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The private sector
may not thrive better than 2010 at the bond market, as the Asset
Management Corporation of Nigeria (AMCON) gets set for bond issuance
this year.

It is estimated
that the Corporation will issue N3 trillion zero coupon in 10-year bond
to enable it buy up non performing loans, as part of moves by the
government to bail out the banks.

For most of 2010,
the nag had been that the Federal Government crowded out the private
sector, raising over N1 trillion. Corporates raised less than 10 per
cent of this amount.

The Nigerian Stock Exchange (NSE), in its outlook for 2011, projects that the private sector may not fare any better.

“The sustained
expansion in public borrowing risks crowding out the private sector,”
said the interim administrator of the NSE, Emmanuel Ikhazobor, in his
presentation at the press briefing on the review of 2010 and the
outlook for 2011, held on Monday in Lagos.

This sentiment is shared by Akin Oladeji, chief executive officer of Futures and Bonds Limited, a financial services firm.

“The market will
not be different from previous years since Federal Government has
devised a crafty way of raising bonds to finance its projects. Market
will continue to be crowded with FG and State Bonds. Although few
corporate bonds may enter the market, the success will depend on timing
and pricing,” Mr. Oladeji said.

“If the usual high
lending rate and low deposit rate should continue, most corporates will
consider bond issuance subject to their existing allowable debt to
equity ratio,” he added.

Dynamics in the bond market

He said AMCON will
alter the dynamics in the bond market, especially as the economy may
not be able to absorb the huge funds that will enter the system.

“Does the market
have capacity to buy all the bonds? Who will be the investors in these
bonds in an economy with so many uncertainties? I do not believe the
market has the capacity or appetite to absolve the volume of bonds
being anticipated,” he added.

Mr. Oladeji further said investors in the bond market may not enjoy the level of returns as expected.

“Rates will be
guided by demand and supply. But with intuition, it is clear that the
rate may drop if this kind of volume is taken to the market, coupled
with the facts that other type of bonds may come into the market with
attendant uncertainty.”

However, the
managing director of AMCON, Mustafa Chike-Obi, has said that the
issuance of the bonds will not overwhelm the market.

“Look at it as an
asset swap. We are taking a non productive illiquid asset and replacing
it with a somewhat liquid asset,” he said.

Briefing bank chief
executives recently in Lagos, Mr. Chike-Obi said the market will be
liquid such that banks will not be under pressure to flood the market
to sell off.

“My feeling is that banks are going to hold on to the bonds until they can make loans,” he said.