The Federal Government on Thursday expanded the frontiers of the nation’s economy with the inauguration of foreign-currency-denominated domestic sovereign bond.
This will open up a new market segment for governments and companies.
Coordinating Minister of the Economy, Mr. Wale Edun, who inaugurated the bond, highlighted benefits derivable from it.
Experts said it would greatly lift investment and make funds available for capital projects.
The Series I $500 million Domestic FGN US Dollar Bond will open for auction on Monday.
This plan, the first in the country’s financial milieu, is a five-year bond with bi-annual interest payment in currency of issuance, and principal payment at the expiration of the tenor.
The bond will be listed on the Nigerian Exchange (NGX) and FMDQ Securities Exchange, providing liquidity and accessibility to a broad range of investors.
There are indications that the government could raise as much as $2 billion, the total size of the approved scalable bond issuance programme.
Nigeria’s sovereign bonds have seen huge investor appetite on the back of reforms by the Tinubu Administration, widely acclaimed for its investor-friendly stance.
While details of the bond will be released with the auction document on Monday, preliminary documents indicate a minimum subscription of $10,000, with additional investments in multiples of $1,000 thereafter.
The net proceeds of the inaugural issuance would be used mainly for investments in critical sectors of the economy in line with the economic developmental agenda.
Minister of Finance and Coordinating Minister of the Economy, Mr. Wale Edun, while unveiling the $500 million bond yesterday in Lagos, said it was a bold step towards economic transformation which will further attract local and international investors.
He explained that the bond issuance would expand the Nigerian financial system and provide the country the opportunity to tap the huge resources of its Diaspora community.
According to him, with the bond issuance, Nigeria will be able to access foreign currency held by Nigerians abroad, as well as other international investors who believe in the macroeconomic reform initiatives spearheaded by the Tinubu Administration.
“This historic initiative is aimed at raising a minimum of $500 million from both local and international investors, marking a significant step in Nigeria’s ongoing economic reform and development efforts,” Edun said.
He pointed out that the financial market thrives on creativity and innovation, adding that it is essential to encourage investors to participate in this strategic opportunity.
He highlighted the positive outcomes from the current economic policies as seen in increased government revenue, improved trade balance, ongoing capital expenditures, stability in the naira and the foreign exchange market and the taming of inflation, among others.
He noted that the government is working to permanently address the problem of food insecurity by revitalising the sector through mechanisation, expansion of agricultural participation and investments in emerging opportunities.
Edun highlighted the government’s successful interventions to reduce inflation and poverty, such as the removal of levies on food imports and the direct transfer of funds to the most vulnerable citizens.
He underscored the importance of dollar funding, particularly in stabilising the exchange rate, which he said is vital for the country’s economic stability.
Addressing the challenges faced by African nations in the international capital markets, Edun explained that the rating systems often do not favour the continent, while assuring that Nigeria aims to take the lead in building domestic and international confidence.
According to him, with the historic bond launch, Nigeria is poised to become a continental financial hub where other African nations can raise capital and drive economic growth.
Experts were unanimous yesterday on the importance and benefits of the new bond issuance.
Managing Director, Arthur Steven Asset Management, Mr. Olatunde Amolegbe, said Nigeria has a strange position of having a significant number of its citizens having huge deposits of dollars in domiciliary accounts earning nothing and not contributing significantly to economic activity.
He said the bond provides a platform for those seemingly idle funds to be invested and get good returns while still enjoying the hedging advantage of holding a reserve currency.
“This instrument also provides the Federal Government the much-needed dollar liquidity for the forex market which hopefully will lead to the strengthening of the naira.
“This could ultimately have a positive knock-on effect on inflation and consequently interest rates.
“This is also a positive move for the capital markets as it increases product variety and liquidity within the market,” Amolegbe said.
Managing Director, AIICO Capital, Dr Femi Ademola, said the domestic foreign currency-denominated bond is in fulfilment of the promise by the government to attract funding from Nigerians in the diaspora.
According to him, the bond allows Nigerians to invest their foreign currency in dollars, thus removing the fear of a loss of value due to naira devaluation.
“The success of this issuance will be a confidence boost for the country and the current administration.
“It would also allow the government to channel the remittances into more profitable ventures for investors.
“In terms of impacting the financial market, the effect will be the same as the issuance of Eurobonds. The instruments would be tradeable in the market, thus deepening the market further,” Ademola said.
Managing Director, HighCap Securities, Mr. David Adonri, explained that the domestic dollar bond will enable domiciliary account holders to earn good income on their generally non-interest yielding deposits in Nigerian banks.
He said the bond will reduce capital flight since interest payments will be retained in the local economy.
“Generally, it is an attractive investment outlet for domestic investors who have been yearning for investment in dollar-denominated assets locally. It will deepen the country’s capital market,” Adonri said.
He, however, noted the need for the government to ensure judicious use of the capital raised.
