The Federal Government of Nigeria has launched its Series I Domestic USD Bond, as it hopes to raise at least $500 million from local and international investors.
According to the auction circular seen by TheWitness, the federal government hopes to double its offer amount as it targets $1 billion in subscriptions through this bond auction.
However, this auction comes at a time when five of Nigeria’s Eurobonds were ranked among the worst performers in a Bloomberg index of emerging and frontier sovereign debt.
According to the circular, the bond program has a total size of up to $2.0 billion, which can be upsized depending on the issuer’s discretion.
The bond has a five-year tenor, offering a medium-term investment opportunity for investors looking for stable returns.
It was also stated that 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 and enhancing the bond’s appeal.
The bond offers bullet repayment at maturity in US dollars, ensuring full repayment of the principal amount at the end of the five-year term.
The bond is open to Nigerians and non-Nigerians resident in Nigeria, Nigerians in the Diaspora, and Qualified Institutional Investors.
Also, it 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. The bond will be settled in August 2024, aligning with the offer period.
The circular noted that the net proceeds from the bond will be ring-fenced and invested in critical sectors approved by the President on the recommendation of the Minister of Finance, subject to appropriation by the National Assembly (NASS).
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”).”
However, the government is yet to clarify the specific sector that 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 Services (FIRS).
The bond will be listed and admitted for trading on the Nigerian Exchange Limited (NGX) and the Financial Market Dealers Quotation (FMDQ), providing liquidity and accessibility to a broad range of investors.
Wale Edun, the Minister of Finance and Coordinating Minister of the Economy, earlier affirmed that the federal government plans to issue $500 million in domestic foreign currency-denominated bonds in three to four weeks’ time.
Addressing the potential for raising Eurobonds, Edun clarified that the government has no current 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.
The Fund warns that this move could exacerbate pressures on the naira and elevate the costs associated with naira securities.
It also noted that the federal government’s plan to introduce domestic foreign exchange securities, intended to enhance dollar liquidity in the official market, could fragment the market.
