Nigeria eyes domestic, foreign capital with $500m tax-exempt bond

…Edun says bond to raise external reserves

Nigeria is moving to channel domestic and foreign capital into infrastructure and other critical sectors with its new $500 million tax-exempt bond to local and foreign investors.

The bond, unveiled Thursday through the Debt Management Office (DMO), has a face value of $500 million and will be accessible to a broad range of investors. The minimum investment amount is $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.

“This bond issuance is more than just a financial instrument; it is a strategic move to channel funds into sectors that will catalyse economic growth,” Wale Edun, minister of finance and coordinating minister of the economy, said at the roadshow in Lagos.

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“This bond issuance is just the beginning,” noted Edun. “We aim to mobilise resources effectively and channel them into the country’s development needs. This initiative aligns with our broader strategy to utilise both domestic and foreign capital for infrastructure and other critical sectors.”

According to Edun, the Nigerian Government’s $500 million issuance, scheduled for Monday, August 19, 2024, is set to enhance foreign currency reserves.

Nigeria’s external reserves increased by 11.66 percent to $36.87 billion as of August 7, 2024 from $33.02 billion on January 2, 2024, before decelerating to $36.54 billion as of August 14, 2024, according to data from the Central Bank of Nigeria (CBN).

Nigeria initially planned to issue a Eurobond this year, but opted to postpone it in favor of launching its first dollar bond on the domestic market. This move is aimed at funding the budget deficit and stabilising the weakened naira.

“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,” the minister noted.

“We already experience a significant influx of foreign portfolio investments, and this will further enhance it. Regarding liquidity and risk management, the Nigerian economy currently generates about $55 billion in export revenues, 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.”

He said the transaction allows the government to tap into foreign exchange funding domestically by engaging Nigerians 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.”

Responding to a question asked by one of the investors regarding why the bond should be purchased, 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.

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“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 U.S. dollar bond issuance.”

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.”