DMO to auction N225 billion worth of FGN bonds in June 2022

The Debt Management Office (DMO) on behalf of the Federal government has offered for subscription N225 billion worth of FGN bonds by auction in June 2022.

This is according to a disclosure published on the website of the agency. The bonds were listed in three tranches, each with N50 billion.

• N75 billion – 13.53% FGN Mar 2025 (10-yr Re-opening)
• N75 billion – 12.50% FGN Apr 2032 (10-yr Re-opening)
• N75 billion – 13.00% FGN Jan 2042 (20-yr Re-opening)

Auction Date – June 20, 2022

Settlement Date – June 22, 2022

Summary of offer

Issuer: Federal Government of Nigeria (“FGN”)

Units Of Sale: N1,000 per unit subject to a minimum subscription of N50 million and in multiples of N1,000 thereafter.

Interest rate: For Re-openings 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 accrued interest from the original issue date.

Interest payment: Payable semi-annually.

Redemption: Bullet repayment on the maturity date.

Status:

• It qualifies as securities in which trustees can invest under the Trustee Investment Act
• It also qualifies as Government securities within the meaning of Company Income Tax Act (“CITA”) and Personal Income Tax Act (“PITA”) for Tax Exemption for Pension Funds among other investors
• It is listed on the Nigerian Stock Exchange
• All FGN Bonds qualify as liquid assets for liquidity ratio calculation for banks

It is worth noting that FGN Bonds are backed by the full faith and credit of the Federal Government of Nigeria and are charged upon the general assets of Nigeria

Backstory

• The DMO had issued a similar bond worth N225 billion for subscription by auction in May 2022. The bonds were also issued in three tranches with 13.53%, 12.5%, and 13% for the 10-year reopening bond, 10-year reopening bond, and 20-year reopening bond respectively.
• Recall that the Central Bank in its last Monetary Policy Meeting (MPC) raised the benchmark interest rate for the first time since July 2016, raising the MPR by 150 basis points to 13% from 11.5%. This triggered an increase in the FGN Savings bond interest rate issued by the Debt Management Office.
• Notably, the June 2022 FGN Savings bond interest rate rose to 8.205% for the 2-year bond, while the 3-year bond stood at 9.205% from 7.934% and 8.934% recorded in the previous month respectively.

What you should know about 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 the 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.