The Federal Government (FG) of Nigeria has introduced its Series I Domestic USD Bond, aiming to raise at least $500 million from both local and international investors.
However, this launch occurs amid a challenging backdrop where five of Nigeria’s Eurobonds have been ranked among the worst performers in a Bloomberg index of emerging and frontier sovereign debt.
FG Plans $2 Billion Bond Program
The circular indicates that the bond program has a total size of up to $2.0 billion, with the potential for an increase at the issuer’s discretion.
The bond features a five-year tenor, providing a medium-term investment opportunity for investors seeking stable returns.
The bond’s coupon rate is benchmarked against comparable Federal Government of Nigeria (FGN) Eurobond yields, ensuring competitive returns that align with international market standards.
Interest payments will be made semi-annually, offering regular income streams to investors and enhancing the bond’s appeal.
The bond will be repaid in full at maturity in US dollars, ensuring the return of the principal amount at the end of the five-year term.
The bond is available to Nigerians and non-Nigerians residing in Nigeria, Nigerians in the Diaspora, and Qualified Institutional Investors.
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It also qualifies as an investment option for pension funds, broadening its investor base and ensuring widespread participation.
Investors can subscribe with a minimum amount of $10,000, with additional investments in multiples of $1,000 thereafter.
The offer opens and closes in August 2024, with specific dates to be announced soon. Settlement will occur in August 2024, aligning with the offer period.
FG to Finance Critical Sectors with Bond Funds
The circular notes that the net proceeds from the bond will be ring-fenced and invested in critical sectors approved by the President based on the recommendation of the Minister of Finance, subject to appropriation by the National Assembly (NASS).
“As stated in the Presidential Executive Order, the net proceeds of the bonds and its accretion shall be ring-fenced and invested in critical sectors to be approved by the President on the recommendation of the Minister of Finance, subject to appropriation by the National Assembly (NASS),” the circular read.
The government has not yet specified which sectors will benefit from this financing.
The bond is exempt from income tax on the interest payable to bondholders. Additional exemptions are provided as specified in the exemption notice issued by the Federal Inland Revenue Service (FIRS).
The bond will be listed and traded on the Nigerian Exchange Limited (NGX) and the Financial Market Dealers Quotation (FMDQ), providing liquidity and accessibility to a broad range of investors.
Key Points to Note
Wale Edun, the Minister of Finance and Coordinating Minister of the Economy, recently confirmed that the federal government plans to issue $500 million in domestic foreign currency-denominated bonds within three to four weeks.
Addressing the potential for raising Eurobonds, Edun clarified that the government currently has no plans to pursue this route, contingent on the success of the domestic foreign currency-denominated bonds.
The International Monetary Fund (IMF) recently expressed concerns over the Nigerian government’s strategy to issue domestic dollar-denominated bonds, warning that this move could increase pressures on the naira and elevate costs associated with naira securities.
The IMF also noted that the federal government’s plan to introduce domestic foreign exchange securities, aimed at enhancing dollar liquidity in the official market, could fragment the market.
