$500m FGN bond promising to economy, investors – Uwaleke

A financial expert, Uche Uwaleke, says the recently unveiled $500 million FGN bond would benefit the economy and investors.

Uwaleke, a professor of Capital Market at the Nasarawa State University, Keffi, is also the president of Capital Market Academics of Nigeria.

He said this in an interview with NAN in Abuja. According to him, the bond issuance holds a lot of promise to investors and the economy in general.

“It provides an opportunity to earn a risk-free return on investments given that dollar deposits with banks attract little or no interest. The interest payable to bondholders is exempted from income tax; it allows retail and institutional investors to diversify their portfolios.

“It provides an alternative cheaper source to meeting government’s financing needs in a period where the cost of servicing domestic debt is made more expensive by hawkish monetary policy,” he said.

He said that the dollar-denominated bond would help to strengthen the Naira since the dollars raised would be available for intervention in the forex market.

Uwaleke said that a high demand for this debut bond would embolden the government to further explore the domestic dollar bonds market, which would reduce the Federal Government’s incursion into the Naira bond market.

“This will help to free up capital for the private sector. It promises to deepen the capital market following increased liquidity in the market on the back of the new asset class.

“Like the debut Eurobond issuance in 2011, the maiden domestic dollar bond is expected to open up local issuance of similar bonds by companies and sub-nationals. The benefits of the domestic dollar bonds outweigh the costs,” he said.

He noted that the other was expected that the net proceeds would be ring-fenced and invested in critical sectors of the economy such as agriculture, education and health.

According to him, the domestic dollar bond will be the first of its kind in the country and is part of a bond programme.

He said that the program had a total size of up to two billion dollars with the minimum subscription at 10,000 dollars and integral multiples of 1,000 dollars above the minimum size.

“The principal will be repaid after five years in the same currency it is issued, with interest payments made every six months.

“The bond will be listed and admitted for trading on the Nigerian Exchange (NGX) and the Financial Market Dealers Quotation (FMDQ).

“This will make it accessible to both non-resident Nigerians and investors resident in Nigeria who have dollar balances in their foreign currency accounts. The settlement date for the domestic dollar bond auction will likely be 10 days after the auction date,’’ he said.

He, however, said that it was not yet clear what the indicative pricing would be and that the expectation was that it would be attractive enough to lure a broad category of prospective investors.