FG sets guidelines for $500m domestic bond issuance
The federal government has rolled out initial guidelines for the issuance of a $500 million Series 1 domestic bond set to debut later this month.
The bond, which is the first dollar-denominated instrument to be launched locally, is five-year tenured and will offer a medium-term investment opportunity for investors looking for stable returns.
The bond is benchmarked against the federal government’s Eurobond yield.
Under this first series, the government hopes subscription could upscale to $1 billion, considering increasing appetite for Nigerian instruments.
But according to the document seen by BusinessDay, the size of the entire domestic dollar bond programme is $2 billion – though could be increased by the federal government if necessary.
The document also confirmed BusinessDay’s earlier report that repayment at maturity will be in issuing currency – the dollar.
Meanwhile, the Central Bank of Nigeria (CBN) has granted liquid asset status to the bond which qualifies the instrument for inclusion in the calculation of liquidity ratio for banks.
The bond is open to Nigerians and non-Nigerians resident in the country; Nigerians in Diaspora; as well as qualified institutional investors. Pension funds are also eligible to invest in the instrument.
The document confirmed that the bond offer, including its closing and settlement, will all happen this August as planned, though no specific days have been given just yet.
Minimum subscription is $10,000 with multiples of $1,000 thereafter.
As stated earlier in a Presidential Executive Order, the net proceeds and its accretion will be ring-fenced and then invested in critical sectors to be approved by the President- though on recommendation of the finance minister and subject to appropriation by the National Assembly.
Also, bond holders are exempted from income tax on accumulated interests. They will also enjoy some other exemptions as stated in a notice issued by the Federal Inland Revenue Service (FIRS).
The bond will be listed and admitted for trading on the Nigeria Stock Exchange as well as the Financial Markets Dealers Quotation (FMDQ).
Patience Oniha, director-general, Debt management Office (DMO), had told BusinessDay in April 2024 that the bond was another way of bringing dollar liquidity into the system.
“It’s like issuing FGN bonds in foreign currency,” she had clarified.
She had also explained that the difference between the foreign currency bond and the Eurobond is that it will be issued locally and not offshore.
Like the debut Eurobond issuance in 2011, the maiden forex bond is also expected to open up local issuance of similar bonds by companies and sub-nationals.
Oniha also assured that Know Your Customer (KYC) principles will strictly be applied, and this is to ensure compliance with the laws.
“The KYC will ensure that Nigeria aligns with the Financial Action Task Force (FATF) and certain conventions that the country had signed on to.”
The bond has been hailed as a good move, but there are concerns that it is coming at a time when five of Nigeria’s Eurobonds are being ranked among the worst performers.
Another worry is on the efficient utilisation of the proceeds as well as Nigeria’s debt status which the DMO puts at N121.67 trillion ($91.46bn) as at March 31, 2024.
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