The Debt Management Office (DMO) has said that FGN Bonds would “remain the very safe and liquid securities they have always been,” despite the plan by JP Morgan to phase the bonds in its Government Bond Index – Emerging Markets (GBI-EM).
The director-general of the DMO, Dr Abraham Nwankwo, during a media briefing yesterday, stressed that though the planned phasing out of FGN Bonds in its index is unwelcome, “it does not signify a downturn or collapse of the FGN Bond Market or a downgrade of the bonds.”
Nwankwo, therefore, called on investors and other participants in the FGN Bond market to continue with their longstanding interest in the market, stressing that they and other stakeholders “remain committed to further developments of the Nigerian Bond Market due to its strategic role of mobilising long term capital to finance growth and development.”
According to him, the FGN Bonds market existed before it was listed on the JP Morgan index and is based on a well-diversified domestic investors-base which makes it largely insulated from the vagaries of foreign portfolio investors.
Nwankwo maintained that the reaction of JP Morgan is based on their perception of the challenges in the FOREX market which has arisen due to the crash in oil prices and not due to any underlying problem in the FGN Bond market.
He noted that this problem is not peculiar to Nigeria but common to all oil exporting countries such as Russia, Venezuela, among others, and commended Nigeria for her resilience in withstanding the crash in oil price much longer than its counterparts.
Giving further clarification on the JP Morgan announcement, Nwankwo said, “The phasing out of FGN Bonds from the index does not amount to a downgrade of Nigeria or FGN Bonds since J P Morgan is not a credit rating agency, have any impact on the quality of the FGN Bonds. FGN Bonds remain risk-free securities that are backed by the full faith and credit of the Federal Government of Nigeria and are charged upon the general assets of Nigeria, imply that the bonds are no longer liquid. The FGN Bonds are supported by an active secondary market which allows investors to buy or sell them on any business day through any of the 13 Primary Dealer Market makers licenced by the DMO or on the Nigerian Stock Exchange where the bonds are listed and for which purpose there is a government stockbroker, and imply that foreign investors cannot or will not be allowed to invest in FGN Bonds or the Nigerian financial markets as a whole.
“While the index is a strong tool for attracting foreign investors to invest in a domestic market for which Nigeria derived some benefits, investors who have confidence in the potentials of Nigeria and the reforms targeted at their realisation will still see Nigeria as an attractive investment destination.”