdressers, vulcanisers, teachers and motor park workers, among others. “These are the people that subscribed to the offer. We are so excited and happy that Nigeria has broken the jinx to make sure that everybody in the country is part and parcel of activities in the capital market. And that is very consistent with the plan of the Federal Government. I repeat that whatever progress Nigeria is making should be inclusive and ordinary people should be part and parcel of it so we are happy that this aspect of the change agenda has been implemented and this will continue every month.”
He assured that the funds realised from the offer will be used to fund the budget deficit and refinance matured existing/domestic bonds. Nwankwo said the bond refinancing makes it possible for the FGN Savings Bond to continue in perpetuity, and on monthly basis. Reactions Mr. Moses Igbrude, spokes person for Independent Shareholders Association of Nigeria, ISAN, said “The apathy for the Federal Government savings bond by investors is a clear sign of the economic situation of the country. The period when those bonds were issued were period of economic recession.
Retail investors were most affected with liquidity crunch. The purchasing power of investors had dropped with so many things that require attention unfulfilled. Even now that government said we are out of recession, nothing to show. We still have price of commodities skyrocketing. The state of the economy is really affecting investors. Disposal income has dropped significantly. “Also, in a situation where the Federal Government is competing with the private sector in raising fund from the market in this period of economic recovering is not the best.
The private sector is in dire need of funds and the avenue of getting money is from the market; how do you think that bond will continue to record huge success? Government is crowding out the private sector in that regard. We the shareholders of ISAN do not subscribe to government issuing too many bonds.” Mrs. Bisi Bakare, Chairman, Pragmatic Shareholders Association of Nigeria, PSAN, said: “Retail investors may be getting better return on investment from other investment. That could be one of the reasons why the interest from investors in the savings bond has been on decrease both in the level of subscription and number of participation. You should note that investors would always commit their resources to where they will get maximum value of returns. Also, the economic situation is not helping matters. Many investors are already complaining with the rising cost of living prevailing in the country.
Mr. Boniface Okezie, Chairman, Progressive Shareholders Association of Nigeria, PSAN, said: “Investors are tired of the savings bond. What has government been doing with the various bonds proceeds? Investors are yet to see where these funds are channelled to. I and my group do not subscribe to this kind of incessant issuing of bonds, the government is creating more debt for generation yet unborn to bear. The government should not be competing with the private sector to raise fund from the market. You don’t issue bond for its sake without using having a clear pursue.
If government is channelling the fund to infrastructure; which particular infrastructure? It is time for government to tag any bond issued to a particular infrastructure. In that way, people can monitor where the fund is going into. We don’t subscribe to a situation where government is contesting with the private sector to raise fund especially in this period economic hardship. “We should note that the purchasing power had dropped and this may also account for the low appetite by investors to invest in savings bond.” Mr. Oderinde Taiwo, National Coordinator, Proactive Shareholders Association of Nigeria, PROSAN, said: “Initially, when the bond was first issued there was greater publicity and rallies, subsequently the hype for publicity reduced. If the government wants to get the grassroots involvement, then it should intensify its campaign to woo investors. “Also, the economic situation could be another reason why the number of participation continued to diminish. There has been high cost of doing business, irregular power supply and water among other constraints affecting the people. So, people have to place priority to things that will improve their life.”