The Nigerian Federal Government has introduced its Series I Domestic USD Bond, intending to raise a minimum of $500 million from both local and international investors.
The government aims to double this amount, seeking $1 billion in total subscriptions through this bond auction.
This move comes at a time when Nigeria’s economic landscape is fraught with difficulties. Five of Nigeria’s Eurobonds are currently among the worst performers in a Bloomberg index of emerging and frontier sovereign debt. Despite these challenges, the government remains optimistic about the bond’s potential success.
The bond program, which has a total size of up to $2.0 billion, offers a five-year tenor and medium-term investment opportunities.
The bond’s coupon rate is benchmarked to comparable FGN Eurobonds yields, ensuring competitive returns that align with international market standards. Interest payments will be made semi-annually, providing regular income streams to investors, with bullet repayment at maturity in US dollars, ensuring full repayment of the principal amount at the end of the term.
The bond is open to Nigerians and non-Nigerians residing in Nigeria, Nigerians in the diaspora, and qualified institutional investors. It also qualifies as an investment option for pension funds, broadening its investor base. Subscriptions start at a minimum of $10,000, with additional investments in multiples of $1,000.
The offer will begin and end in August 2024, with exact dates to be revealed shortly. Settlement is also scheduled for August 2024, aligning with the offer period.
According to the auction circular, the net proceeds from the bond will be ring-fenced and invested in critical sectors approved by the President, following recommendations from the Minister of Finance and subject to appropriation by the National Assembly. However, the government has yet to clarify which specific sectors will benefit from this financing.
It read, “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’).”
To enhance its appeal, the bond is exempt from income tax on the interest payable to bondholders, with additional exemptions specified by the Federal Inland Revenue Services (FIRS).
Furthermore, 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.
Finance Minister, Wale Edun confirmed the government’s plan to issue these domestic foreign currency-denominated bonds within the next few weeks.
He clarified that, for now, the government has no plans to issue Eurobonds, contingent on the success of this domestic initiative.
However, the International Monetary Fund (IMF) has expressed concerns over this strategy, warning that it could exacerbate pressures on the naira and elevate costs associated with naira securities.
The IMF also noted that the introduction of domestic foreign exchange securities might fragment the market.