FGN Bonds record first undersubscription in 2 years
Patience Oniha, Director-General, Debt Management Office

The Federal Government, will on Wednesday, March 27, 2019, auction bonds valued at N100 billion by subscription. The Debt Management Office (DMO), disclosed this in a circular.

While the auction has been scheduled to hold on the said date, the settlement of the bonds has been slated for Friday, March 29, 2019.

How the N100 billion will be explored

The breakdown of the figure includes a N40 billion five-year reopening bond that would mature in April 2023 and be offered at 12.75 per cent. Another N40 billion seven-year reopening bond that will mature in March 2025 will be auctioned at 13.53 per cent. Also, another N20 billion 10-year bond that will mature in February 2028 will be auctioned at 13.98 per cent.

In the issued circular, the Dept Management Office also disclosed the following-

“The units of sale will be N1, 000 per unit, subject to a minimum subscription of N50,001,000 and in multiples of N1,000 thereafter.

“For re-opening of previously issued bonds, (where the coupon is already set), successful bidders will pay a price corresponding to the yield-to-maturity bid that clears the volume being auctioned, plus any accrued interest on the instrument.”

In the meantime, the DMO will, on behalf of the Federal Government, offer the amounts for subscription by auction. It has been authorised to receive applications for them.

Understanding bonds

A bond is a fixed income instrument that represents a loan made by an investor to a borrower (typically corporate or governmental). A bond could be thought of as an I.O.U. between the lender and borrower that includes the details of the loan and its payments. A bond has an end date when the principal of the loan is due to be paid to the bond owner and usually includes the terms for variable or fixed interest payments that will be made by the borrower.

Bonds are used by companies, municipalities, states, and sovereign governments to finance projects and operations. Owners of bonds are debt holders, or creditors, of the issuer.

When companies or other entities need to raise money to finance new projects, maintain ongoing operations, or refinance existing debts, they may issue bonds directly to investors. The borrower (issuer) issues a bond that includes the terms of the loan, interest payments that will be made, and the time at which the loaned funds (bond principal) must be paid back (maturity date).

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