$500m FGN bond promising to economy, investors — Expert
Prof. Uche Uwaleke, a distinguished financial expert and Professor of Capital Market at Nasarawa State University, has lauded the Federal Government’s recent $500 million domestic dollar bond issuance as highly beneficial for both the economy and investors.
Uwaleke, who also serves as President of the Capital Market Academics of Nigeria, shared his insights during an interview with journalists on Monday in Abuja.
Uwaleke emphasised that the bond offers several advantages.
“It provides an opportunity to earn risk-free returns on investments, particularly in a climate where dollar deposits with banks yield minimal interest,” he said.
The bond’s interest payments are exempt from income tax, presenting an attractive option for both retail and institutional investors looking to diversify their portfolios.
Additionally, Uwaleke noted that the bond provides a cheaper alternative for the government to meet its financing needs, especially given the current high costs of servicing domestic debt exacerbated by tight monetary policy.
The issuance of this dollar-denominated bond is expected to bolster the Naira as the dollars raised will be available for forex market interventions.
Uwaleke further explained that strong demand for the bond could encourage the government to explore more domestic dollar bonds, reducing reliance on the Naira bond market and freeing up capital for the private sector.
“This bond could deepen the capital market by increasing liquidity and potentially paving the way for local issuance of similar bonds by companies and sub-nationals,” he added.
The bond, part of a larger program with a total size of up to $2 billion, features a minimum subscription of $10,000 and integral multiples of $1,000 above this threshold. It will be repaid after five years in the same currency with semi-annual interest payments.
The bond will be listed on both the Nigerian Exchange (NGX) and the Financial Market Dealers Quotation (FMDQ), making it accessible to both non-resident Nigerians and domestic investors with dollar balances.
Despite these positive aspects, Uwaleke raised some concerns. He questioned the decision to set a five-year tenor for the debut issuance, suggesting that a shorter, two-year term might have been more prudent to test the market’s appetite.
He also expressed apprehension about potential pressure on the Naira and the need for robust safeguards to prevent misuse of the funds.
Uwaleke highlighted the importance of ensuring that the bond issuance does not inadvertently contribute to market fragmentation or increase the cost of Naira securities. He also stressed the need for effective clearing and settlement infrastructure, particularly for Nigerians in the diaspora.
Recall that the Federal Government, through the Debt Management Office (DMO), announced the issuance of the $500 million domestic dollar bond on Thursday, aiming to boost dollar liquidity and stabilise the exchange rate. Finance Minister Wale Edun underscored the critical role of dollar funding in achieving exchange rate stability.
