The Federal Government will, on or before Friday, announce the result of the $500 million domestic dollar bond recently offered to the Nigerian public.
A source close to the deal disclosed this to BusinessDay under anonymity, saying the government will put up an official statement on this.
On August 19, 2024, the Federal Government announced the offering of a $500 million domestic US dollar bond with a maturity of five years and a fixed coupon of 9.75 percent per annum.
What this means is that the investors are lending money in dollars to the Federal Government for five years with a promise to receive 9.75 percent in interest every year.
The offer closed on August 30, 2024, and the result is expected on Friday. Most of the analysts polled by BusinessDay said they expected the offer to be oversubscribed.
Ayodele Akinwunmi, senior relationship manager, Corporate Banking Group, FSDH Merchant Bank, said: “I expect good outcomes from the fund-raising exercise given the fact the interest rate was good and Nigeria has not defaulted on its loan obligations. In addition, there is no exchange rate risk in the instrument denominated in US dollars. It will help to increase the supply of dollars in the economy which may strengthen the value of Naira.”
Sharing his expectation with BusinessDay, Tilewa Adebajo, chief executive officer of The CFG Advisory, projected that the bond would be oversubscribed.
Uche Uwaleke, professor of capital market at the Nasarawa State University, said, “I think it will be oversubscribed, given its attractive rate and the fact that the target was high net worth individuals and institutional investors.”
Ayokunle Olubunmi, head of financial institutions ratings at Agusto Consulting, said: “I think it will be oversubscribed.”
According to Ayodeji Ebo, managing director/CBO, Optimus by Afrinvest, the investment was targeted towards idle funds in domiciliary accounts, Nigerian savings abroad, the Nigerian diaspora and qualified institutional investors.
Wale Edun, minister of finance and coordinating minister of the economy, said in August 15, 2024, that the domestic US dollar bond issuance would enhance foreign currency reserves, a move that aims to stabilise the exchange rate, manage inflation, and ultimately reduce interest rates.
The bond comes with an annual interest rate of 9.75 percent, which is highly competitive in today’s financial market. Investors who committed $10,000 would receive $975 annually in interest payments, distributed as $487.50 every six months. This semi-annual coupon payment structure ensures a steady income stream for bondholders, analysts say.
The invested principal will be returned at maturity, ensuring the safety of the initial investment. Additionally, the bond enjoys tax exemption, making the interest income even more attractive, as investors can fully retain their earnings without deductions.
According to the Debt Management Office (DMO), the Federal Government of Nigeria (FGN) bonds continue to stand out as an attractive investment option for Nigerians, offering a unique blend of security and substantial returns. These bonds are particularly appealing to investors seeking a risk-free investment vehicle with multiple benefits.
One of the primary advantages of FGN Bonds is their risk-free nature. Backed by the full faith and credit of the Nigerian government, these bonds guarantee the safety of the principal amount. Furthermore, the interest payments on FGN Bonds are tax-exempt, providing investors with higher net returns compared to other taxable investment options.
Investors also enjoy relatively high and stable returns on FGN bonds, especially when compared to conventional bank deposits, which typically offer lower interest rates. Another key benefit is that the principal amount, which investors receive at maturity, can be used as collateral for securing credit facilities from banks and other financial institutions.
For those needing liquidity before maturity, FGN bonds offer flexibility. Bondholders can trade their bonds on the Nigerian Stock Exchange (NSE) and FMDQ OTC Securities Exchange for immediate cash. This trading option provides a crucial advantage, allowing investors to manage their cash flow needs effectively.
Additionally, FGN bonds qualify as liquid assets for banks in the estimation of their liquidity ratios by the Central Bank of Nigeria (CBN), making them valuable tools for maintaining financial stability.
FGN Bonds provide the government with an alternative source of funding, reducing reliance on external financing and promoting greater self-reliance. This not only helps in diversifying the economy but also enhances fiscal discipline by offering a non-inflationary means of funding budget deficits. The issuance of these bonds supports the development of infrastructure, which in turn has a multiplier effect on economic diversification.
