FG slashes bond offering to N150bn in Sept auction amidst economic pressures
By Esther Agbo
The Federal Government of Nigeria, through the Debt Management Office (DMO), plans to raise N150 billion from the bond market in September 2024.
This figure marks one of the smallest bond offerings of the year, signalling a shift in the government’s borrowing approach amid ongoing economic pressures.
Scheduled for September 23, 2024, the bond auction represents a 21 percent decrease from the August offering, pointing to a tempered strategy aimed at balancing the nation’s fiscal needs with market demand.
The decision to reduce the bond volume indicates the government’s awareness of the challenges in securing domestic financing, as investor confidence fluctuates due to the broader economic landscape.
The bond market is a key pillar in funding the government’s budgetary shortfall, but recent trends suggest a weakening appetite for federal debt instruments.
Analysts point to inflationary concerns, rising interest rates, and an increasingly volatile global financial environment as reasons for declining demand.
While the government seeks to raise capital, the conservative N150 billion offering underscores its recognition of these headwinds.
Despite the reduced size, the bonds come with attractive yields, they include a N70 billion tranche of the 19.30 per cent FGN APR 2029 (5-year bond), a N50 billion tranche of the 18.50 per cent FGN FEB 2031 (7-year bond), and a N30 billion tranche of the 19.89 per cent FGN MAY 2033 (9-year bond).
These high coupon rates, however, reflect the rising cost of borrowing for the government and the premium investors now require to engage in long-term commitments.
With a minimum subscription of N50,001,000, the September bond auction will be sold in units of N1,000 each, and in multiples of N1,000 thereafter. It’s clearly targeting institutional investors, including pension funds, other large-scale financial institutions and insurance companies. High-net-worth individuals can also participate.
Moreover, one of the significant benefits of investing in FGN bonds is the tax exemption they offer under Nigerian law.
As government securities, they are exempt from taxes under the Company Income Tax Act (CITA) and the Personal Income Tax Act (PITA), making them especially attractive to institutional investors, such as pension funds, that seek tax-efficient investment options.
The settlement date for this bond issuance is September 25, 2024, when successful bidders will pay for the bonds they have been allocated and officially receive their bond certificates. These bonds offer semi-annual interest payments, with the principal repaid at maturity. They are fully backed by the Nigerian government, making them a reliable investment option.
Additionally, the bonds are listed on the Nigerian Exchange Limited and FMDQ OTC Securities Exchange, allowing investors to trade them in the secondary market. They also qualify as suitable investments for trustees under the Trustee Investment Act and meet liquidity ratio requirements for banks.
