The federal government of Nigeria has introduced initial guidelines for the issuance of a US$500 million, Series 1 domestic bond set to debut this month. This bond, the first dollar-denominated instrument to be launched locally, has a five-year tenure and offers a medium-term investment opportunity for investors seeking stable returns.
Benchmarking against the federal government’s Eurobond yield, this bond aims to attract substantial investment. The government hopes subscriptions could scale up to US$1 billion due to the increasing appetite for Nigerian instruments.
According to a document seen by BusinessDay, the total size of the domestic dollar bond program is US$2 billion, with the possibility of an increase if necessary. The document confirmed that repayment at maturity will be in dollars.
The Central Bank of Nigeria (CBN) has granted the bond liquid asset status, qualifying it for inclusion in the calculation of liquidity ratios for banks. The bond is open to Nigerians and non-Nigerians residing in the country, Nigerians in the Diaspora, and qualified institutional investors, including pension funds.
The document indicated that the bond offer, closing, and settlement will occur this August, though specific dates have not been provided. The minimum subscription is US$10,000, with increments of US$1,000 thereafter.
As per a Presidential Executive Order, the net proceeds and their growth will be ring-fenced and invested in critical sectors approved by the President, based on recommendations from the finance minister and subject to National Assembly approval. Bondholders are exempt from income tax on accrued interest and will enjoy additional exemptions as specified by the Federal Inland Revenue Service (FIRS).
The bond will be listed and traded on the Nigeria Stock Exchange and the Financial Markets Dealers Quotation (FMDQ). Patience Oniha, Director General of the Debt Management Office (DMO), emphasized that the bond is another way to bring dollar liquidity into the system, clarifying that unlike Eurobonds, this bond will be issued locally.
Similar to the debut Eurobond issuance in 2011, the maiden forex bond is anticipated to open up local issuance of similar bonds by companies and sub-national entities. Oniha assured that strict Know Your Customer (KYC) principles will be applied to ensure compliance with laws and international conventions Nigeria has signed.
While the bond has been praised as a strategic move, concerns persist regarding its timing, given that five of Nigeria’s Eurobonds are currently among the worst performers. Additionally, there are questions about the efficient utilization of the proceeds amid Nigeria’s debt status, which the DMO reported at N121.67 trillion (US$91.46bn) as of March 31, 2024.
Credit: Businessday NG (Text Excluding Headline)
