Jamiu Agah, a Lagos-based information technology consultant, would have had to wait 10 more years to invest in a Nigerian Eurobond and start getting the best out of his dollar savings.
The 33-year-old IT expert earns about $50,000 per annum working remotely for a tech start-up in the U.S and he manages to save 30 percent of that – $15 ,000 – every year.
In those three years, he has saved up $45,000, which leaves him with another 10 years to go before he is able to fully save up the $200,000 minimum subscription amount required to invest in a Eurobond, an asset he covets for its stable dollar returns.
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Enters Nigeria’s domestic dollar bond.
He can cut down his waiting time to zero with the domestic dollar bond. That’s because with $10,000 Jamiu can invest in the bond and enjoy stable payouts in dollars.
With one week of primary trading under its belt and five more days to go, the Federal Government’s domestic dollar bond, a $2 billion programme to be raised in four batches of $500 million each, offers a coupon of 9.75 percent and the interest is paid in dollars.
The bond not only lowers the barrier of entry for several thousands of Nigerians like Jamiu, it also offers better returns to investors in Nigerian Eurobonds.
At 9.75 percent, the coupon of the five-year domestic dollar bond exceeds the 9.58 percent yield on the Federal Government’s $1.25 billion 2029 Eurobond which matures in five years’ time.
Nigerians living abroad have taken to the domestic dollar bond like bees to honey, according to Chuka Nwachukwu, group head, Assets and Liability Management, United Bank for Africa (UBA).
“Participation in the domestic dollar bond has been quite good and highly encouraging,” Nwachukwu said.
“Nigerians in diaspora have taken to it. They see it as an opportunity to invest in Nigeria,” Nwachukwu said.
The domestic dollar bond is open to Nigerians resident in Nigeria, Nigerians in the diaspora, foreign and institutional investors.
“I am investing for the returns,” a Nigerian living in Canada said. “It’s better than the current rate I get.”
Read also: Nigeria opens subscription for five-year domestic dollar bond at 9.75%
Supercharged retail investors
With a minimum subscription amount of $10,000, the government is also targeting supercharged retail investors with the domestic dollar bond.
Retail investors helped power a surge in the stock market in 2023, doubling their appetite from the previous year to N1.12 trillion. Their trading accounted for more than a third of total domestic trading of N3.1 trillion, according to data from the NGX.
Nigerians had about $30 billion in their domiciliary accounts as at the end of 2023, according to data from the Central Bank of Nigeria (CBN).
Several restrictions aimed at Nigerians with dollars in domiciliary accounts had knocked confidence in the banking system. With those restrictions making way, under the leadership of new CBN governor Olayemi Cardoso, confidence is gradually returning, according to analysts.
The rise and fall of Ghana’s domestic dollar bond
In 2016, Ghana issued a dollar-denominated domestic bond to investors resident in the West African country.
The $94.64 million bond was for two years, different from Nigeria’s five-year bond. The coupon rate of Ghana’s domestic dollar bond at the time was six percent.
The bond would attract 26 bids totaling $99.64 million, as it was oversubscribed by $5 million.
The allure of Ghana’s domestic dollar bonds have however turned sour after the country slumped into a debt crisis that sparked debt restructuring.
Read also: FG set for US dollar bond hybrid roadshow in Lagos
Why dollar assets?
Fixed income dollar assets, with the promise of returns in dollars, are highly coveted in Nigeria as they serve as a hedge against the volatile naira which has tumbled by nearly 100 percent since market reforms by the new government mid last year.
Ibrahim Tajudeen, head of research and strategy, ChapelHill Denham, explained that it is an excellent investment for Nigerians in Nigeria and those in the diaspora.
“It is a great investment opportunity for the diaspora as it offers higher returns as opposed to what is attainable in the countries they reside – where interest rates and yields on bonds are not more than three to four percent.”
