…Woos investors, opens $500m tax-exempt bond on Monday
… Eurobond option found to be costly
The Nigerian government’s $500 million issuance, scheduled for Monday, August 19, 2024, is set to enhance foreign currency reserves.
According to Wale Edun, minister of finance and coordinating minister of the economy, this move aims to stabilise the exchange rate, manage inflation, and ultimately reduce interest rates.
He said this at a roadshow in Lagos, wooing investors to a five-year tenor, tax-exempt first series FGN US dollar bond, adding that it is a strategic move to channel funds into sectors that will catalyse economic growth.
The Federal Government of Nigeria, through the Debt Management Office (DMO), on Thursday, unveiled a year tenor tax-exempt bond worth $500 million to local and foreign investors.
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Nigeria’s external reserves increased by 11.66 percent to $36.87 billion as of August 7, 2024 from $33.02 billion early, this year (January 2, 2024), before decelerating to $36.54 billion as of August 14, 2024, according to data from the Central Bank of Nigeria.
Nigeria initially planned to issue a Eurobond this year, but opted to postpone it in favour of launching its first dollar bond on the domestic market. This move is aimed at funding the budget deficit and stabilising the weak naira.
The bond, which has a face value of $500 million, will be accessible to a broad range of investors. The minimum investment amount is set at $10,000, with additional investments allowed in increments of $1,000. This structure is intended to enable wider participation among investors, both within Nigeria and the diaspora.
“We are pleased to announce the successful launch of this crucial domestic issuance of Federal Government U.S. dollar bonds to the investing public and other stakeholders. Under President Bola Tinubu, the macroeconomic reforms have made bold and courageous strides to stabilise the economy while fostering innovation, creativity, and imagination among all economic actors, including those in the financial markets,” Edun stated.
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He added, “This historic issuance will provide essential foreign exchange liquidity and boost reserves, which will help stabilise the exchange rate, manage inflation, and eventually lower interest rates. It will also lay the foundation for increased investment by both domestic and foreign direct investors.”
“We already experience a significant influx of foreign portfolio investments, and this will further enhance it. On liquidity and risk management, the Nigerian economy currently generates about $55 billion in export revenue, which is expected to grow in both the oil and non-oil sectors. This growth will help manage liquidity and foreign exchange risks associated with raising and repaying these funds. Additionally, it introduces another avenue for foreign exchange financing, complementing the export sector and the Eurobond market.
This historic transaction allows us to tap into foreign exchange funding domestically by engaging Nigerians both in the diaspora and those who keep their savings abroad. It offers them an opportunity to support the Nigerian economy while enjoying a competitive and secure investment.”
In his presentation, Gbadebo Adenrele, managing director of United Capital, said, “One of the key aspects of this bond issuance is that it will be listed on platforms such as the Nigerian Exchange and FMDQ, making it accessible to a variety of investors. The principal will be repaid after five years, with interest payments made every six months. This structured repayment schedule is designed to provide confidence to investors.”
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Responding to a question asked by one of the investors on the issued confidence, Edun said, “This domestic issuance of the Federal Government U.S. dollar bond has been meticulously planned and executed. It originated from an executive order signed by the president, authorising the issuance of a dollar bond within the framework of the domestic capital market and financial regulatory system.
“Crafted by the top experts in the Nigerian capital markets, who adhere to global best practices, this inaugural $500 million series is expected to be well-received by the market. We anticipate it will be fully subscribed, with demand potentially surpassing supply. This confidence stems from our belief in the strength of our financial system, the expertise of our financial professionals, and the trust that global and domestic investors have in this domestic dollar bond issuance.”
